Monday, June 5, 2017

UK/US - Bridging the Gap: Gender Pay Gap Initiatives

By Georgina McAdam Baker McKenzie London and Emily Harbison Baker McKenzie Houston

Countries across the globe are looking to address the gender pay gap and are doing so in a variety of ways. Initially the UK introduced a scheme in 2011 for employers to publish their gender pay gap voluntarily. However, very few employers did so. Therefore, the UK recently enacted legislation that requires employers with at least 250 employees to publish details of their gender pay gap on a publicly accessible website on an annual basis.

Although the UK legislation establishes how the gender pay gap should be calculated, which employers are required to publish this information and how it should be published, employers are facing various challenges when implementing the legislation.

How specifically should the gender pay gap be calculated?

Legislation in the UK sets out specific metrics companies are to report and how to calculate them. The metrics are:

• the difference in mean and median hourly pay between men and women,
• the difference in mean and median bonuses between men and women over a 12-month period,
• the proportion of men and women who receive bonus pay in a twelve-month period,
• and the proportion of men and women in each pay quartile within the company.

The rules are complex and not always clear. Being compliant may require employers to make judgment calls on tricky issues such as whether particular payments or employees are in scope. For example, bonuses paid in April may need to be included in both the hourly pay gap and bonus pay gap (depending on exactly when they are paid), and may exacerbate the hourly pay gap figures. In addition, there are some particular challenges around certain types of payment such as sign-on and retention bonuses which will require judgment calls. There are also some anomalies, for example, financial services employers who pay role-based allowances in April will need to include them in their hourly pay gap. The timing of payments can therefore have a distorting effect.

Which employers need to publish details of their gender pay gap?

Employers with 250 or more employees on 5 April in any year must report their gender pay gap data for that year. Employees in this sense includes apprentices and anyone employed under a contract to personally do work, which includes workers and some contractors. In addition, employees can include ex pats posted overseas, if they retain a sufficient connection to Great Britain (Northern Ireland is currently excluded). Therefore, employers must consider their wider workforce and not just their employees in Great Britain. However, agency workers and individuals providing work though personal service companies are excluded. In addition, workers and contractors can be disregarded for the purposes of the gender pay gap metrics if the employer does not have the data for them and it is not reasonably practicable to obtain the data.

In a group of companies, the obligation to report applies to each company separately, based on the number of employees in the company rather than in the group as a whole. Each group company with 250 or more employees must therefore produce its own report and upload its data to the government website, even if the group voluntarily produces a consolidated version. Equally, companies with fewer than 250 employees do not have to produce a report, even if they are part of a wider group with more than 250 employees.

Depending on the group and organisational structure, this could have unintended consequences and mean peer comparisons are not entirely like for like. For example, in some groups the board may be out of scope of the calculations, if they are employed by a group company with fewer than 250 employees. Whilst we do not expect companies to change their group structure because of gender pay reporting, the rules may give an "advantage" to some groups with certain existing structures.

How must employers publish their gender pay gap?

Employers must publish their data (i.e. the metrics described above) within 12 months of 5 April 2017 on a publicly accessible website. This means that the first reports will be due by 4 April 2018. Companies therefore have a degree of flexibility over the timing of the publication, as they can publish their data any time prior to the deadline.

The guidance published by the government encourages early publication, which it says will enable employers to be seen as leaders in their sector. However, some employers will be concerned that early publishing could attract more media attention and, given that most in-scope employers will be publishing a gender pay gap, that the publicity will be negative. Employers will also need to manage multiple stakeholders and may want to ensure that their employees, senior management teams and relevant employee groups are briefed in advance of publication. In addition, the process of calculation and sign-off is not straightforward. Therefore, most companies are likely to wait to publish their data towards the end of the 12-month publication window.

The information will need to remain on the website, accessible to employees and the public, for at least three years to enable trends to be identified.

Employers must also upload their data to this national government website to enable easy comparison with other employers. At the time of writing, only 9 employers have uploaded their data.

In addition to the metrics, companies have an option to publish a narrative alongside their data when publishing on their own website. For example, to explain their analysis of the gap, any measures they are taking to reduce the gap and to put their data in context alongside their diversity and inclusion initiatives. This will help to give context to any pay gap. Multinational employers will need to think about whether their narrative is, or needs to be, consistent with what they are saying elsewhere.

Employers may also want to consider publishing additional or more detailed metrics, for example, the average hourly pay gap between employees at the same grade. This may show a much smaller pay gap, but a pay gap at this level may be more indicative of equal pay risks, so employers will need to consider this carefully. The Conservative Party manifesto states that, if they win the forthcoming general election, they will require employers to publish more data and (although the manifesto does not give any specifics) this could well involve a breakdown by grade, and possibly age.

Are there any sanctions for non-compliance?

There are no civil or criminal penalties for employers that do not publish their gender pay gap data, although the Equality and Human Rights Commission could take enforcement action against non-compliant employers. The intention seems to be that employees, unions, the media, customers and shareholders will apply sufficient pressure to non-compliant organisations.

What steps are employers taking?

Employers need to analyse their figures and their own demographics to understand the causes of any gender pay gap before developing action plans to close it. Some clients may want to do this under legal advice privilege as far as possible, and this needs careful planning. A key question is also whether there is an underlying equal pay issues and legal exposure. Where this is a concern, it should be explored on a privileged basis.

Many organisations are starting to look beyond the immediate concern of compliance with the legislation. Some want to analyse their data to better understand the causes of the gender pay gap in their organisation and consider what measures they could take to narrow it. These organisations are likely to look at alternative or adjusted metrics in order to track their progress, whether or not they also publish those metrics. Any deep analysis of the gender pay gap or production of alternative or adjusted metrics may take considerable resources when compared to simple compliance, and measures to target the gap will also require investment.

If a company is going to take measures to address the gender pay gap, it is important to be realistic and acknowledge what cannot be changed, at least in the short-term, as well as what can. There is a risk of an employer announcing a package of measures aimed at narrowing the gap and then finding that the gap remains the same in subsequent years. As explained above, employers need to display three years' worth of data on their websites. Some measures may be effective in the long-term but make the gender pay gap worse in the short-term. Companies should not just be thinking about a package of measures to announce in the first year of gender pay gap reporting; they need to be looking ahead to the longer-term, and monitoring the impact of measures.

What are other countries doing?

The gender pay gap is a global issue, and other countries are taking a closer look at what can be done to improve it. For example, in the United States, there are new rules on gender pay reporting from the Equal Employment Opportunity Commission (EEOC), which is the federal agency responsible for enforcing federal laws that make it illegal to discriminate against a job applicant or an employee because of the person's race, colour, religion, sex, national origin, age, disability or genetic information. For years, the EEOC and the Department of Labor, Office of Federal Contract Compliance Programs (OFCCP) have collected data from certain private employers and federal contractors and subcontractors about their employees on the "Employer Information Report" or the EEO-1. The EEO-1 previously collected data about the number of employees by job category and by sex and race or ethnicity. On September 29, 2016, the EEOC announced approval of a revised EEO-1, starting with the 2017 report, to now also collect summary pay data from employers, including federal contractors and subcontractors, with 100 or more employees. The EEOC expects the revised report will "assist the agency in identifying possible pay discrimination and assist employers in promoting equal pay in their workplaces."

Using the revised EEO-1 report, covered employers will be required to report the total number of full and part-time employees they had during the “workforce snapshot period” in each of 12 pay bands listed for each EEO-1 job category. Notably, employers do not report individual pay or salaries. In addition, employers must tally and report the number of hours worked that year by all the employees accounted for in each pay band. Employers are required to submit EEO-1 reports annually. The EEO-1 deadline for the 2017 report is 31 March 2018. Employers will have a total of 18 months-from 30 September 2016 (2016 report deadline) to 31 March 2018 (2017 report deadline) to make the change to the revised form.

There are no penalties or fines associated with the failure to file a EEO-1 report. However, the EEOC can compel a company to file the report. Moreover, if a federal contractor fails to submit a report, it may lose its current government contract and/or be prevented from receiving future contracts.

It is worth noting that it is possible that the Trump Administration may reverse the course here. The new EEOC Acting Chair, Victoria Lipnic, previously voted against the revised EEO-1 report and recently reiterated her opinion that the purported benefits of collecting the pay data do not outweigh the costs of doing so. However, for now the new rules stand and employers should be prepared to report the new pay data information in their 2017 reports.