Final draft of the Gender Pay Gap Reporting Regulations issued by the GEO

Final draft of the GPG Reporting Regulations

The government has published the final version of The Equality Act 2010 (Gender Pay Gap Information) Regulations 2017.

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The government has published the final version of The Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 (the Regulations). The Regulations are still subject to parliamentary approval, but set out the final version of the statutory framework for the new gender pay gap (GPG) reporting requirements. They should come into force on 6 April 2017.

Who do the Regulations apply to?

The Regulations apply to private sector employers in England, Wales and Scotland with at least 250 employees. The government will be issuing separate regulations in respect of GPG reporting in the public sector.

What are employers required to do?

Employers caught by the Regulations will be required to publish the following information on an annual basis:

  • The difference between the mean hourly rate of pay of relevant male employees and that of relevant female employees;
  • The difference between the median hourly rate of pay of relevant male employees and that of relevant female employees;
  • The difference between the mean bonus pay paid to relevant male employees and that paid to relevant female employees;
  • The difference between the median bonus pay paid to relevant male employees and that paid to relevant female employees;
  • The proportions of relevant male and female employees who were paid bonus pay in the relevant 12 month period; and
  • The proportions of relevant male and female employees in four notional quartile pay bands.

'Pay' reporting will still focus on an April 'snapshot', looking at the 'relevant pay period' during which the relevant date of 5 April falls, whether weekly, fortnightly, monthly , or the period when ordinary pay is most frequently paid. Bonus reporting will look at annual bonus payments in the year preceding the relevant date. 

This information will need to be published (together with a written statement confirming that the information is accurate and signed by a company director (or equivalent in other legal forms)):

  • On the employer's website in a manner that is accessible to employees and the public and for a period of at least 3 years from the date of publication; and
  • On a government website which we understand will produce sector league tables.

Which employees do the Regulations apply to?

  • The explanatory note to the Regulations confirms that the definition of 'employee' set out in the Equality Act 2010 applies. This is a wide definition, extending coverage of the Regulations to some categories of 'contractors' who 'personally do work'.
  • This wider definition of employee has caused some anxiety amongst employers, both because it will inevitably be harder to determine exactly who is caught outside of the standard 'employed' workforce, and because very often central data is not held in respect of contractors.
  • It is therefore of some comfort that the Regulations state that an employer does not have to include data in respect of employees if they do not have, and it is not reasonably practicable for the employer to obtain, their data. This wording did not appear in the draft version of the Regulations. It will still be a matter for employers to determine what is reasonably practicable and, inevitably, the size and sophistication of an employer will be relevant. It is not the case that the Government will have intended this to be used by employers to avoid the obligation to report in respect of contractors, but it at least makes the reporting pragmatic.
  • Another cause of anxiety was that this wider definition of employee would include partners.  However, professional services firms can breathe a sigh of relief, since the Regulations now expressly exclude partners and LLP members from the definition of 'employee'.
  • The Regulations only apply to 'full-pay relevant employees'. This wording simplifies the scope of 'relevant employee' from the original drafting.  What it means is that if an employee receives less than full pay during the pay period due to being on certain types of defined 'leave' (principally maternity leave and sick leave), they should not be included in the 'pay' calculations at all. It does not serve to exclude those working part-time or on other flexible arrangements from the Regulations.
  • This exclusion of employees on reduced pay is a welcome change from the draft Regulations. It ensures that employees on such leave do not have their (lawfully) reduced pay included in calculation, when it is not a true representation of their normal pay and would otherwise skew the GPG figure.
  • Finally, the Regulations clarify that GPG reporting is only required in respect of 'relevant employees' who are those employed on the 'relevant date' of 5 April 2016.  The relevant date has changed from 30 April, and was widely trailed in advance of the final Regulations being issued, particularly in the draft public sector GPG regulations.

Pay

The definition of 'pay' is still likely to be a cause for concern and questions. As expected, pay includes 'basic pay, allowances, pay for piecework, pay for leave and shift premium pay'.

These pay elements are not contentious. Helpfully, the Regulations give further clarity  that 'allowances' are defined to include any sum paid in respect of:

  • Any duty of the employee that is ancillary to the main duties (e.g. a fire warden or first aider);
  • Location of employment in a particular area;  
  • Purchase, lease or maintenance of a vehicle;
  • Recruitment/retention of an employee; and
  • Purchase/lease or maintenance of an item.

Many employers will be disappointed that, despite heavy lobbying, the definition of pay continues to exclude overtime. This remains a curious exclusion given the direction of travel of how overtime is considered in other pay contexts, such as holiday pay. 

The other exclusions of redundancy/termination payments, pay in lieu of leave and remuneration otherwise than in money (benefits in kind, such as company cars) are unchanged.

The Regulations are silent as to how to deal with remuneration which is subject to salary sacrifice. This is unexpected, since the draft Regulations were explicit in excluding the value of salary sacrifice arrangements. 

There is an argument that under Reg. 1(3) (which states that pay is calculated before deductions are made at source) that pay before salary sacrifice should be considered.  However, since salary sacrifice operates as a 'reduction' rather than 'deduction' the more likely interpretation is that post salary sacrifice pay should be considered, and benefits received through salary sacrifices (and benefits in kind) should be excluded from ordinary pay. This is because Regulation 3(2)(d) excludes 'remuneration provided otherwise than in money'.  However, this is not clear and it is hoped further clarity will be given in guidance accompanying the Regulations, which has not yet been issued.

Calculating the Gross Hourly Rate of Pay

The Regulations provide clarity on how to calculate the hourly rate of pay, setting out a detailed step by step formula in Regulation 6.

The Regulations differentiate between employees with normal and no normal working hours.  For employees with normal working hours which do not change from week to week, hours are determined by reference to the employment contract in force at the snapshot date. For employees with no normal working hours, the Regulations borrow concepts from the Working Time Regulations. Employers have the option of averaging working hours over a 12 week period or determining a 'fair representation' by reference to the average hours expected over a 12 week period taking into account the hours typically worked by other employees engaged in comparable employment. Arguably this may help remove fluctuations between reporting years as it takes into account a longer period but it inevitably increases the work involved in reaching the GPG figure. One clarification which may not be popular is the concept of 'on call' time which will need to be considered in line with national minimum wage principles. Employees may encounter practical difficulties separating out the on call time from other working time data held in the system, and this may impact on how accurate the data analysis is.

Bonus Reporting

The annual bonus reporting provisions are largely unchanged save for two useful clarifications that:

  • Only employees employed on 5 April need to be included in the calculations; and  
  • Non-cash bonuses such as securities and cash values of shares should be included in the calculations at the point when the employee becomes liable to tax on them (in other words, when they vest).

Quartiles

As expected, the Regulations clarify that employee, rather than pay, quartiles need to be published. This will be achieved by dividing the workforce into four equal quartiles from the lowest to the highest paid. This clarification was widely trailed and expected.

Publication of GPG

The GPG figures must be accompanied by a written statement confirming the information is accurate. This statement must be signed by a director of a company, a partner of a partnership or member of an LLP.  This tightens the wording in the draft and cements GPG reporting as a Board/Executive issue.

Conclusion

The GPG final regulations provide much needed clarity to employers on the scope of the legislation and the process to be carried out to calculate the pay and bonus GPG figures. We expect that the guidance which will be issued to sit alongside these Regulations, will provide further assistance to ensure employers are ready to comply with their statutory obligation to report their year one GPG figures by no later than April 2018.

If you would like to discuss these changes further, please get in touch with your normal KPMG contact or email employersclub@kpmg.co.uk.

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