Pay Gap Transparency and Reporting: A Step Towards Workplace Equality
Introduction
Pay transparency and reporting are ways of contributing to better equality between employees. This is because this demonstrates an organisation’s commitment to taking action to address inequality in the workplace. Research in 2017 by the Equality and Human Rights Commission (EHRC) shows that the pay gaps experienced by women, ethnic minorities and disabled people arise largely from the barriers they face obtaining and progressing at work. Narrowing the gap helps employers attract and retain the best talent as well as helping to enhance an employer’s reputation and brand.
In 2017 the Gender Pay Gap Information Regulations (the Regulations) were introduced requiring large employers to report annually on their gender pay gap. However, despite having undertaken consultations on ethnicity pay gap reporting and disability employment pay gap reporting, the government is not proposing to introduce mandatory requirements to do so in either case.
We look at what is required for gender pay gap reporting in the UK as well as the action so far on disability pay gap reporting and ethnicity pay gap reporting and what employers should be considering.
Gender pay gap reporting requirements
The gender pay gap is a measure of the difference between men and women’s average earnings across an organisation and is expressed as a percentage of men’s earnings. In April 2022, ONS statistics show that nationally the gender pay gap among full time employees was 8.3% and among all employees it was 14.9% which equates to women working an average of 54 days each year for free.
The Regulations came into force in April 2017 and were due to be reviewed by the government after five years. That has not happened and there has been no explanation or revised date although the government has recently updated its Guidance on Gender Pay Gap Reporting for employers.
How to calculate gender pay gap for reporting
The Regulations apply to all employers in the private and voluntary sectors with at least 250 employees and there are six ways in which pay must be reported on:
- Median gender pay gap
- Mean gender pay gap
- Median gender pay gap figure for bonuses
- Mean gender pay gap figure for bonuses
- The proportion of men and women who received a bonus and
- The proportion of men and women in each pay quartile.
In order to report, employers must take a snapshot of pay data for a particular pay period (the period the employer usually pays the employee i.e. weekly, monthly) on 5 April each year. The annual reporting cycle is intended to allow employers to analyse and publish the information any time within 12 months of the data snapshot on a date of their choice. The deadline for publishing the report for 2022/2023 was by 4 April 2023.
These methods of reporting give a broad overview which can indicate a trend of there being a possible issue where the gap continues year on year but are not an empirical test of equal pay. This is because they do not necessarily give an accurate picture as there may be factors which skew the data considerably such as large one-off bonus payments or recent market driven lateral hires at senior levels.
Where should the gender pay gap information be published?
The information must be published:
- on the employer’s searchable UK website so that it is accessible to both employees and the public. It should remain there for 3 years and be accompanied by a statement confirming it is accurate and signed by a senior individual; and
- on the government’s gender pay gap service website.
What is the penalty for any failure to publish?
The government decided that it would not create any additional civil penalties for failure to publish the required information. The government runs periodic checks for non-compliance, produces tables by sector of employers’ reported gender pay gaps and “names and shames” non-compliant employers on the EHRC website. The EHRC considers that its general powers of investigation enable it to take enforcement action which include a formal investigation and continued breach can lead to court action and an unlimited fine.
Actions for Employers to narrow the gap
Employers should be looking at providing a contextual narrative to accompany the report to explain the reason for any gap and any action it intends to take to address any issues arising. Employers should be proactive in tackling any potential risks for example, by carrying out an equal pay audit of their current pay structures to help to identify whether there are any equal pay issues. Depending on the outcome of the audit, the employer can also look at recruitment strategies to tackle any bias as well as developing new strategies to attract a more balanced workforce. They should also review their promotion processes, mandatory gender equality and unconscious bias training and consider showcasing successful women to promote equality internally and externally. The key is implementing change by developing a longer-term strategy to eradicate the barriers to equal pay. It is essential to put in place systems to monitor and review to ensure compliance and also to minimise the risk of claims.
Ethnicity pay gap reporting
In January 2019 the government’s consultation on ethnicity pay gap reporting closed which had proposals for mandatory ethnicity pay reporting on similar lines to gender pay gap reporting. There is strong support for mandatory reporting with the CBI, TUC and EHRC all calling for a clear timetable for this to be introduced. In addition, the 2021 the House of Commons Women and Equalities Committee recommended that the government should make ethnicity pay gap reporting mandatory by April 2023 as did the CIPD.
However, in March 2022 the government confirmed that ethnicity pay gap reporting would remain voluntary and that it is not planning to introduce legislation “at this stage”. This followed a report by the Commission on Race and Ethnic Disparities that did not specifically recommend introducing mandatory reporting. In its publication Inclusive Britain, the government states that employers who choose to make public their pay gap data voluntarily will also be required to also publish a diagnosis and action plan. On 17 April 2023, the government published its long-awaited Ethnicity pay reporting: guidance for employers. This gives advice on collecting ethnicity pay data for employees; how to consider data issues such as confidentiality, aggregating ethnic groups and the location of employees; the recommended calculations and step-by-step instructions on how to do them; reporting the findings; further analysis that may be needed to understand the underlying causes of any disparities and the importance of taking an evidence-based approach towards actions. The Race Disparity Unit’s Standards for ethnicity data were also published on 17 April 2023 following consultation. These provide guidance on best practice when collecting, analysing and reporting ethnicity data.
Disability pay gap reporting
The ONS confirmed in April 2022 that the UK had a disability pay gap of 13.8% in 2021 which is an increase in the disability pay gap of 11.7% in 2014. An analysis of the statistics also showed that the pay gap varied depending on the type of impairment for example, employees with autism have the largest pay gaps.
The government launched a consultation on Disability Workforce reporting which closed in April 2022. The aim was to explore how best to increase transparency and reporting practice including voluntary and mandatory reporting practices. The consultation recognised that the disability employment gap is “unacceptably high” at 28.4% and the consultation aimed to enable employers to assess the impact of inclusive practices on the recruitment and retention of disabled people. Disability pay gap reporting was not part of the consultation and we are still waiting for a response.
Employers’ considerations on ethnicity pay gaps and disability pay gaps
Reporting on ethnicity pay gaps and disability pay gaps are not as straightforward as reporting on gender pay gaps. There are increased complexities with how to categorise ethnic minorities with the Commission on Race and Ethnic Disparities’ recommending that it should be wider than white and non-white which will show different pay gaps for different minorities. In respect of disabilities, employees may be reluctant to disclose a disability or to self-identify as disabled and there are confidentiality issues with both.
Many employers voluntarily report on ethnicity pay gaps and there are over 20,000 employers who have signed up to the Disability Confident scheme which aims to provide support and guidance for employers with the aim of increasing the number of disabled people in work by one million by 2027.
Large pay gaps do not necessarily mean that an organisation is discriminating but it is important for an employer to analyse and reporting on its data and look at what action it can take to improve matters as part of demonstrating its commitment to fostering an inclusive workplace. Recommendations by EHRC include improving work opportunities for everyone, making jobs at all levels available on a flexible basis, reducing prejudice and bias in recruitment, promotion and pay/reward decisions, and reporting on progress in reducing pay gaps.
Our expertise
We advise on all aspects of employment law including on pay gaps (whether gender, disability or ethnicity) and advise on ensuring your policies are inclusive.
We have significant experience of carrying out equal pay audits for clients and often the gaps that are revealed do not result from a deliberate attempt to undermine women but from disparities that have continued over a number of years from a base that was unfair and prejudicial from long ago. This has led to year-on-year decisions being made from a base of inequality without further scrutiny – a blind spot that has become endemic in many industries.
We use our exceptional breadth and depth of expertise to give clients personalised advice to help manage risks and resolve issues - this includes audits of your current processes and documentation as well as bespoke training tailored to your needs together with the use of our independent HR consultants to help put in place systems to monitor and review to minimise the risk of claims. Our expertise is aimed at lessening the risk of widespread claims and also promoting fairness based on skills at the very basic level of pay. Please contact Michael Powner, or your usual Charles Russell Speechlys contact if you would like to get in touch.
