May 2022 – Gender pay gap reporting: 5 years on
Now that we’ve had gender pay gap reporting regulations for over 5 years, we’ve taken a look at the impact of the regime.
This article looks at what has worked, what isn’t working and what is next for gender pay gap reporting.
Gender pay gap reporting: what works
High gender pay gap compliance: lots of employers are reporting their gender pay gaps
Around 10,000 employers have been publishing their gender pay gaps each year. Many employers (but far from all) are also publishing detailed narratives explaining their gaps and setting out their diversity agenda.
More employers are also voluntarily reporting their gaps. In 2017 just 285 small employers (with less than 250 employees) reported their gaps. In 2021, there were 517 small employers. Even in 2019 – when no employers were legally required to report any gaps – nearly 7,000 employers voluntarily provided them.
Gender pay gap reporting has increased attention on gender diversity
Many employers were surprised when they calculated their gender pay gaps for the first time over 5 years ago. Issues that had previously gone unnoticed or unaddressed were suddenly highlighted, especially issues around the types of work that women tend to do, the underrepresentation of women in senior or more highly paid roles across many sectors and the impact of motherhood on pay and career.
The requirement to annually calculate and report statistics has forced gender diversity to be a high and recurring priority on many employers’ agendas. Even though it will only be voluntary, ethnicity pay gap reporting could achieve the same. This culture change has been an important success of gender pay gap reporting that can’t be overstated.
When gender pay gap reporting first came into effect, the mainstream press was full of stories about employers and their high gender pay gaps. Today, they are less common but the more niche industry-specific publications continue to expose employers with high gender pay gaps. Moreover, employers are facing greater pressure from their workforce and their customers for action on their gender pay gaps. Questions about pay gaps can often be included in pitch and tender documents.
Stubborn pay gaps can be hard to shift, especially when they are caused by lack of women in senior or highly paid roles. Turnover in the highest paid roles tends to be low, so opportunities for change are limited. Moreover, change can be challenging if there is a lack of diversity in the existing talent pool, and particularly since the scope for taking positive action is heavily restricted by UK law. However, 5 years is long enough for diversity initiatives to have started to show some results, even if they are limited and the pace of change is slow. Employers that have made no progress to date may face difficult questions. Given employers’ finite resources, their time and effort should be spent on only those initiatives that are proven to deliver results.
The UK’s gender pay gap has reduced since 2017. Does this mean the Regulations have helped? It’s difficult to say for sure. Gender pay gaps were already falling before 2017 and there has been no obvious change in trend since then. Despite a small covid-related increase, they continue to fall.
Gender pay gap reporting: what doesn’t work
Partners excluded from gender pay gaps
Partners and members of an LLP are expressly excluded from the definition of “employee”, meaning that they aren’t included in any of the gender pay gap reporting figures. The reason they were excluded is that partners are not “paid”. They instead receive “drawings” that can vary a lot over time. Taking a snapshot of just one month is therefore potentially not representative of their actual income.
However, since partners are the most well paid in a business, excluding them from the gender pay gap misses a vital piece of the diversity puzzle. It creates a bizarre incentive for employers to promote men into the partnership but leave senior women lingering just below.
The Law Society has published guidance to law firms that want to calculate and voluntarily report gender pay gaps including partners. They suggest that, instead of taking a snapshot of just April, partner remuneration over 12 months is used to calculate an hourly rate. We, like some other law firms, follow this guidance and publish figures including our partnership (as well as the mandatory figures). This shows that it is perfectly possibly to calculate sensible gender pay gaps including partners.
Individual choice can affect gender pay gaps
Gender pay gaps must be calculated using gross pay. But since salary sacrifice is an agreement to reduce gross pay (rather than being a true net deduction), the gender pay gap is based on post-sacrifice pay. However, the degree to which men and women choose to reduce their pay in this way can influence the gaps. If all men and women sacrificed the same proportion of pay, there would be no difference in gaps but this is not what we see in practice.
With the winding down of childcare vouchers, pensions are where the biggest salary sacrifices are made. Women are more likely to be in low paid roles and so less likely (or able) to contribute into their pensions. High paid men on the other hand will make bigger contributions into their pension, so their pay is reduced to a greater extent. This imbalance can mean that gaps can be artificially reduced.
Changing the definitions so that calculations would either not take salary sacrifices into account, or so that it would take into account the value of benefits that an employee receives (i.e. the employer’s pension contributions) would fix this issue.
Accuracy of statistics and the enforcement of gender pay gap reporting
The EHRC is the body that has taken responsibility for enforcing gender pay gap reporting and, to date, it operates a light touch style of enforcement. Perhaps because of its under funding and lack of resources, its actions to date have been limited to the sending of letters to employers that it believes have not published gaps. It doesn’t routinely check the accuracy of published figures in any meaningful way. Its approach may also be influenced by legal uncertainty over its powers. The EHRC says it has the power to investigate employers, but it is not clear from the relevant legislation that it actually does. Despite this, it makes only a few targeted investigations.
The gender pay gap reporting regime will work best when employees and members of the public are confident that gaps are accurate and have been correctly calculated. Employers’ gaps must be confirmed by a statutory director as being accurate, but even this step does not prevent the publication of obviously incorrect statistics.
Ideally, the EHRC would be adequately funded and supported to adopt a new approach aiming to increase the accuracy of published statistics.
What next for gender pay gap reporting?
The government was obliged to carry out a review of the gender pay gap regulations by now, but there is no sign that it has done so. Any changes to the technicalities of gender pay gap reporting would mean past figures would not necessarily be comparable with later figures, making it harder to identify real change. If figures were to be calculated according to the existing regime and then also according to any revised regime, it might help to show what impact any methodological differences have on gaps. In addition to reviewing and perhaps refreshing some of the technicalities of gender pay gap reporting, it would be helpful if the government considered new approaches to improve the accuracy of gender pay gaps. Any reporting regime is only effective if the figures being reported are accurate. People need to have confidence that one employer can be fairly compared to another. The government should consider how they can do this.
If you have any specific questions you would like advice on, then please contact: Abi.Frederick@lewissilkin.com or koichiro.nakada@lewissilkin.com of Lewis Silkin LLP.