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Filling the gaps on the impending gender pay gap regulation

Marian Bloodworth, employment partner at Kemp Little LLP

Six months after the government ordered corporations with 250 or more employees to reveal their gender pay gaps, over 90% of companies are yet to publish their figures, that’s according to the latest count.

With a further six months to go until the final deadline, the CBI has suggested that "firms will want to make sure they get it right and will use the time available to them."

Using this time wisely is particularly necessary, as the regulation requirements are not as clear as they could be.

The regulations

By 4th April 2018, and annually thereafter, these companies will be legally obliged to report on a number of gender pay related metrics, including the difference in average hourly pay of male and female employees.

Yet, calculating the threshold number of employees and working out who is in scope is not as simple as it might first appear.

Who needs to comply?

The first question employers will need to ask themselves is, “is my company caught within the 250 employee threshold?”

According to the Explanatory Notes of the regulations, ‘employment’ has the meaning set out in section 83 of the Equality Act 2010. Therefore, in threshold calculations, employers should include any person employed under a contract of employment, a contract of apprenticeship, or a contract personally to do work. However, complexities arise around some of the following workers:

Overseas employees: The ACAS guidance suggests that generally when an employer based in Great Britain has an employee based overseas, that employee will be classed as an ‘employee’ for these purposes if they would be able to bring a claim in the employment tribunal under the Equality Act 2010. This will involve an analysis of the tests in recent case law on status which is complex [Lawson v Serco [2006] IRLR 289 and Ravat Halliburton [2012] IRLR 315]. Equally there is no clarity as to how overseas secondees to the UK, or UK employees of businesses with overseas headquarters should be treated.

Partners: When it comes to reporting on employee pay, the regulations expressly exclude partners and LLP members. However, they are not expressly excluded for the purposes of calculating the ‘employee’ numbers for the threshold – creating confusion.

Which employees should be reported on?

Along with partners, workers such as consultants do not have to be reported on. The regulations state that if the employer does not have the data relating to someone working under a contract personally to do work and it is not reasonably practicable to obtain the data, then it does not have to include the data.

However, employers should be wary about relying on this exclusion, as there is a grey area around the definition of what is “reasonably practicable to obtain” and it is likely that there will be expectations around obtaining this data in the future.

Writing the report

Once employers are comfortable with their data, they need to think carefully about how they present it. It is anticipated that most employers will have a gender pay gap, therefore they should consider the context of the data and the next steps they will take to address the gap, such as:

  • Are there senior (and otherwise well-paid) individuals who were not ‘relevant full paid employees’ at the snapshot date (because they were on leave)?
  • How do the employer’s metrics compare to others in the sector? Is the employer involved in any initiatives to help encourage women into the sector?
  • Has the employer already taken any steps to reduce the gender pay gap and what further steps will be taken?

There will be an expectation that the gap will narrow each year, particularly where the employer has identified practical steps to take. Therefore, employers should be careful to commit to steps that they are confident they can deliver on and that will drive genuine change.

Sharing the information responsibly 

Most employers will have given careful thought to how the report will be perceived externally and the external communications accompanying it, including the most strategic time to publish. How the report is perceived by the employer’s own staff will be equally as important. The report could raise a lot of questions, and may spark pay grievances or even claims for sex discrimination or equal pay. Clarifying the distinction between equal pay and gender pay issues will be particularly important, including making clear that data showing a gender pay gap does not necessarily show an ‘equal pay’ issue.

Any other data that is generated while preparing the report could become disclosable in future employment tribunal claims. Therefore, employers should be careful when producing and commenting on the data internally. Involving legal advisers in order to protect the data and analysis with legal privilege should therefore be considered.

From now until April 2018

The external and internal implications of these reports should not be underestimated. The media is primed to report on many of the biggest companies as findings are released over the next six months. By using the remaining time they have left to explain the data in a responsible way and carefully consider the next steps, corporations will be better placed to deal with any risks associated with the report as they arise.

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