News

Mandatory gender pay gap reporting for large employers to be introduced

By: Amanda Steadman

Submitted by Firm:
Addleshaw Goddard
Firm Contacts:
Michael Leftley, Sarah Harrop
Article Type:
Legal Article
Share:

The Government has conceded an amendment to the Small Business, Enterprise and Employment Act 2015 which will require employers with 250 or more employees to report on the gender pay gap within their business. It is expected that this reform will come into force in Spring 2016.

The gender pay gap

In November 2014 the Office of National Statistics published a report revealing that in the year to April 2014, the gender pay gap for all employees stood at 19.1%, down from 19.8% in 2013. The gap has also decreased in the long-term, from 27.5% in 1997. Despite the decrease in the pay gap, the rate of progress is widely-considered to be too slow. Indeed, a recent report by statistics agency, Eurostat, has shown that the UK has the 6th largest gender pay gap in the European Union.

Mandatory pay audits

In October 2014 Employment Tribunals were given the power to order an employer to undertake an equal pay audit where it decided that the employer had: (i) failed to comply with equal pay legislation; or (ii) discriminated on the grounds of sex in non-contractual pay matters. Where ordered, the employer must place a copy of the audit on its website for 3 years and inform "all persons about whom relevant gender pay information was included in the audit" where they can obtain a copy.

However, such audits are a punitive measure against only those very few employers who are found to have breached equal pay legislation. Annual Employment Tribunal statistics show that there were no successful equal pay claims at hearing in the years 2011-12 or 2012-13 (and only one per year in the two preceding years). The numbers of sex discrimination claims which were successful at hearing were similarly low, with only two successful claims in the years 2011-12 and 2012-13 (and only two per year in the two preceding years). The impact of the audit regime on closing the gender pay gap is, therefore, going to be minimal.

Voluntary pay gap reporting

Outside of the audit regime, there is no statutory obligation for employers to publish gender pay gap information. Although section 78 of the Equality Act 2010 contains a power to make regulations requiring employers with at least 250 employees to publish gender pay gap information, no regulations have been made to date.

Instead, the Government favoured voluntary gender pay reporting under the Think, Act, Report scheme. Whilst more than 275 employers joined the scheme, only four of them went on to publish their gender pay gap information and only two of those included information about different pay grades. Accordingly, the scheme was branded a "flop" by shadow Women and Equalities minister, Gloria del Piero.

What's changing?

Both Labour and the Liberal Democrats have been pressing for the introduction of compulsory gender pay gap reporting. On 16 December 2014, Labour MP, Sarah Champion, introduced a Private Member's Bill aimed at bringing section 78 of the Equality Act 2010 into force. The motion was passed by an overwhelming majority: 258 yes votes to 8 no votes. However, the motion was introduced by the "Ten Minute Motion Rule" which is a means for backbench MPs to introduce a bill into the Commons. Such motions are often used to make a point on a need to change the law, rather than there being a realistic prospect of the bill being passed.

However, at the same time, the Liberal Democrats lobbied for an amendment to the Small Business, Enterprise and Employment Act 2015 to achieve the same outcome. The Government recently conceded the amendment to the Act (new section 147), which requires regulations under section 78 of the Equality Act 2010 to be made within 12 months of the Act coming into force. The Act received Royal Assent on 26 March 2015. This means that from Spring 2016, employers with 250 or more employees will have to publish gender pay gap information on an annual basis.

Regulations will specify the precise information that must be included in the reports. At the time of writing, these have not been published. However, it is possible that the reports will need to be broken down to show the hourly rate of employees by gender and also the full-time, part-time and overall gender pay gaps. Employers may also be asked to publish the difference between starting salaries; average basic pay; and total average earnings broken down by grade and job type and reward components e.g. bonuses. The penalty for non-compliance is likely to be £5,000, although reputational damage is likely to be of greater concern.

Comment

Although this reform is a year away, large employers should consider now how they will approach gathering the relevant data. Will this task be dealt with internally? If so, by whom? It will be important to identify individuals with a good understanding of equal pay principles and law and who have the skills to collect and analyse the data. This may require employers to offer training and ensure sufficient resources are made available to conduct the exercise.

Small Business, Enterprise and Employment Act 2015