01 July 2021
Samantha Johnson LLB(Hons) MCIPPdip, CIPP policy lead, provides a helpful and timely reminder of the obligations and rules
Equal pay has been a legal necessity since introduction of the Equal Pay Act 1970; men and women must be paid the same for like work, or work of equivalent value. In 2017, the first mandatory gender pay gap (GPG) reports were published. The reporting is aimed at tackling inequality in earnings between men and women, highlighting the distribution of men and women across the earnings’ ranges within a business.
Enforcement of GPG reporting was suspended due to the pandemic, resulting in many employers opting to abstain from reporting last year. In 2021, the government provided a further six-month suspension, meaning no enforcement action will take place until 5 October 2021. As the deadline for GPG reporting is traditionally one year minus a day from the snapshot date, the enforcement suspension will see many employers releasing their results much later in the year.
Some employers will have last published their GPG results in 2018, and with only two years of experience it is understandable that many will have lost touch with the detailed requirements.
The GPG calculations are based on earnings during a ‘snapshot date’. Most public authority employers should use 31 March and all other employers should use 5 April. The pay period that includes the snapshot date forms the basis for the calculations.
Employers need to establish their ‘relevant employees’; these are employees who were employed on the snapshot date. Individuals who are not relevant employees should not be included in the GPG calculation and should not form part of the 250-employee threshold which determines whether the employer has a mandatory obligation to report.
The GPG regulations introduced a concept called ‘ordinary pay’ used to calculate the hourly rate of pay for relevant employees. Ordinary pay, which is not the same as gross pay:
- includes basic pay, allowances, pay for piecework, pay for leave, shift premium pay, and
- excludes items such as (but not limited to) overtime, allowances earned during paid overtime, benefits in kind, termination payments. The exclusion of benefits in kind means that employees who have sacrificed part of their salary in exchange for a benefit, e.g. pension scheme contributions, must have their calculation based on their post-salary-sacrifice pay.
The GPG legislation can be broken down into two key areas: the pay gap and the bonus pay gap.
The formula to calculate the hourly rate is prescribed in the regulations and will vary depending on the pay frequency of the employee. Employees who were on leave and paid less than their usual basic pay should be excluded from the calculation. Only full-pay relevant employees should be included in the results.
Mean and median calculations may invoke flashbacks of high school maths; however, these measures are central to calculating the average hourly rate for both genders. The GPG figure is expressed as a percentage, to show the difference between mean and median earnings. A negative percentage reveals men are, on average, paid less than women, with a positive percentage showing the reverse.
Hourly rates for both genders are to be listed in order and split equally into four quartiles. The percentage of men and women in each of these four quartiles should be included in the results.
The gender bonus pay gap (GBPG) is based on bonus payments made over twelve months, ending on the snapshot date. In this context, bonuses include payments such as (but not limited to) commission and incentives.
The percentage of relevant female employees and relevant male employees in receipt of a bonus should be included in the GBPG results, and the mean and median bonus payments for men and women compared and expressed as a percentage. A positive percentage will reveal women are, on average paid less bonus pay than men, with a negative percentage showing the reverse.
The GPG and GBPG should be brought together in a single report and published on the employer’s website and gov.uk.
Payroll teams continue to see the impact of furlough payments on holiday pay, maternity pay, and in many other areas. Employees who were furloughed during the snapshot period and were not in receipt of full pay are not ‘full-pay relevant employees’ for GPG purposes; therefore, they should not be included in the calculation.
The 2020 snapshots dates were at the height of the pandemic, meaning many employers may see some significant anomalies in their data where most of their workforce were furloughed. With so many employees removed from the final calculation, this will inevitably skew results which, however, could provide a fascinating insight into the GPG of those critical employees who were required to work throughout. I think it is safe to say that GPG results across many businesses will continue to include the payroll function.
Featured in the July/August 2021 issue of Professional in Payroll, Pensions and Reward. Correct at time of publication.