More than ever, issues of gender equality and pay and sex discrimination in the workplace are at the forefront of public consciousness. Against this backdrop, Louise Skinner, Employment Partner in the London office of global law firm Morgan Lewis, takes a look at the key trends emerging from gender pay gap reporting as the first annual deadline of 4 April 2018 approaches.
In recent months there has been growing public scrutiny of employers in light of apparent pay disparity between men and women, with calls for the BBC to address differing gender pay levels and reported equal pay claims with a potential value of up to £4 billion threatened against Tesco. The focus is now turning to companies reporting their gender pay gap, with the 4 April 2018 publication deadline looming for private sector and voluntary employers with 250 or more employees (30 March 2018 for public sector employers).
The Story So Far
So far, it is estimated that just under 11% of in-scope employers have published their pay gap statistics. Big names such as Deloitte, Airbus, and Weetabix have already reported, but a significant majority have yet to do so. In light of the approaching deadline, the government has been issuing reminders warning in-scope employers who have not yet done so, to register with the government’s reporting service ahead of time. While the limited reporting to date means that trends are slow to emerge, it is possible to identify some key themes across sectors.
To date, limited data has been reported by the banking sector, where it is estimated that the pay gap is significantly higher than the national average of 17.4% mean (18.4% median). One of the few UK banks to have reported, published a gender pay gap of 31% mean (24% median), which, consistent with market expectations, is notably higher than the national average. However, in its narrative, the bank makes a case for the positive gender diversity initiatives it is implementing. It is expected that this trend will continue, with employers using the narrative as a mouthpiece to demonstrate positive steps they are taking to eradicate the gap.
In the retail sector, somewhat unexpectedly, reports demonstrate even greater hourly pay gaps. One fashion retailer has reported a 64.8% mean (54.5% median) hourly gender pay gap. However, that retailer used its narrative to conduct a “deep dive” analysis to break down the statistics into retail and corporate staff. At the snapshot date, the retailer employed 1,710 women and 44 men. Of the 44 male employees, 39 were employed in the corporate head office. By removing corporate staff from the gender pay gap calculation, the company was able to demonstrate that it has a negative gender pay gap (i.e., the average female earns more than the average male) relative to the majority of its staff.
The majority of employers have been very clear in their reports that having a gender pay gap is not the same as paying men and women unequally for the same or similar work, but instead is attributed to uneven distribution of men and women across the highest paid and lowest paid brackets of the workforce. There will no doubt, however, be further scrutiny placed on employers by both employees and the press to justify gaps which exist in pay and bonuses.
Notably, the Office of National Statistics (ONS) has concluded in new analysis published on 17 January 2018 that, contrary to popular belief, the majority of the gender pay gap in the UK cannot be explained by differences in characteristics between men and women and the types of jobs they do. The study focuses on the median (not mean) gender pay gap and finds that only one-third of the pay gap can be attributed to observable differences in the characteristics of men and women and the jobs they do (such as average age, job tenure, company size, and occupation). With regard to the unexplained remainder, the ONS states that more analysis is needed on family structures, education, and career breaks. Until that is done, the ONS stresses that the unexplained element should not be interpreted as a measure of discriminatory behaviour (although it concedes this may play a part).
The Equality and Human Rights Commission (EHRC) has stated it will take enforcement action in response to breaches of the Gender Pay Gap Reporting Regulations. However, there remain questions about the extent of the EHRC’s legal powers, and this issue is currently under review.
The EHRC says it will initially focus enforcement work on employers which fail to publish the information required by the regulations. Secondly, if it has capacity to do so, the EHRC intends to take enforcement action against employers for publication of inaccurate data. However, it remains unclear exactly how the EHRC will assess whether an employer should be in scope and the accuracy of the information published, given that, based on current proposals, its investigative powers are only available after an informal resolution stage.
Notably, the Financial Times has already analysed pay gap data reported to date, querying statistics which seem improbable. Six employers have changed the data they originally published as a result—one doing so on three separate occasions. The potential impact on reputation arising from such public scrutiny is therefore as significant as the risk of potential enforcement measures. This should act as an added incentive for employers to ensure their published data is accurate.
What should employers be doing now?
Most employers are waiting until closer to the deadline to publish and it is expected that there will be a significant increase in reporting in the weeks running up to the deadline. In-scope employers should ensure that their statistics are finalised in good time to be uploaded to the government’s designated website prior to the deadline, and careful thought should be given to the content of the narrative (if any) to be published along-side the numerical statistics.
Many employers are conscious of the impact publication is likely to have on their business—particularly in relation to brand, pipeline talent, employee engagement, and business growth, and have tailored their narratives accordingly. This data will no doubt also be used also to demonstrate their commitment to equal opportunities for other purposes, including in response to pitch opportunities and requests for proposals (RFPs).
Looking ahead, we expect to see an increase in the number of equal pay claims being brought. Although a gender pay gap does not equate to unequal pay, the statistics published may be used as further evidence to support equal pay claims or alert potential claimants to the existence of possible claims. It is anticipated that this is most likely to occur in respect of bonus gaps as significant differences in bonus pay may be more difficult to justify by reference to objective criteria. Employers should also be aware of the increased likelihood of employees submitting data subject access requests or raising grievances in response to publication of pay gap data, as a precursor to bringing claims. They should also be prepared to face more instances of collective action, with employees joining forces to address perceived inconsistency of treatment.
For employers, prevention is better than cure. Any pay disparity identified should be investigated and measures taken to address inequality before claims arise. Promoting transparency and open communication are important steps toward achieving a diverse, fair, and productive working environment.