Gender Pay Reporting – the Final Regulations

In the season of good will to all men, large fashion employers will need to start work to identify their gender pay gaps and improve the pay disadvantage faced by female employees.

We have been waiting for the final Gender Pay Reporting Regulations for many months and they will now be implemented by 6 April 2017.

In the fashion sector where (like most sectors) there will be a pay gap showing women are on average paid less than men, and may get lower bonuses, the requirement will be to publish information about those gaps annually from 2018.

Another key issue for employers in this sector is the use of contractors and freelance staff; the definition of “employees” whose pay and bonus have to be reported on includes those working under a contract to provide personal services and apprentices.

All large employers must publish their first report by 4 April 2018 (for pay in April 2017 and for bonuses in the previous 12 months). Gender pay reporting should not be treated as just a compliance issue: gaps will undoubtedly exist and it is incumbent on all fashion employers to look to improve their gender pay gap year on year.

Which employers must report?

The final Regulations are applicable to private employers who have 250 or more employees at the snapshot date (5 April each year). These employers will have to report on their pay and bonus gaps by 4 April of the following year.

Despite lobbying to allow group reporting, the Regulations do not permit this and reporting must be undertaken by legal entity. Fashion clients with separate legal entities employing staff working in GB, may operate under a group structure or brand but it is the employing legal entity which must report on their employees: so the trading/retail entity is one employer and the on-line or distribution companies may be separate entities.

A director of each legal entity will have to sign off on the figures and confirm they are accurate and have been calculated in accordance with the Regulations.

What must be reported on?

The data fields on which an employer must report are very specific and how these are calculated is set out in detail in the Regulations. The earlier draft proposals had five fields and the final Regulations now contain six:

• The percentage difference in mean hourly pay between men and women during the relevant pay period

• The percentage difference in median hourly pay between men and women during the relevant pay period

• The relevant period is the pay period falling on 5 April.

• The percentage difference in the mean bonus between male and female employees in the 12 months to 5 April

• The percentage difference in the median bonus (which is a new addition)

• The proportion of male and female employees (in gender group) who received a bonus in the 12 months to 5 April in the relevant year – expressed as a percentage

• Finally the percentage of male and female employees in each hourly pay quartiles split evenly across the employed population.

Which employees pay and bonus must be counted?

Only those working as at 5 April in the relevant year on which the figures are being reported need to be counted.

The pay and bonus paid not just to employees, but others such as consultants, undertaking work in a personal capacity may be needed, for example designers, IT experts and other contracted in specialists.

Office holders, such as non-executive directors, are likely to be excluded unless they are carrying out executive roles – again the test is one of personal service.

Finally care must be taken with agency supplied staff to assess whether they are to be reported on; if they are supplied via an Agency, who pays them holds the pay data or employs them; it is the Agency’s responsibility.

Special consideration will need to be given to internationally mobile employees, where individuals are posted abroad or are working temporarily in the UK but based in another jurisdiction.

Detailed calculations

The detailed calculations explaining how to calculate hourly pay by reference to the normal working week will require fashion clients to review normal and variable working patterns. There is specific guidance on what period is assessed to determine average hours and also what needs to be included in ordinary pay for this purpose (a range of payments such as allowances – clothing allowances, fit outs, overnight allowances etc. and shift pay are included).

Overtime is excluded as is overtime pay, which of course is a regular feature in the fashion sector with intense periods of working with new season designs and runway/fashion shows increasing workloads for many in at particular times.

When calculating the men and women employed by reference to their pay in the pay period which crosses 5 April, you exclude absentees from work (on various forms of leave) pay drops below normal full pay.

Careful analysis in collating the data is needed to ensure compliance.

Bonuses in the relevant pay period

Bonuses paid in 5 April pay period must also be counted for the hourly pay figures but only that part of the bonus which is referable to the pay period; so for monthly paid staff , if an annual bonus is paid in the month of April, the bonus should be pro-rated to 1 month’s worth of bonus.

There is now a very complex pro-rating formula which will require careful analysis – a month under these Regulations is 30.44 days and a year 365.25 days!

Bonuses in the 12 months to 5 April

When reporting on the bonus pay differences an employer needs to count all bonuses paid in the 12 months to 5 April to all relevant employees i.e. those who remain employed and/or working as at the 5 April (the relevant date) whether or not they are absent from work on 5 April is irrelevant.

The Regulations contain a clearer definition of bonuses which can include retention bonuses and vouchers for clothes, shoes or other products.

Finally there is the question of share options and deferred bonuses. The Regulations make the inclusion of share options easier to administer. Only options which trigger a PAYE tax charge have to be reported in the year that the benefit is actually received by the employee and they are therefore taxed on it. Thus options which are deferred would not be included and neither would deferred bonuses.

Future Guidance

Sitting alongside the Regulations will be joint guidance issued by ACAS and the Government Equalities Office. This guidance is likely to go beyond just the compliance aspect and will provide advice to organisations about managing their gender pay gap reporting and how to address pay gaps.

Conclusions

Employers will need to pay very careful heed to the detail and complexities that the Regulations in final form will impose on them. Legal advice should be sought to ensure the correct test and definitions are applied.

Even though non-compliance and failure to report will not result in a civil fine, the Equality and Human Rights Commission could take enforcement proceedings. This risk and more generally the impact upon reputation and brand is a key reason why employers should be concerned and take these new provisions seriously.

The details must be reported on both a government website and on the employer’s own UK website, accessible to the public and employees. In part this will allow consumers, shareholders and employees to compare one employer against another in the sector.

The expectation is that an employer will explain what it is doing to close their gender pay and with the annual reporting cycle employees and third parties will be able to measure commitment and the organisation’s proactive steps in achieving improvements.