The government has published the final version of The Equality Act 2010 (Gender Pay Gap Information) Regulations 2017.
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.
Employers caught by the Regulations will be required to publish the following information on an annual basis:
'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)):
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:
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.
The annual bonus reporting provisions are largely unchanged save for two useful clarifications that:
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.
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 firstname.lastname@example.org.