Gender pay gap reporting to be mandatory

Consultation was launched on 14 July 2015 on regulations to be introduced in 2016 requiring companies with 250 or more employees to carry out an equal pay review and publish their gender pay gap. 

Section 78 of the Equality Act 2010 (the Act) contains a power for the government to make regulations requiring mandatory gender pay gap reporting. Until now, these powers have not been effected and a voluntary reporting approach has been favoured (unless a company has an equal pay finding against it). However, following the introduction of a voluntary reporting initiative in 2011, only five companies (including PwC) have published their gender pay gap. On 6 March 2015, it was confirmed that the government will back reforms to bring section 78 of the Act into effect and thereby require mandatory reporting. On 14 July 2015, consultation on the government's proposals was launched. 

What does this mean?

New measures will be enacted in 2016 requiring employers with at least 250 employees to publish information about their gender pay gap. The precise details of these new measures are the subject of the current consultation, which is due to conclude on 6 September 2015.  

Issues for consideration in the government's consultation include:

Whatwhat pay data will employers be required to publish?   Options for the new regulations include the disclosure of a single overall gender pay gap, or alternatively a more detailed breakdown across an organisation, e.g. by grade/job or full-time/part-time roles.  Either way, it appears likely that employers will be able to provide additional context to the figures in supporting commentary.

Where – where will the pay gap need to be disclosed?  The consultation seeks views on how employers should publish their pay data, giving the example of a company’s website.

When – when will the new regulations come into force?  The government’s consultation paper confirms that the new measures will be introduced in the first half of 2016.  However, it suggests that implementation of those measures will be delayed to give employers opportunity to prepare and possibly phased by company size (similar to pensions auto-enrolment), thereby giving additional preparation time to smaller employers.

Implications

The introduction of mandatory gender pay gap reporting is a positive step for diversity, will likely lead to increased transparency and will be a welcome development for employees. However, carrying out a disclosable equal pay review and publishing an adverse gender pay gap could also have a number of significant and harmful implications for companies including:

  • Reputational damage and negative publicity.
  • Disclosure of sensitive financial data.
  • Impact on employee attraction, engagement and retention.
  • Risk of significant financial damage resulting from employee claims for equal pay potentially going back over six years.
  • Adverse impact on procurement process.

The proposed penalty for non-compliance with the new measures is a fine of up to £5,000. However, the associated negative publicity and employment relations risks would likely be far more damaging.

Act now - proactive action is critical

The new regulations will be introduced within the next year and are likely to require companies to publish their gender pay gap within the following 12 months. The consultation paper suggests that companies with over 500 employees may be required to publish their pay gap before smaller employers.

Therefore, companies may have up to two years to investigate and improve any gender pay gaps before disclosure is required.  This means that proactive employers have an opportunity to significantly improve their position and reduce legal and commercial risks.

How can we help?

We’ll be engaging in the consultation and are very keen to discuss this with employers, in order to understand the practical impacts of the new regulations on businesses and share these views in our response on an open or anonymous basis.  Please therefore let us know your thoughts on the government’s proposals.

We can also help companies get to grips with their pay by carrying out an equal pay review, which will:

  • Allow you to retain control over your highly sensitive data by PwC Legal undertaking a confidential legally privileged equal pay audit.
  • Identify the gender pay gaps across your organisation and provide results by function, business unit and regions.
  • Analyse any pay gaps, test these against potential objective justifications and identify any high risk areas.
  • Prepare a comprehensive, legal report providing insight and analysis on the data, reporting on potential justifications and identifying any high risk areas.
  • Work with you to prepare a bespoke action plan to address and remedy any issues and minimise risks before the new changes come into effect.

Critically, PwC Legal's reporting, discussions and action planning can take place with you in a confidential and legally privileged manner.   This will enable you to fully understand any gender pay gaps within the context of equal pay legislation, so that gaps can be presented in a meaningful way to minimise potential commercial and legal risks and an action plan developed to minimise such gaps.  Once the changes have come into force, we can also help with ongoing mandatory reporting obligations. 

Why PwC Legal and PwC?

We are the market leaders in equal pay reviews and are uniquely placed with complementary teams of specialists in employment law, reward and data modelling.

We have significant experience in carrying our equal pay reviews and have worked with clients across a wide variety of industries in this area.