The Prime Minister has today announced plans to press ahead with plans requiring firms with over 250 employees to report on their gender pay gap among employees.
The requirement came in in the final days of the Coalition Government, when an amendment was made to the Small Business, Enterprise and Employment Bill. It required Government to bring into effect mandatory pay gap reporting. The amendment resulted in Section 78 of the Equality Act 2010, coming into force within a year of the Bill receiving Royal Assent.
Accompanying the PM’s announcement to ‘eliminate the gender pay gap’ came the government’s consultation ‘Closing the Gender Pay Gap’ giving businesses a bit more detail on the ‘who, what, where, when….why.’
Let’s start with the why…
…and with a positive – the gender pay gap for all employees, as calculated by the Annual Survey of Hours and Earnings (ASHE) is at its lowest since records began in 1997 at 9.4%. However, this is still a significant gap, which needs to be addressed.
While we have continued to champion a voluntary approach, encouraging businesses to utilise frameworks such as Think, Act, and Report and to look to other voluntary measures such as increase participation of women on boards as recent successes, the government has chosen to pursue a mandatory route. This in part may be a result of not enough firms taking voluntary measures and while progress has been made, is has arguable been slow.
In its consultation the Government highlights that large pay differences can ‘contribute to women’s economic hardship, and can also impact on their partners and children’ and as a result women will retire living on 25% a year less than their male counterparts.
There are also some benefits to be gained from transparency with the government citing figures such as equalising participation rates could add 10% to the size of the UK economy by 2030.
Then let’s look at the who….
The regulations (which will be debated in Parliament) will require employers in the private and voluntary sectors with at least 250 employees to publish the required information. A person will be considered an employee if they are employed under a contract of employment, a contract of apprenticeship or a contract personally to do work.
However, it is still to be decided on what basis the 250 headcount is. Is it for example a single business or a group? This is something that is likely to be answered after responses to the consultation have been published.
Moving onto the what….
It is of upmost importance to start by saying that the gender pay gap is not the same as equal pay and the consultation paper helpfully seeks to underline this distinction. It is feasible for that an employer with a very small gender pay gap may be paying men and women doing work of equal value differently. Similarly, a large gender pay gap may not indicate an equal pay issue.
The gender pay gap (as calculated by ASHE) is the difference between hourly median earnings of men, and women – it is this that companies will be required to report on.
The consultation is open to suggestions on how it should be measured. Whilst it is currently tracked on the median hourly rate of pay, this offers little granularity of detail. There are then options to include additional figures for full-time and part-time work or the difference in earnings by grade or job type.
What we want to see is employers having clarity in what they must publish and choice in what they may want to publish in addition.
What about the where….?
The Act requires the information must be ‘published’ however does not specify how (or where) this should take place. Should it be reporting to Companies’ House, should it be on a firms’ website? Or should we give employers choice? Once again this is an issue that the government is inviting ideas from stakeholders to put forward in response to the consultation.
And finally the when…?
This requirement will be no easy task for manufacturers. An array of complex pay grades and structures, complex payroll systems and resources required to generate the data and report means that business will need as much transition time as possible.
While not confirmed, the government expects the regulations to be made in the first half of 2016 but propose the commencement be delayed for an ‘appropriate period’ to allow businesses to prepare. The consultation leaves the door open for business, and their representatives to put the case forward for allowing sufficient time for companies to prepare and suggests some form of phased option may be more preferable to help support those nearer to the 250 employee scale.
There are also questions around the frequency of the reporting with the only current restriction is that the information cannot be required more frequently than every 12 months. Other countries that have already implemented gender pay reporting have require companies to report every 3 years – this would give companies more time to not only report but take action should they need to.
The gender pay gap and the manufacturing industry
Given the threshold if relatively low, it is likely to capture a large number of manufacturers.
Manufacturers are likely to be wary that the gender pay gap in their industry may be larger than others. Indeed technical activities have one of the largest gender pay gaps at 20.5%.
Of course there are a number of underlying reasons for this and the consultation does acknowledge this. For example only 7% of engineering apprentices are female and only 15% of engineering graduates are women. Just 9% of professional engineers are female (the lowest across all of Europe). The manufacturing industry is already fighting to tackle the gender balance and working hard to relay the message that manufacturing and engineering is not just for boys.
This drive to increase female entry level talent may have unintended consequences on the gender pay gap in manufacturing firms; a boost in female entry level talent may unbalance the figures further in the short-term. So the message must also be a gender pay gap should not immediately be seen as a bad thing.
Other unintended consequences are likely to fall out of this requirement and it is important we seek to address these. For now, however manufacturers need to be thinking about how the requirements may impact them, looking at existing metrics as set out in the voluntary framework Think, Act, Report which will better prepare them for what may be to come.
The consultation closes on 6th September and is likely to be followed by a second, more detailed consultation on the regulations which will follow. EEF will be consulting widely with members and hosting a number of bespoke focus groups with members to discuss the consultation and the new requirements. In addition, EEF offers a free, pre-recorded webinar for members and non-members.