17 March 2015

Mind the gap: Here comes mandatory gender pay gap reporting

The election may be still two months away but politics are already making an impact on employment law. In a surprise development, the Liberal Democrats have pushed equal pay reform up the political agenda and into the closing moments of the pre-election parliamentary timetable. The government has tabled an amendment to the Small Business, Enterprise and Employment Bill 2014-2015 (‘the Bill’) which will require the government, within 12 months of the Bill coming into force, to make regulations requiring employers to publish information about their gender pay gap.

Since the Equality Act 2010 came into force, the government has had the power to implement regulations requiring employers to publish information about the difference in pay of male and female employees, however, this has not been implemented to date. Until now, gender pay gap reporting has only been introduced on a voluntary basis, and unsurprisingly the take up by employers has been low. It has been reported that only four companies have chosen to publish gender pay gap information, as part of the Think, Act, Report scheme.  Under the new rules, the requirement to report on pay differences between male and female employees will be mandatory for all businesses with more than 250 employees.

The practical impact of this forthcoming change on employers is yet to be determined, as the devil will be in the detail of the regulations, which have not yet been published. The Liberal Democrats maintain that the minimum level of reporting will set out the gap for full-time and part-time workers as well as the overall gap. Other requirements could be to publish the difference between starting salaries for men and women, the difference between average basic pay and total average earnings of men and women broken down by grade and job type, and different levels of incentives and bonuses.

The proposed penalty for non-compliance with the regulations is a maximum fine of £5,000. However, given the administrative burden that pay gap reporting will impose on employers and the potential for the information to fuel employee disputes or claims, a £5,000 fine may seem like a cheap price to pay to maintain silence and, as such, may well be insufficient to enforce compulsory reporting. However, there is also provision for additional enforcement mechanisms to be included in the regulations.

However, the real risk for employers is the possibility that publicly reporting on pay inequalities will open them up to potential discrimination claims, depending on how prescriptive the regulations are and what is disclosed by the reporting. In addition to potential employee claims, businesses should also consider the risk of reputational damage and adverse employee relations and, at the very least, employees’ calls for pay rises, pay grading structures or worse.

While it is difficult to predict the precise impact of an adverse disclosure at this stage, employers should start to consider their pay practices now to mitigate the risks. A pre-emptive investigation into differences in pay of male and female employees, perhaps under the cloak of legal privilege, will enable employers to see if there are any problems and think about how to rectify the issues in advance of the mandatory requirement to publish potentially damaging information.

We’ll keep you updated.

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