Government publish response to gender pay gap reporting recommendations
18 January 2019
The government response to gender pay gap recommendations made by the Business, Energy and Industrial Strategy Committee has been published.
In August 2018, the Department of Business, Energy, Innovation and Skills (BEIS) Committee published its thirteenth report on closing the gender pay gap, recommending that the qualifying threshold remains at 250 employees next year (2019), but the following year be reduced to organisations of 50 employees or more.
The Treasury Committee’s response to the thirteenth report in September 2018 stated that it is important to recognise that the regulations are still in their infancy, with organisations having only just completed the first year of reporting. The response also said that the legislation itself is groundbreaking, with no other country asking for this level of transparency, but they will review it in five years indicating that it will not be extending reporting requirements before the review takes place.
“…Should there be sufficient appetite for lowering the threshold in future reporting years, the government will consult with potentially affected stakeholders on the feasibility, and advantages and disadvantages of extending the regulations…”
Some of the recommendations made by the BEIS committee were identified by CIPP members during the consultation, particularly around the method of certain calculations. A summary of the relevant recommendations and responses are as follows:
That the government works with the Equalities and Human Rights Commission, business groups and other stakeholders to clarify outstanding areas of ambiguity and to publish revised guidance accordingly.
The Government Equalities Office (GEO) works closely with businesses and employer membership bodies to ensure that the views and experiences of employers are understood.
Guidance is regularly assessed to make sure it remains fit for purpose.
The government will continue to gather stakeholder feedback and update the guidance, should this be appropriate.
That the government reviews the gender pay gap reporting requirements with a view to aligning them with other business reporting requirements from next year.
Government recognise the Committee’s concerns about the burden posed by different requirements on business and are working with several government departments to align requirements as much as possible.
Given the range of organisations within the scope of the regulations, there is not another common reporting requirement that would logically align with gender pay gap publication and the government has therefore focused on balancing transparency of data with flexibility for employers.
The reporting regulations were designed so that employers have flexibility on when they publish their data, giving them a full year after the snapshot date so that they can report at any time, in line with their own internal processes.
That organisations are required to provide some narrative reporting alongside their gender pay statistics and an action plan setting out how pay gaps are being and will be addressed, including objectives and targets. Subsequent reports should report progress against this action plan, including targets set.
Government estimate that approximately 48% of employers have published action plans alongside their figures in the first year of reporting and will continue to encourage all organisations to do so in future years.
The government will continue to engage with employers and their membership bodies to provide best practice guidance on constructing an action plan. Publishing an action plan was intentionally not included as a mandatory requirement under the reporting regulations. While the Government urges all employers to produce an action plan alongside their figures, it is aware that including it as a mandatory requirement might result in a prescriptive format with limited value to employers and employees.
With the first year of gender pay gap reporting completed, employers can view the diverse range of action plans produced by organisations on the Government portal to assist with their own action plans.
That when the regulations are amended, the requirement for information on salary quartiles is changed to deciles and that both part-time and full-time gender pay gap statistics are required to be published.
The government already encourage organisations to produce any metrics which they believe will help them understand their gap, in addition to those required by the regulations.
Legislation already includes a requirement to review the extent to which it is achieving the intended objective after five years, however, the government will continue to consider potential improvements to the reporting requirements and would consider whether any extensions should be introduced in a shorter timeframe.
Any changes would have a subsequent impact on the comparability of the data year on year, and between organisations.
Prior to any amendments, there would be a period of consultation with employers and membership bodies.
That when the regulations are amended, the way in which bonus calculations are made is altered so that it is on a pro-rata basis and that this change is accompanied by the publication of clear guidance on the method of calculation.
The topic of bonus calculations was raised within the original consultation on the regulations and was covered in the government response at the time. The decision was a conscious choice as the current metrics ensure that a person’s working life is looked at in the round. If the government were to allow for pro-rata bonus payments, this would fail to expose where earnings differ on account of working patterns, a key contributing factor to the gender pay gap. The employee threshold, the overall gender pay gap calculations and earnings quartiles are all based on headcount rather than full-time equivalent. Therefore, as the bonus calculation is made on the same basis, it adds more detail to the picture of how much women are paid in the organisation.
On a practical level, if a gender bonus gap has been skewed where a percentage bonus has been paid to full-time and part-time employees, the government would encourage employers to highlight this in their accompanying narrative. There is also nothing to stop employers from publishing additional metrics within their action plan alongside those required by the regulations.
That the qualifying threshold remains at 250 employees next year , but the following year will be reduced to organisations of 50 employees or more.
Government continue to urge organisations with fewer than 250 employees to publish their data voluntarily, and several employers under the threshold did a report last year. Given the range of metrics required, at the time of consultation it was felt that reporting could be particularly burdensome for small and medium-sized businesses and so the requirement should be restricted to large employers.
As the Committee’s report recognises, there are several issues when it comes to the reliability of data from smaller organisations – especially for those firms with 50 or fewer employees. The reduced number of staff means their GPG figures are much more sensitive to small changes, e.g. staff turnover, pay rises, etc., compared to larger organisations.
Government will still encourage smaller firms to look at their gender pay gaps, to ensure there is fair representation of men and women at all pay grades in the organisation and it will also continue to support organisations of all sizes, both with the reporting process and efforts to tackle their gaps, encouraging them to use the ‘what works’ guidance.
Should there be sufficient appetite for lowering the threshold in future reporting years, the government will consult with potentially affected stakeholders on the feasibility, and advantages and disadvantages of extending the regulations.
That the government uses the guidance to clarify how data on partner pay should be calculated and included in time for the publication of data next year .
The regulations exclude partners in traditional partnerships and limited liability partnerships from the gender pay gap calculations because partners are not “paid” but instead take a share of the profits, which is not directly comparable with employees’ pay. Partners who fall within the Equality Act 2010’s definition of employment should be included in the employee headcount but not used as part of the calculations.
The government does recognise that there are concerns regarding how partners are currently treated within the calculations and is working with stakeholders affected by this to understand the challenges they face and identify any clarifications that might need to be made.
There will not be any substantial changes made to the guidance now the reporting year has begun. As with changes to the regulations, it is felt it would be unfair to make these within the reporting year.
The government will evaluate altering the guidance regarding partners in future reporting years, for example, to introduce a voluntary reporting methodology for partners. If this happens it would be communicated extensively, prior to the start of the reporting year in which it would come into effect.
Commenting on the government response, Rachel Reeves MP, Chair of the BEIS Committee, said:
"Next year is the 50th anniversary of the Equal Pay Act, and yet still we are tackling issues around fairness in pay. The UK has one of the highest gender pay gaps in Europe. Pay reporting can only be the first step in closing this gap and moving towards genuine equality and diversity in the workplace.
The government’s refusal to extend gender pay gap reporting requirements to partners is disappointing and continues to make a nonsense of efforts to understand the true scale of, and the reasons behind, the gender pay gap in some companies.
Failing to accept our report’s recommendation to require businesses to publish an action plan for closing the gap, against which they must report progress each year, suggests the government are timid in holding businesses to account for their efforts in driving the change needed".
Read the full the government response to the Committee’s report on the gender pay gap.