Risks and how to avoid them for employers who fail to focus on their gender pay gap this year

The deadline of 4 April (or 30 March for public organisations) for large private UK employers to report on their gender pay gap has now passed (see our Law at Work article for further details). And the headlines have the hit front pages. In about eight in ten of the 8000 or so private organisations which disclosed data, female staff are paid on average about 9.7% less than male staff. Employers included in the reporting requirements accounted for about 56% of UK employees.

The Equality and Human Rights Commission (EHRC) is now vociferously threatening enforcement action against the estimated 1500 companies which missed the deadline. But beyond compliance with the gender pay gap reporting (GPGR) under the regulations, what steps can employers now take, having analysed their data, to reduce the gender pay gap in their organisations, and what reactions can they anticipate from their employees or prospective workforce?

Enforcement by EHRC

At the end of March, the EHRC published its policy "Closing the gap: Enforcing the gender pay gap regulations" describing what it will do to encourage employers to meet the gender pay gap regulations and its approach to enforcing them. It specifies that it will encourage compliance through promoting awareness, education and monitoring and that a purpose of taking enforcement action is to encourage future compliance, hold to account employers who breach GPGR and deter non-compliance by others.

The EHRC reported that 1,557 organisations missed the 4 April deadline for reporting. On 9 April it wrote letters to those organisations giving them 28 days to comply with their obligations to report their data, failing which they would face further action. This prompted compliance by several hundreds of employers (although the Financial Times reported last weekend that employers which published their gender pay gap information after the reporting deadline were more likely to have produced inaccurate figures than those that filed on time).

Next steps for those who fail to comply will be for the EHRC to issue an unlawful act notice to employers. Failure to comply will result in a court order requiring them to do so, and breach of this is punishable with an unlimited fine. Details of all employers in breach will be published on their public website at the investigation stage, which will start in June.

With the EHRC committed to "use [their] enforcement powers firmly, promptly and effectively in the enforcement of the GPGR", then despite commentators' observations that that those powers lack teeth, it is likely that organisations will choose to report, albeit late, rather than be publicly "named and shamed" at a later date.

Gender pay gap reports

The gender pay gap figures straddle entire workforces and comparisons across organisations can only be made on percentage level differences of pay and bonus paid rather than actual pay received by men and women. However, the figures do illustrate structural inequalities across the UK workforce of employers with 250 employees or more, and in particular sectors such as retail, construction, finance and insurance.

Employers are now reflecting on the possible reasons for the gender pay gap within their organisations, what internal and external risks they may now face as a result of reporting and how the gap can be addressed.

Organisations which provided voluntary additional narrative provide insight into possible reasons for the gender pay gap. Structurally, this can occur where the majority of women are found in the lower quartiles of the work force and men dominate the upper quartiles; the latter having higher median or mean average pay. Reasons for this pattern are complex and differ across industry sectors. They range from a lack of female employees in eg tech or engineering sectors or, more broadly, women not benefitting from equal opportunity and access to positions which offer higher levels of pay. In reporting bonus, no pro rating is required for part time workers (unlike for the pay calculations), so organisations with flexible working arrangements are more likely to report lower bonus rates for women than men, even if, overall, the proportion of male and female employees receiving bonuses is similar.

Possible internal and external risks going forward

Confusion with equal pay: There may be a rise in grievances about pay awards or equal pay claims brought by women questioning whether they are being paid less than men doing similar work within their organisation. While a gender pay gap does not necessarily mean that there are equal pay issues between male and female employees, and a separate analysis would be required, there is likely to be a perceived sense of inequality if the organisation does have a high pay gap overall.

Reputational issues: Some organisations have already received negative press commentary, which could potentially affect their reputation with suppliers, consumers or shareholders. Prospective employees now have access to the GPGR data and may question employers about it, or factor it into applying for a role. Recruitment consultants might also look at percentages of women in each of a company's quartiles and advise candidates accordingly. Companies which have already come under scrutiny are likely to remain in the spotlight when further data is released next year.

Data subject access requests: Employees have the right to make a data subject access request to access personal data held by their employer including in relation to determinations of levels of pay. With the introduction of the General Data Protection Regulation on 25 May, non-compliance by the employer can result in stiff penalties.

What steps should employers consider to tackle the gender pay gap?

Promoting and maintaining communications channels by entering into a dialogue with managers and staff through meetings and via the intranet will assist in understanding what steps might be taken to reduce the pay gap. This could include considering an increase in opportunity for job sharing, part time working or other methods of flexible working in management positions. Some of the GPGR narratives appeared to conflate part time working with low pay, which was done predominately by women.

It is important to ensure that personnel at all levels of the organisation are trained in diversity issues and that this is embedded at all stages of the employment process such as recruitment (unconscious bias training), promotion and career progression (with mentoring, senior level diversity targets) and awareness of family leave entitlements (for men and women).

Last week the Institute for Public Policy Research (ICCR) published its research 'The state of pay: Demystifying the gender pay gap' in which it sets out six drivers for the gender pay gap: occupational segregation, seniority, the maternity penalty, discrimination and bias, historic skills gaps and lower levels of part time pay. It also states that the pay gap is largest for women over 40 and persists for the rest of their working life. To address these issues it recommends that employers should:

• rethink policies around pay negotiation
• introduce a more structured approach around progression
• should encourage more men to work flexibly and take time out for caring responsibilities
• commit to publishing narrative reports alongside their pay gaps

However the ICCR does warn against focusing on particular employers' gender pay gap to the exclusion of other types of inequality. Employers could seek to reduce it the gap by taking on fewer female graduate trainees, or outsourcing low paid work. The report flags up that the pay gap is a "blunt instrument" and the potential for "gaming" by individual employers is high.

Government's commitment to continued transparency

A Commons Select Committee launched an enquiry last month inviting organisations with more than 250 employees for their views on the GPGR obligations including:

• Whether the annual information related to pay required under the Equality Act 2010 is sufficient, or whether any further information is required
• How effective are the sanctions for non-compliance with reporting requirements
• What requirements, if any, should there be on companies to address gender pay gaps.

This is part of a larger gender pay gap enquiry by the government on Corporate Governance: delivering on fair pay. The Chair of the BEIS Committee summarised its focus as wanting "to know what actions firms are taking to close the gap not in the decades ahead but now".

GPGR requirements are now an annual obligation for both public and private organisations with more than 250 employees. The snapshot date (5 April 2018) from which pay data will be calculated for reporting by 4 April 2019 has now passed, so organisations are now in a position to start analysing whether or not progress has been made in the past year.

For further information please visit Gender Pay: Navigating the new reporting requirements on our website.

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