Cross-Border Trends: UK to Follow US Attack on the Gender Pay Gap

Following months of waiting the UK Government has finally published its draft regulations on the new “gender pay gap reporting” requirements in the UK. On publication of the draft regulations, the UK Government has asked one final consultation question: “What, if any, modifications should be made to these draft regulations?” – And so it would appear that the draft regulations are nearing but possibly not quite in final form, pending any pertinent responses received.

So what do the draft regulations say? The “Equality Act 2010 (Gender Pay Gap Information) Regulations (the Regulations)” will require employers (both public and private sector) with 250 or more employees to produce certain statistics and information regarding the gender pay gap of their workforce on an annual basis. The aim of the Regulations is clear: we have a gender pay gap in the UK, voluntary reporting hasn’t worked (take up by the private sector was virtually non-existent), and this is a hot topic that the press, the public and the politicians all care about.

For the Regulations to bite, an employer must have 250 or more “relevant employees”, i.e. employees who (i) ordinarily work in Great Britain, and (ii) whose contract of employment is governed by UK legislation. They must have this number of employees on the “relevant date” – which is set to be April 30th, 2017, and each April 30th thereafter. Figures will not be aggregated across associated employers within a group. Most of the information required to be published will relate to a specific “pay period” – the pay period within which the “relevant date” falls. For example, if employees are paid on the 27th  day of each month, the relevant date (April 30th) will fall within the pay period from April 28th – May 27th and it is this snapshot in which the UK Government is interested.

If an employer has 250 relevant employees, on the relevant date, it then has until April 30th the following year (i.e. April 30th, 2018 in the first instance) to produce certain specified information about its employees and their pay:

  1. It must publish the difference in mean pay between male and female relevant employees in the pay period;
  2. It must publish the difference in median pay between male and female relevant employees in the pay period;
  3. It must publish the difference in mean bonus pay, for the 12 month period up to the relevant date;
  4. It must publish the proportion of male and female relevant employees who received a bonus during that period; and
  5. It must publish the number of male and female relevant employees on the relevant date split into quartile pay bands.

By way of an example for point 5, where an employer has 1,000 employees, it would produce a table along the lines of the following example:

Quartile Number of Women Number of Men
A – highest pay band 50 200
B – second highest pay band 100 150
C – third highest pay band 150 100
D – lowest pay band 200 50

With the exception of point 5 above, information must be expressed as a percentage. For example, for points 1 and 2 the employer might say that there was a “10% difference in mean pay but a 20% difference in median pay, between male and female relevant employees in the pay period.”

What does and does not count as “pay” is set out in the draft Regulations. For example, pay does include maternity pay and shift premiums, but does not include overtime. There is also a detailed explanation of what is included in “bonus pay”. It seems likely that there will be elements of pay that have not previously been considered, and we might see some amendments to the draft Regulations on this basis.

There is no requirement to publish explanatory notes to the information, and there are also currently set to be no penalties in place for non-compliance. However, it seems likely that the court of public opinion and campaign groups will be active in this area, and the UK Government also intends to publish sectoral “league tables” of the best and worst gender pay gaps of the information it receives, and that’s one league table no employer wants to be top of.

They may have been a long time coming but subject to any final changes, the draft Regulations are now here and set to be introduced in October this year, and so we recommend that UK employers stay one step ahead by thinking now about how to gather, produce and explain (if necessary) these statistics. It may be worth having a “trial run” and collating some current statistics to see how the results would fare, in advance of having to disclose that information publicly. This way, the employer would have an opportunity to consider whether the statistics show any form of gender pay gap, what they might do to combat this before the first reporting requirement and/or how they are going to explain that gap to minimize publicity damage when the time comes. In that last respect, employers should be thinking about both internal and external communications and reactions – managing the message to the market, recruitment pools and clients, as well as to the existing workforce who might be destabilized by the pay gap information or, more cynically, could seek to use it to their advantage.

Looking over to the other side of the pond, the UK’s proposed regulation comes at a time when both the US federal government and individual states are proposing and passing more aggressive equal pay laws than ever.  On January 29th, 2016, the Equal Employment Opportunity Commission (“EEOC”) published a proposed rule revising the Employer Information Report (EEO-1), which already collects employee data on race, ethnicity and sex, to require employers with more than 100 employees to also submit compensation data annually.  The EEOC intends to collect from employers aggregate W-2 data organized within 12 pay bands for the existing 10 EEO-1 job categories.  The proposed rule also calls for employers to report the number of employees, and the total number of hours worked, within each pay band.  As we reported in an earlier blog on February 2nd, 2016, the EEOC expects the new data to provide the EEOC “with insight into pay disparities across industries and occupations and strengthen federal efforts to combat discrimination.”  Unlike the UK rule, the EEOC’s proposed rule will not require US employers to publish their own pay data.  Rather, the EEOC plans to publish aggregated data (likely by industry and geographic area), and expects employers to use the published data to analyze their own pay practices to facilitate voluntary compliance.

At the same time, several US states, including California, New York, and, most recently, New Jersey have passed or proposed equal pay laws that significantly increase the burdens on employers to justify any pay differentials between men and women.  The California Fair Pay Act, which became effective January 1st, 2016, changes the requirement that employers provide “equal pay for equal work” (which is also the standard under the federal Equal Pay Act) to “equal pay for substantially similar work” based on the employee’s skill, effort and responsibility, and similar working conditions.  Although employers may justify pay differences based on one or more of four factors, including “a bona fide factor other than sex,” the Act requires employers to demonstrate that each factor relied upon is reasonably applied, and accounts for the entire wage difference.  New York’s Equal Pay Law, which took effect on January 19th, 2016, does not go as far as the California Act (the standard in New York remains “equal pay for equal work”), but significantly increases the burden on New York employers to justify gender-based pay differentials.  Most recently, an equal pay law similar to the California Fair Pay is making its way through the New Jersey legislature, and is expected to become law unless vetoed by New Jersey Governor Chris Christie.  All three of these state laws also include enhanced anti-retaliation provisions intended to improve pay transparency about employees’ salaries[i].

Undoubtedly, differences exist between the UK and US regulations and statutes.  Nevertheless, they demonstrate a renewed emphasis on closing “the pay gap” across two continents, and both UK and US employers are advised to get ahead of the curve by analyzing their pay data and practices now.

[i] For more information on the California Fair Pay Act, see our October 20th, 2015 blog here.  For more information on the New York Equal Pay Law, see our October 26th, 2015 blog here.