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Gender pay gap reporting: the regulations

The Equality Act 2010 (Gender Pay Gap Information) Regulations came in to effect on 6 April 2017. Find out who has to report on the gender pay gap and how to report on it.

Who has to report their gender pay gap?

It is now a legal requirement for any type of organisation with over 250 eligible employees to publish a report on their gender pay gap. This means the regulations do not just apply to large corporations but also to private companies, partnerships, charities, trade and professional bodies and indeed anyone who employs 250 or more eligible employees. 

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Organisations have to calculate six metrics. These must be published on the organisation’s website and on the government’s gender pay gap service webpage. 

Although not compulsory, employers are strongly encouraged to produce a report explaining their figures and how they are going to address any gaps identified. In future years it is expected that organisations will be able to demonstrate the progress they have made in reducing the gap. The government anticipates that organisations that do not take action or demonstrate any progress may well find that consumers, suppliers and other users are less keen to purchase or use their services and that it may also discourage current and future employees. 

How do I calculate my gender pay gap?

The gender pay gap is reported as six metrics or analytics. They are based on the hourly rates of pay and the bonuses of all eligible employees on a snap shot date. 

What is a snap shot date?

  • The snap shot date is the date to use as the base for an organisation’s calculations.  
  • For the private sector this is 5 April in each year; for the public sector it is 31 March. 

Eligible employees 

  • Eligible employees are “workers” with an employment contract (ie, as defined under the Equality Act 2010) employed on the snap shot date.
  • Partners who are paid according to profit sharing arrangements are excluded from the official calculations, which are included in the report posted on the government website. You may wish, however, to re-calculate the figures to include partners for completeness sake and publish this on your own website.
  • Agency workers will be included as eligible workers for the agency not the organisation to whom they are assigned.
  • Each part-time worker or job sharer counts as 1 employee, irrespective of the hours worked. 
  • Each separate legal entity with at least 250 eligible employees within a group structure must calculate and publish separate reports.
  • As a general rule, overseas employees are included if they can bring a claim to an Employment Tribunal under the Equality Act 2010. Whether or not they are included in the gender pay gap calculations depends on whether the employment relationship suggests a stronger connection to Great Britain and British employment law than to the law of the country they are based in. 

Once you have worked how many eligible employees you have you will need to split these between male and female employees.

However, if you have 250 or more eligible employees in one year it is expected that you will report the next year, even if you no longer employ 250. 

How to calculate the hourly rates of pay?

Having calculated how many eligible employees you have you then need to calculate their hourly rate of pay on the snap shot date. 

  • Hourly rates of pay are based on weekly working hours and “ordinary” pay. It includes basic pay, allowances, pay for piecework, pay for leave and shift premium pay.
  • It only includes money payments, so anything that is not money (such as benefits in kind or securities) is excluded. 
  • Gross amounts should be used after salary sacrifice but before pension contributions. 
  • Ordinary pay does not include pay related to overtime, redundancy or termination of employment, pay in lieu of annual leave or pay which is not money. 
  • As well as actual “overtime pay”, payments such as allowances earned during paid overtime hours (to the extent that employers can clearly identify them) should be excluded from ordinary pay.

For more detailed guidance on what to include and how to calculate the hourly rate of pay please see the ACAS guide Managing Gender Pay Recording.

Bonuses

For each eligible employee you also need to calculate their bonus pay.

  • Bonuses include anything that relates to profit sharing, productivity, performance, incentive and commission. They must be received in the form of cash, vouchers, securities, securities options, and interests in securities. Non-consolidated bonuses are included. 
  • Long service awards with a monetary value (cash, vouchers or securities) are also included but any other type of non-monetary award under this category, such as extra annual leave, is a benefit in kind and excluded. 
  • Gross amounts should be used. 
  • Bonus pay does not include pay related to paid overtime, redundancy or termination of employment, pay in lieu of annual leave or pay which is not money
  • The bonus period is a 12 month period that ends on the snapshot date. 
  • Bonuses are included in the calculations if they have actually been received within this period. The period to which a bonus is attributed is irrelevant in this instance

For more detailed guidance on what to include and how to calculate the bonus pay figure please see the ACAS guide Managing Gender Pay Recording.

Calculating the six metrics

Having calculated the hourly rates of pay and the bonus figure for your male and female employees you will use these to calculate the following six metrics:

  1. mean gender pay gap (expressed as percentage) 
  2. median gender pay gap (expressed as percentage)
  3. mean bonus gender pay gap (expressed as percentage)
  4. median bonus gender pay gap (expressed as percentage)
  5. proportion of males and females receiving a bonus payment
  6. proportion of males and females in each quartile band

The Calculations

  1. The mean gender pay gap is calculated as A – B divided by A x 100 where A is the mean hourly rate of all male employees and B is the mean hourly rate of all eligible female employees. The mean hourly rate for all male (female) employees is calculated by adding up all the hourly rates and then dividing by the number of male (female) employees.
  2. The median gender pay gap is calculated as A – B divided by A x 100 where A is the median hourly rate of all male employees and B is the median hourly rate of all eligible female employees. The median hourly rate for all male (female) employees is calculated by listing  all the hourly rates in numerical order and then picking the middle number (if an odd number of hourly rates) or the mean of the two central numbers (if an even number).
  3. The mean bonus gender pay gap is calculated as A – B divided by A x 100 where A is the mean hourly rate of all male employees and B is the mean hourly rate of all eligible female employees. The mean bonus for all male (female) employees is calculated by adding up all the bonuses received in the period and then dividing by the number of male (female) employees, excluding those who did not receive any form of bonus payment.
  4. The median bonus gender pay gap is calculated as A – B divided by A x 100 where A is the median bonus of all male employees and B is the median bonus of all eligible female employees, excluding those who did not receive a bonus in the period. The median hourly rate for all male (female) employees is calculated by listing  all the hourly rates in numerical order and then picking the middle number (if an odd number of hourly rates) or the mean of the two central numbers (if an even number).

  5. To calculate the proportion of males and females receiving a bonus two calculations are required. The first calculation, to give the percentage of men who received a bonus, is A divided by B x 100 where A is the number of male eligible employees paid a bonus and B is the number of all male eligible employees (ie, includes those who did not receive a bonus). The second calculation, to gives the percentage of women who received a bonus, is C divided by D x 100 where C is the number of female eligible employees paid a bonus and D is the number of all female eligible employees (ie, includes those who did not receive a bonus).

  6. The proportion of males and females in each quartile band is calculated by dividing the workforce into four equal parts. To do this list the hourly rates of all men and women in numerical order from lowest to highest. Divide the list into four sections with an equal number of employees in each. Then express as a percentage the proportion of male and female employees in each quartile band.

What do the calculations mean?

  • The mean and median pay and bonus gaps are expressed as a percentage. So if your mean gender pay gap, for example is 15% this means that your female workforce is paid 15% less than your male workforce or 85p for every £1 paid to men. If the gap is a negative percentage this means that men are paid on average less than female employees.
  • The mean will give a very good overall picture of the gender pay gap but can be distorted by very large or small pay rates or bonuses.
  • The median, however, indicates the “typical” gap as it is not distorted by very large or small pay rates or very large or small bonuses.
  • By calculating the proportion of men and women receiving a bonus the aim is to see if the mean and median bonus gap is due to the difference in the number of male and female employees receiving a bonus. 
  • The proportion of males and females in each quartile band is designed to show the spread of employees across salary ranges. The assumption is that (and this has been borne out by the first year of reporting) for most organisations women will be concentrated in the lower quartiles but men will be concentrated in the upper quartiles.

How do I report on the gender pay gap and what happens if I don’t?

Reporting

Once you have calculated the six metrics you need to produce a statement.

  • This must be signed off by a senior member of staff as accurate.
  • Each separate legal entity with at least 250 eligible employees within a group structure must calculate and publish separate reports.
  • The statement does not need to give any narrative explaining the figures or the actions planned to reduce any gaps thrown up but a voluntary narrative is strongly recommended.
  • The statement must be published within a year of the snap shot date on Government’s Gender Pay Gap Service and on the organisation’s own website.

Penalties

  • The idea is not to punish employers for a high gap nor to reward them for a low gap, as a low gap may simply reflect that all employees are paid a low wage.  The aim is to promote transparency, highlight just where the problem lies and use this as basis for remedial action.
  • It is however a legal requirement for an eligible organisation to publish their gender pay gap on the Government’s Gender Pay Gap Service within a year of the snap shot date.
  • If an organisation does not comply the Equalities and Human Rights Commission (ECHR) can compel an organisation to do so. If the organisation still fails to comply the EHRC can take them to court for contempt. The courts can impose an unlimited fine.
  • Organisations that do not address any gaps in future may well suffer reputation damage and the prospect of losing existing and future customers and employees

How can I improve my gap?

The results for the first year (ie based on the snap shot date of 5 April 2017 and 31 March 2017) gave  an overall mean pay gap of 14.3% and a median pay gap 11.8%. The numbers varied considerably by sector but all sectors of the economy had pay gap in favour of men.

To help members ICAEW has produced a webinar, which can be accessed now.

Further resources