Legal experts review guidance on reporting for overseas workers, different types of employee and supporting narratives

The Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 came into force on 6 April 2017. Private and voluntary sector employers with 250 or more workers need to take their first snapshot of pay data for the pay period including 5 April 2017, and publish it by 4 April 2018. Similar obligations apply to public sector employers from 31 March 2017.

On 28 January, Acas and the Government Equalities Office published guidance on the new obligation, and a revised final version was made available on 3 April. The guidance sets out in detail the types of data to be disclosed and how to calculate them, providing useful worked examples. It also clarifies some – although not all – of the issues left unclear in the final form regulations. As a result, employers will need to make judgement calls on what approach to take to certain issues. Organisations that adopt a sensible approach reflecting the spirit of the regulations, explain that approach in a narrative and apply it consistently from year to year are likely to be best-placed to deflect any criticism.

Overseas workforce

The regulations themselves are silent as to the extent to which overseas employers and workers are covered. The guidance confirms that the regulations could cover both (i) individuals sent abroad to work by employers based in Great Britain and (ii) multinational organisations that have individuals working wholly or partly in Great Britain.

In relation to the former, the guidance states that, as a general rule, an individual based overseas will be within the scope of the regulations if they can bring a claim to an employment tribunal under the Equality Act 2010, and that “this will depend on whether the employment relationship suggests a stronger connection to Great Britain and British employment law than to the law of any other country”.

The guidance points to three relevant factors in determining this: whether the contract is subject to British law, whether the individual's home is in Britain and whether they pay tax here. But there may be other relevant factors, depending on the facts. For employers with a large overseas workforce, it may be impractical to assess the position of each individual. A sensible approach may be to adopt a rule of thumb based on the period of time abroad, particularly if workers are moved to local contracts after that period.

Type of worker

Although not expressly dealt with in the regulations, the guidance confirms that the extended Equality Act definition of employment will apply, namely individuals employed under a contract of employment, a contract of apprenticeship or a contract personally to do work. Agency workers and those working through a personal service company will form part of the headcount of the agency or service company, not the end user.

The guidance does not address whether non-executive directors should be included; it is probably reasonable to exclude their data on the basis that they will not fulfill the requirement for subordination.

Data must be reported for all ‘relevant employees’, save for employees who are employed under a contract personally to do work and for whom the employer does not have, and it is not reasonably practicable for it to obtain, the data. The guidance notes that an employer may have such data, eg where a project initiation document exists and/or a schedule of fees. It suggests that, where the employer does not hold the data, it should consider whether it is reasonably practicable to ask the relevant individual, and that new contracts should seek, where possible, to ensure that those employed under a contract personally to do work are required to provide the information needed for compliance. Employers should review their standard form contracts to ensure such a provision is included.

Gender assignment

The guidance proposes that employees should be given an opportunity to confirm or update their gender record if appropriate and, where an employee does not self-identify as either gender, the employer may omit their data from the calculations.

Narratives

Employers may wish to use a voluntary narrative to explain which individuals they have treated as in scope. They may choose to explain their approach to other grey areas in the calculation of hourly pay rates and bonus pay (eg in how to pro-rata amounts of commission or other incentives, or in applying the hourly pay calculation to zero-hours workers or those with no formal 'working hours').

Employers may also wish to give some context for their gender pay gap figure and publish additional adjusted data showing a 'corrected' pay figure where the prescribed means of calculation has a distorting effect (eg where there is a disproportionate number of one gender taking up salary sacrifice and thereby reducing their pay, or choosing to exercise share options in the April reference period that then have to be included in 'bonus pay'). However, they should watch whether this additional context could alert employees to potential discrimination claims. For example, publishing the pay gap for different job categories may give a smaller figure, but may be more likely to indicate an equal pay risk.

Good practice

Much of the guidance sets out good practice for employers, encouraging them to go beyond the statutory obligation to disclose data and to use it to help address the underlying causes of their gender pay gap. It notes that contributory factors involving the workplace could include unsupportive and rigid corporate cultures, lack of well-paid part-time or flexible work, lack of career progression, unconscious bias and discrimination. It also highlights the greater pay gap for women over 40. Employers are encouraged to include a supporting narrative with their published data, explaining why there is a gender pay gap and including a “well-published written statement detailing an action plan” to address it, which should ideally be devised in consultation with unions and employees. Suggested benefits in minimising the gender pay gap include enhanced reputation, recruitment and productivity. 

If employers wish to adopt a detailed action plan, they will need to carry out a much deeper dive into their pay data than is required to be disclosed under the regulations (which do not require breakdowns by working pattern or age, for example). The guidance sets out a list of types of data that comprise ‘effective gender monitoring’, which employers ‘should’ have in place as good employment practice. This evidence will enable employers to take appropriate actions to reduce the gender pay gap, which the guidance suggests could include:

  • ensuring related policies and practices are up to date;

  • training and supporting line managers;

  • managing family friendly leave successfully (including encouraging male employees to take shared parental leave, and considering levelling pay for all types of family friendly leave);

  • making the most of flexible working, including at senior levels;

  • encouraging and reviewing career and talent development, for both genders;

  • minimising negative impact from pay systems; and

  • considering positive action.

Anna Henderson is a professional support consultant, and Andrew Taggart a partner, at Herbert Smith Freehills