The Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 (GPG Regulations) are due to come into force in a little under three months’ time. Questions about their scope remain unanswered. The joint Guidance issued by ACAS and the Government Equalities Office on 30 January 2017 provides little clarification.
A key issue is unpicking which workers are in scope. The GPG Regulations use the wider Equality Act 2010 definition of employment, which encompasses employees, apprentices and anyone with a contract personally to do work. This covers zero hours employees and casual workers, plus other workers who provide personal services, which will include some independent contractors. But there are grey areas:
- What about contractors who supply services via their own service company, or an intermediary? The Guidance suggests that the contractor would count towards the headcount of the service company, not the client, but is this the right approach? If the contract requires the contractor to give personal service to the client with no right of substitution, there is an argument that they should be included in the client’s data set.
- What about agency workers who are employed by an agency but provide personal service to the client? Do both the agency and client report on those workers? The Guidance says that they count towards the headcount of the agency only, but again it is unclear on a strict reading of the GPG Regulations that this will always be the case.
- Should non-executive directors be included? There is case law suggesting that an NED who receives payment may be a worker.
- Employees based outside the UK also present a conundrum. Some will be included, where they have a sufficiently strong connection with the UK. Is being employed by a UK company enough? Probably not, but for employers with a large expatriate workforce, examining the circumstances of each individual to determine whether they should be included will be administratively challenging. And if they should be included, how do you deal with currency conversion? The GPG Regulations and Guidance are silent on this.
Perhaps a more important factor for many businesses will be to ensure that workers are categorised for the purposes of gender pay reporting in a way that is consistent with and does not undermine the employer’s employment status strategy in other areas. For example, including overseas employees in the data set may undermine any future argument that an employee should not be able to bring a discrimination claim in a UK employment tribunal.
What if the employer does not have sufficient information to calculate the hourly pay of its contractors? There is an exception to the requirement to publish pay data for workers if the employer does not have the data and it is not reasonably practicable to obtain it. The Guidance suggests that employers should “consider” whether it is reasonably practicable to obtain the information by asking for it and new contracts should seek, where possible, to ensure that contractors are required to provide the information needed for compliance. However, as the Guidance is non-binding, employers may take a different view.
There are also problems with the strict application of the GPG Regulations to those on atypical work patterns. For example, a zero hours contract worker who is paid weekly may usually work upwards of 30 hours a week, but if they happen to work no hours during the pay period covering 5 April, their hourly rate will be zero. The GPG Regulations allow employers to exclude employees on reduced or nil rates of pay due to being on leave, but not where pay is reduced due to working patterns.
Bonus remains a problematic area. The GPG Regulations clarify that bonus is counted at the time and in the amount that it becomes subject to tax. Securities options do not result in taxable employment income until the option is actually exercised. However, employees are generally able to choose when they exercise options. The employer’s gender pay gap may therefore be skewed depending on when male and female employees choose to exercise awards. Since the hourly rate of pay calculation has to take into account bonus pay, and as that calculation focuses only on a single pay period, only options exercised in that period will be taken into account in reporting. Where bonuses are a significant proportion of remuneration, this could skew the data considerably.
The lack of consultation on the GPG Regulations, which differ considerably from the original draft, means that these issues have not been addressed. There are also instances where the Guidance is at odds with the GPG Regulations. For example, the Guidance states that partners are to be disregarded in determining whether an employer has 250 employees, while the GPG Regulations are clear that partners do count towards the reporting threshold, but do not have to have their pay reported.
While there are practical workarounds and arguably no wrong or right answer, these issues are bound to lead to inconsistencies in how employers in the same sector approach their data. Ultimately this will make comparisons between employers of limited value.
