Will employers finally start to mind the gap?
Regulations requiring large private and voluntary sector employers to publish information on the pay gap between female and male staff will finally come into force on 6 April. Equivalent regulations applying to public sector bodies come into effect a few days earlier on 31 March.
It’s been a long wait. The Equality Act 2010, adopted under the outgoing Labour government seven years ago, provided for such regulations to be issued. But progress was stalled for five years under the Tory-led coalition government.
That administration initially encouraged employers to publish their gender pay gaps on a voluntary basis under its Think, Act, Report scheme, launched in 2011. However, only a handful of employers took the government up on its suggestion.
Under the Small Business, Enterprise and Employment Act which took effect in 2015, there was a commitment to introducing provisions within 12 months, but there have been further delays since.
Draft regulations for private and voluntary sector employers were published early last year, with finalised regulations eventually published in December. Regulations for public bodies were published in January. The government claims the regulations are one of a number of “bold steps” it is taking to address the gender pay gap.
Under regulations coming into effect on 31 March for public sector employers, and 5 April for private and voluntary sector employers, organisations with 250 or more employees will be required to report the following six metrics:
• the difference between the mean hourly rate of “ordinary pay” of male employees and that of female employees (“the mean gender pay gap”);
• the difference between the median hourly rate of “ordinary pay” of male employees and that of female employees (“the median gender pay gap”);
• the difference between the mean bonus pay paid to male employees and that of female employees (“the mean gender bonus gap”);
• the difference between the median bonus pay paid to male employees and that of female employees (“the median gender bonus gap”);
• the proportions of male and female employees who received a bonus payment; and
• the proportions of male and female employees in the lower, lower middle, upper middle and upper quartile pay band.
The calculation of pay needs to be based on a “snapshot” of what employees were receiving on the reporting date of 5 April (or 31 March in the public sector).
The calculation of bonuses needs to be based on what they received in the whole year up to the reporting date.
Employers will have a full year from the reporting date to make the data public.
But while welcoming the regulations, unions do not view them as going far enough. In particular, they are concerned about the lack of robust enforcement mechanisms to make employers comply with the regulations, and the absence of any obligation to explain their gender pay gaps and take action to address them. They have also called for employers to be obliged to publish more detailed information, and for the threshold on the size of employers covered by the requirements to be lower.
Assistant national officer for the UNISON public services union Caroline Hennessy told Labour Research that it was “good that the regulations are to cover everyone at work, including apprentices, freelancers and people on zero hours contracts”. But it was “not so good that there won’t be any penalties for employers who don’t comply”.
The original draft regulations for private and voluntary sector employees had only covered those with a “contract of employment”.
But, following calls for clarification from the TUC, unions and other organisations, the later draft made clear that the definition of employment in section 83 of the Equality Act 2010 would apply. This includes apprentices and all those with a contract to personally do work for the organisation. However, agency workers will count as employees of the organisation with whom they have a contract of employment — usually the employment agency rather than the organisation hiring them.
According to the regulations for private and voluntary sector employers, failure to comply with the requirements would constitute an “unlawful act” under the Equality Act, empowering the Equality and Human Rights Commission (EHRC) to take enforcement action.
But in its response to the consultation on the regulations, the TUC said that the EHRC’s enforcement powers under the Equality Act, requiring a formal investigatory process, were “too cumbersome and ill-suited for this particular task”.
The TUC proposed that the EHRC should be able to issue a notice ordering an employer to comply with the requirements, have the power to issue financial penalties against those employers that fail to comply and be able to apply for a court order if there is continued non-compliance. The TUC also called on the government to give the EHRC sufficient resources to do this, noting that it would be required to monitor compliance among an estimated 7,960 private and voluntary sector bodies and around 600 public authorities.
UNISON, meanwhile, pointed out that cuts to the EHRC had left it with inadequate staff and resources to carry out even its existing functions effectively.
A number of organisations had called for the reporting requirements to be applied more widely. The TUC and UNISON had called for both sets of regulations to apply to organisations with 150 or more employees — the threshold for reporting on other workforce equality data under the public sector equality duties — rather than 250 as set out in the regulations.
This position was also endorsed by the House of Commons Women and Equalities Committee (WEC) last year. A report by the committee proposed that all organisations with 150 employees or more be covered, and that this be extended to those with 50 or more employees after two years. It pointed out that the threshold of 250 employees would only cover 34% of the workforce and excludes smaller organisations which have larger gender pay gaps. International evidence suggests that with support, smaller organisations can be helped to produce and understand their gender pay gaps.
Both the Unite general union and the Fawcett Society gender equality charity have said a threshold of 50 would be appropriate, in line with European Commission recommendations for gender pay reporting.
Insufficient detail required
The WEC also said that the regulations should require that reporting of gender pay gap data be broken down by age and by part-time status.
Again, similar proposals had come from unions, with the TUC calling for a requirement that a gender breakdown of the part-time workforce be published by employers along with calculations of the pay gap between part-time and full-time employees.
The TUC said that this would focus employers’ attention on the concentration of women in part-time roles and the part-time pay penalty (the gap in hourly pay between full-time and part-time jobs).
The proposal from the TUC and unions to publish the distribution of employees within each pay decile, rather than per quartile as set out in the draft regulations, was also rejected by the government. The TUC pointed out that the gender segregation that frequently exists at the very top and bottom of organisations will not be so evident when information is presented by quartiles.
UNISON criticised the government’s refusal to compel employers to publish more detailed data. “The gender pay gap won’t be properly tackled until all employers publish their relevant pay information — ideally a full breakdown by gender, grade, job role and age,” Hennessy said.
No requirement to publish narrative
The government opted for a voluntary approach in relation to calls for employers to be required to publish a narrative or action plan alongside their gender pay gap data. In responding to the consultation on the regulations for private employers, the government said it would be “strongly” encouraging the publication of a narrative, but it would not be mandatory.
Joint guidance on implementing the regulations, issued by the Government Equalities Office (GEO) and the Acas employment advisory service, said that employers should use their gender pay gap data “to help understand any underlying causes for their gender pay gap and take suitable steps to minimise it”.
It also said that a “supporting narrative” would allow organisations to explain steps already taken and why gaps exist, even if they have not acted inappropriately or discriminatorily.
Delay in making information public
While the regulations come into force this year, employers will have a full year from the reporting date to make the data public, although a joint GEO-Acas fact sheet for employers suggests the “sooner, the better”.
Unite said it was “astonished” that reporting would be delayed until 2018, given that enabling legislation has been in place since 2010. The TUC called for a six-month deadline for publishing the relevant data, pointing to the “fairly simple” calculations involved.
The gender pay gap: facts and figures
The latest Annual Survey of Hours and Earnings (ASHE), for the year to April 2016, showed that the gender pay gap had fallen to 9.4%. This is the lowest figure since the earnings survey began.
But there has been little movement in the last five years. The figure was 9.5% in 2012 and has oscillated since. It had previously fallen from 17.4% in 1997 to 10.1% in 2010.
This headline gender pay gap figure is based on calculating the difference between median hourly earnings for male and female full-time employees, as a proportion of hourly male earnings.
This excludes overtime, as including overtime can skew the results given that men work relatively more overtime than women. Using hourly earnings rather than weekly earnings also better accounts for the fact that men work, on average, more hours than women.
Calculating the pay gap on the basis of full-time median gross weekly earnings leads to a much higher figure of 16.8% for the year to April 2016.
The gender pay gap is also much higher when looking at the figure for older workers and at the top end of the income scale. Using the median full-time hourly earnings calculation, ASHE data shows that for high earners at the top decile (between the top 10% and bottom 90% of earners), the gap has fluctuated around 20% since 1997. It was 18.8% in the year to April 2016.
The pay gap increases markedly with age. It is fairly narrow for those aged 22 to 39, but increases considerably above the age of 40.
For 22- to 29-year-olds, the gender pay gap is just 0.8%, but this represents an increase from the previous year when the gender pay gap was actually negative (minus 0.8%). The gap increases slightly to 1.6% for 30- to 39-year-olds, but then balloons to 13.4% for 40- to 49-year-olds and 16.2% for 50- to 59-year-olds.
The “motherhood penalty” plays a significant part in the widening of the gender pay gap above the age of 40.This pay gap then persists for the remainder of women’s working lives, meaning an increasing lifetime earnings penalty.
Analysis by the Institute for Fiscal Studies (IFS) think tank last year showed that while the gap is relatively small for younger women (before they become mothers), it widens consistently for 12 years after the first child is born, by which point women receive 33% less pay per hour than men.
The IFS says that a key driver of the fall in the overall gender wage gap has been an increase in the education levels of women relative to men.
However, on the flip side, the Resolution Foundation has pointed out that the narrowing of the pay gap for younger women also relates to an increasing proportion of young men now also working in part-time and low-paid roles, particularly in the service and sales sector.
Unions have also underlined that the regulations on their own are unlikely to address many of the underlying issues that contribute to the gender pay gap (see box above). In its submission to the consultation on reporting regulations for public bodies, UNISON referred to the “clear necessity for more quality part time working options”. And it pointed to the need to challenge “the long-hours culture in the workplace which prohibits those with caring responsibilities from progressing”, and to provide “genuinely family friendly flexible working hours which do not have a pay penalty attached”.
The WEC report recommended obliging employers to make all jobs flexible by default from the outset “unless an employer can demonstrate an immediate and continuing business case against doing so”; government-led industrial strategies for low paid, highly feminised sectors to improve productivity and pay levels; and the creation of a “national pathways to work” scheme that will support women to return to employment after time out of the labour market.