Gender pay: squeezing the gap

Transparency seems to be the political order of the day, not least in the hope that some 40 years after the Equal Pay Act came into force, publishing an organisation’s gender pay gap will result in women earning the same as men.

Last year, following the failure of the voluntary “Think, Act, Report” scheme, and the slow pace of change (in the last 10 years the gender pay gap has reduced by 3% to 19.2%), the Government announced it would implement s 78 of the Equality Act 2010, compelling employers to publish their gender pay gap – a collective figure which varies across age ranges and sectors, showing the difference between the average earnings of men and women as a percentage of men’s earnings.

The draft regulations

The Draft Equality Act 2010 (Gender Pay Gap Information) Regulations 2016 were published in February as part of a second, now closed, consultation, with final regulations expected this summer. Although it is hoped that some defined terms will be amended, the overall structure of the regulations is not expected to change significantly.

Two notable omissions are worth highlighting. The first is the lack of penalty for non-compliance. The Government is hoping that the twin drivers of external pressure from the public and internal pressure from employees will incentivise change. Certainly the decision to rank employers in sector league tables, and “naming and shaming”, will make many nervous. But will this lead to the gap being reduced? If employers simply adopt a tick box mentality towards compliance, that is unlikely.

The second relates to the fact that once a pay gap is discovered, the draft regulations do not impose any obligation on an employer to do anything. The most recent consultation recommends that employers should produce a narrative (which would set the context for their pay gap and any steps taken to address it), but stops short of legislating. Most European countries that have legislated in this area combine a duty to publish with an action plan explaining the steps to be taken to close the gap.

Which organisations are in scope?

The draft regulations apply to private and voluntary sector businesses that employ at least 250 employees at the relevant date. Separate regulations will be published covering public authorities. The duty to publish will not come into effect until April 2018, although by 30 April 2017 employers should have produced a preliminary data snapshot.

The Scottish dimension

As a result of the Equality Act 2010 (Specific Duties) (Scotland) Regulations 2012, listed public authorities currently with more than 150 employees (reducing to 20 in future) have been obliged to publish their gender pay gap since April 2013. While these organisations may appear to have a head start on compliance, there are significant differences between the obligations contained within the respective regulations.

What information should be published?

Employers who are in scope will be required to publish both the median and the mean gender pay gap figure for pay, and the mean figure for bonuses. This includes commission payments, long term incentive plans and the cash value of shares. Employers will also have to state the proportion of employees who receive bonuses. Rather than stipulate that employers must publish information demonstrating a breakdown at grade level, they will be required to report on the number of men and women in each quartile of their pay distribution. For those unfamiliar with this term, it means taking the pay gap data and splitting it into four equal groups. The idea is to give a sense of where women are in the seniority pipeline.

Will it give rise to equal pay claims?

One of the most common myths is the concern that this disclosure will lead to a flood of equal pay claims. Since the vast majority of employers will have a pay gap, it seems incredible that they would all be recipients of a claim. Gender pay is a totally different legal concept to equal pay, which is based on an individual comparison of pay where there is equal or similar work. Equal pay has traditionally been seen as a public sector issue. But perhaps the tide is turning. We are starting to see private sector equal pay cases, as in Brierley v Asda Stores, involving hundreds of female Asda workers, and an employer with a higher than average pay gap figure may face difficult questions.

Why does an organisation have a pay gap?

Generally there will be a number of reasons why an organisation has a gender pay gap, one of which may be pay discrimination. Other reasons include childcare responsibilities and occupational segregation, i.e. low female participation either within certain industries or at certain levels of an organisation. Failure by women to progress to senior levels may be due to a variety of reasons, many of which relate to motherhood: maternity leave, career breaks, returning to work part-time; and women’s choices can all affect career progression and rates of pay. The results can be staggering: according to the Equality & Human Rights Commission, an average woman working full time from age 18 to 59 will lose £361,000 in gross earnings over that period compared to an equivalent male.

What can an employer do now?

Employers looking for practical steps in advance of the duty to publish coming into force should consider the following:

• Are your payroll systems set up in a way to calculate pay data according to gender?
• Determine who is in scope. The draft regulations apply to UK employees and to a specific pay period, which starts on 30 April 2017, and 30 April each year thereafter.
• Assess what is included within the definition of pay. This currently includes basic pay, paid leave, maternity pay, sick pay, area allowances, shift pay, bonus pay and on-call and standby allowances. It does not include overtime pay, benefits in kind or redundancy pay.
• Determine your bonus calculations and how you will quantify the cash values of shares. The bonus figure is assessed in a different way from pay. Bonus payments which are “received and earned” in the 12 month period prior to April 2017 are included.
• Understand what your sectoral/industry average is, to provide the wider context for your organisation’s gender pay gap figure. For the most recent Law Society of Scotland research see www.lawscot.org.uk

Occupational segregation issues

• If you have lots of women at a middle grade but very few at the higher grade, this begs the question, why?
• Are there barriers preventing female career progression? Do you have a future female talent pipeline?
• Is there some sort of unconscious bias in operation here?

Issues around caring

• Are there issues around flexibility in terms of balancing work and family life?
• Do you promote flexible working in senior roles, for example by encouraging job sharing?
• Do you track how many women return after maternity leave, and what support is available?

Issues around pay

• Do you require to carry out an equal pay audit?
• Are you confident that your pay grading systems are assessing people who are in comparable roles?
• Do you, for instance, need to conduct a job evaluation process?
• What happens when new external recruits are hired – is there any pay scrutiny process around banding limits? This is an area that can lead to significant discrepancies. Studies have also shown that women are less likely to push for a pay rise.
• How are pay rises reviewed centrally? In many private sector organisations there is very little pay transparency and managers may have a great deal of discretion.

Organisations should be aware that occupational segregation and caring issues cannot be fixed overnight. In contrast, pay can be a quicker fix, albeit a more expensive one. There are also greater legal risks arising from resolving pay disparities, and organisations may wish to take legal advice before acting on this issue.

How much longer?

While the draft regulations are to be welcomed, it is too soon to say whether a duty to publish will result in employers taking action to reduce the gender pay gap. And since the regulations are only expected to cover 34% of the UK workforce, we must be realistic about what they can hope to achieve. While undoubtedly it is employers who are the key stakeholders, there is also a significant role for the state in promoting a cultural shift towards shared parenting, encouraging young women into a broad range of industries at higher education level, and challenging low-paid feminised sectors of the workforce. All of this takes time. While the World Economic Forum, in its Global Gender Gap report, rather depressingly said that it will take 118 years to close the gap, David Cameron has said that he wants the UK to have done so “within a generation”. Let’s hope it is the latter aim that prevails.

The Society’s view

When the pay gap in the profession was made public last year it made front page news. The average man (FTE) in the Scottish profession earns up to 42% more than the average woman. Many people who commented made a classic mistake: they focused on equal pay, which has been the law for decades, and decided the problem didn’t exist.

It isn’t (just) about equal pay. It is about pay, bonuses, conditions, hiring and, importantly, career progression. It is perfectly possible for men and women to be paid the same but for the average man to out-earn the average woman – if men are more likely to progress to higher-paid roles.

The statistics published last year were hardly new. They were first published as part of the 2013 Profile of the Profession report. We simply chose to highlight the issue last year as part of an ongoing campaign.

It is interesting to consider why the pay gap exists. It seems to accelerate around the time women choose to become mothers – though our figures show it also widens for women who choose not to become mothers. Other factors include choices organisations make in hiring, promotion, and partnership rounds; differences in approach between the genders in salary negotiations; breaks in employment and their effects; and many more besides.

The profession will likely face systemic and structural problems if pay gap issues are not combated. Women now form a majority of the profession. Around 70% of law students are female. That will have to translate into progression across the board.

So what can you do? First, look at the Society’s equality and diversity standards. These are scale-able and can be adopted by organisations of all sizes. There’s also guidance on the Society website on how to undertake an equal pay audit. We are happy to help if you have questions (e: diversity@lawscot.org.uk).