The UK's new Gender Pay Gap legislation came into force in the spring of 2017. It requires businesses with more than 250 employees to file annual reports detailing the exact status of relative compensation to men and women in their organisation. We take a look at how the legislation works, what obligations it creates for employers and ask whether smaller businesses can just forget it. Or not.
Companies with more than 250 employees are now required to publish statutory calculations every year that show how big the pay gap is between their male and female employees. This information must be made available in full and verified by a named officer of the company on the firm’s website and also on a government site. Employers are also permitted to publish a narrative to explain and give context to their results and also to outline their plans and strategies to reduce the gap or eliminate it. The objective is to focus employers’ minds on taking action to reduce or eliminate their gender pay gaps.
What is a Gender Pay Gap?
The first thing to understand is that the Gender Pay Gap is NOT the same as Equal Pay. Equal pay refers to how much men and women are paid for the same or similar jobs or for work of equal value
A company’s gender pay gap is the difference in the average pay between all the men and all the women in a workforce.
Reporting on the gender pay gap is based on a set of statutory calculations and procedures as well as definitions of what counts as employment and what types of pay should be included or discounted. It is designed to produce comparable figures for all businesses. The idea is to assist employers in identifying problem areas and reveal where action can be taken to improve.
What are the calculations?
There are 6 different calculations that are performed in order to comply with the legislation and deliver an accurate report based on a snapshot of the company's actual payments to employees defined as relevant (there are exclusions, such as those not currently earning anything because they are on extended leave, eg maternity or sickness) April to April.
The Median and Mean Average Pay Gaps:
These calculate the difference in full time men's and women's hourly rates. The reportable result is shown as a percentage of the men's pay so that a positive result shows that the men earn more than the women and a negative, that the women earn more than their male counterparts.
The Median and Mean Average Bonus Pay Gaps:
These calculate the difference in full time men's and women's bonuses. Again, the reportable result is shown as a percentage of the male employees' bonus payments
The Bonus Pay Proportion:
This reports what proportion (%) of relevant male employees received a bonus and, similarly, what proportion of relevant women.
Employees are divided into 4 groups based on lowest to highest pay and the proportion of men and women in each group is calculated.
How are the results reported?
Companies who are obligated to comply with the legislation are required to publish their reports annually both on their own website and on a government website. The report must be formally validated by a written statement from a senior company official.
Employers are permitted to provide a narrative to explain and give context to their results and also to outline their plans and strategies to reduce or eliminate their reported gap.
This requirement is expected to have an impact not only in terms of creating a more level playing field for men and women, but also on the economy because research has shown that the more diverse a company's workforce is, especially at senior levels, the better it performs.
McKinsey & Co, who conducted the research and published their report Why Diversity Matters in 2015, revealed that companies with the best gender diversity profiles were 15% more likely to produce better financial results than their less diverse competitors.
"We know intuitively that diversity matters. It’s also increasingly clear that it makes sense in purely business terms. Our latest research finds that companies in the top quartile for gender or racial and ethnic diversity are more likely to have financial returns above their national industry medians. Companies in the bottom quartile in these dimensions are statistically less likely to achieve above-average returns. And diversity is probably a competitive differentiator that shifts market share toward more diverse companies over time."
Does this matter for smaller businesses?
For companies that fall below the threshold where compliance is an obligation there is still a great deal to be gained from taking your own gender pay balance seriously:
- Companies who are near the 250 employee threshold or who have plans to expand should be building positive diversity policies and efforts to close their gender pay gap into their plans.
- If this new legislation is as successful as is hoped, not just in reducing inequality but in boosting economic performance regionally and nationally then there are likely to be calls to extend it so it's wise to be aware an work towards a positive status on Gender Pay for your firm.
- If it is seen to be a success for individual companies, then you can be sure that even more investors, lenders and potential buyers will be looking to see what you have done about diversity and gender pay and how successfully. It's looking very clear that time is up for employers with a sluggish attitude towards these issues. Time to get with the program.
- An ACAS information sheet on The Top 10 Myths about Gender Pay Reporting may help you bring any of your in house sceptics and general grumblers about issues involving equality on board. The McKinsey & Co report, Why Diversity Matters we mentioned above may well surprise some with the very clear commercial case too.
- With public reporting now a requirement for the larger employers Gender Pay will undoubtedly become a more noticeable factor in your customers' perception of your brand. However big or small your business is, you would do well to make it known it is a priority for you.
- Positive Gender Pay initiatives and good published results will have a keen influence, even a deciding factor, on your success in recruiting the best candidates in the market. You may well be very glad that you can highlight equal or better gender pay gap and diversity policies in general compared to the large employers in your area with whom you compete for staff.
- If you need help with the complex administrative process involved in compliance with the new law and preparing and delivering your report and narrative, Tiger HR can help you to deal with both the reporting process as well as putting in place strategies and training to move your diversity and pay gap policies and initiatives forward