Whilst the draft regulations appeared clear in terms of which “relevant employees” would fall in scope, all is not as it first seems. The definition, as drafted, applies to persons ordinarily working in Great Britain and whose contract of employment is governed by UK legislation. This is the definition of “employee” as most people would understand it.

However, the original government consultation suggested that the wider definition of “employee” from section 83 of the Equality Act 2010 would apply. This definition includes those “employed under a contract of employment, a contract of apprenticeship or a contract personally to do work”. Our understanding is that it is this wider definition that the Government Equalities Office intends to apply in the final version of the regulations. This would significantly extend the scope of the regulations to include LLP members and some self-employed contractors. This in turn may affect which employers are caught by the regulations, taking those who may fall under the threshold of 250 “employees” in the narrow sense, over it, meaning that they have to publish gender pay gap information.

The inclusion of LLP members within the extended definition of “employee” may have a significant impact on professional services firms, which would have to include the pay of such members and may widen the pay gap that has to be published. What counts as “pay”?

The draft definition of “pay” includes “maternity pay”. However, in contrast, it does not expressly include pay for other family friendly leave, such as shared parental pay, paternity pay or adoption pay. Our understanding is that the intention is for such pay to be included, and that this will be clarified in the final version of the regulations. Related to this point, is that when a female employee is on maternity leave, it is her maternity pay figure that is to be used when calculating the gender pay gap. There is concern that this could result in a misrepresentative increase in the gender pay gap, particularly where the woman on maternity leave is a higher earner but her contractual salary cannot be used for calculation purposes.

In a similar way, the exclusion of salary sacrifice from “pay” may have a detrimental impact on an employer’s gender pay gap. This will be particularly so if, for instance, it is mainly its female employees that claim childcare vouchers by way of salary sacrifice, such that their lower actual salary will be the one used for calculating the gender pay gap. Bonus pay is also included as part of “pay”. This could have a major impact on an employer’s gender pay gap if, for example, all of its senior executives receive their annual bonus in April each year such that their pay is significantly inflated for the purposes of the gender pay gap calculation.

Mean and median gender pay gap to be published
It was predicted that the government would only require the publication of the median gender pay gap of large employers. This would have been consistent with the ONS data published each year. As has been explained by the ONS itself, the reason for using median average pay is because it is less skewed by a small number of very high earners, and is therefore more representative of the average person’s experience. It is interesting, therefore, that the mean gender pay gap must also be published. It is likely that the pay gap when using the mean gross hourly pay of employees will be larger than when using the median gross hourly pay. Presumably the idea behind this is to highlight those employers where there are a small number of highly paid male employees which has skewed the mean gender pay gap figure. The aim being to encourage those organisations to diversify their succession planning and increase the number of females in those highly paid roles.

The quartile quandary
Ever since the draft regulations were published requiring that in scope employers will have to report the number of men and women in each quartile of their pay distribution there has been discussion and debate about how this will have to be calculated. Unfortunately, the draft regulations themselves do not take us much further in understanding what will be required. This will hopefully be clarified in the final version. The source of the confusion was the draft regulations stating that the quartiles have to be identified “based on the gross hourly rate of pay for each relevant male or female relevant employee, listed in order of increasing value”. Did this mean that the quartiles are to be made up of equal numbers of employees, or an equal split of the employers pay range, or indeed something else? We understand that the Government Equalities Office has now confirmed that the intention is for the quartiles to be made up of four equal pay bands, each consisting of one quarter of the difference between the lowest and highest hourly rates. We await clarification of this in the final version of the regulations.

Steps to prepare
Now that we know who will be in scope and what will have to be published, it will be prudent to check your systems to ensure that the required information can be generated. It will be a good idea to run the required figures for a snapshot period in 2016 so as to highlight any discrepancies now. This will mean that steps can be taken sooner rather than later to address any issues and hopefully improve the gender pay gap figures you will be required to publish when the time comes. This will also serve as a useful comparison figure which you may consider publishing as part of your voluntary narrative, so as to demonstrate the improvements already made or at least to show that there is an action plan in place to address the issues identified.

What else to publish?
Employers will be able to include a voluntary narrative alongside the figures they have to publish. It will be worth giving some thought as to what sort of additional information it may be beneficial to include to help explain why your figures have come out the way they have.

You may wish to consider breaking the figures down further and publishing your gender pay gap figures for full-time and part-time workers separately. Indeed, the ONS figures for 2015, when broken down in this way, are revealing. The median gender pay gap for part-time employees was -6.5 percent (on average, part-time women are paid more than part-time men resulting in a negative gender pay gap), and the figure for full-time employees narrowed to 9.4 percent. This tells a different story from the overall gender pay gap figure of 19.2 percent. 

As discussed above, having to use a woman’s maternity pay figure and exclude any salary sacrifice value will no doubt negatively impact your gender pay gap figure. It might therefore be worthwhile publishing statistics adjusted to take into account the woman’s contractual salary rather than her maternity pay, and her notional gross salary rather than her actual take-home salary that has been reduced by the value of any salary sacrifice amount. It will also be worth highlighting progress made from previous years. Whilst the figures tell one story, it will no doubt be beneficial to explain other progress that has been made in the recent medium term by, for instance, increasing the number of females in executive roles.