As a signal of the government’s intent, larger companies will have to comply with new laws within months.
Nicky Morgan, the education secretary and minister for women and equalities, has announced that the Government Equalities Office will introduce mandatory pay gap reporting for companies with more than 250 employees in Britain. This will become effective from 1 October, with the first annual reports due in April 2017.
Prime Minister David Cameron has also announced an extension of mandatory reporting to the public sector, and the government will consult with relevant bodies shortly to agree how the rules will work in practice.
Morgan said: “This government will ensure that women are given the support they need to progress from the classroom to the boardroom.”
Reportable pay is likely to include basic pay, paid leave, maternity pay, sick pay, area allowances, shift premium pay, bonus pay and other pay (including car allowances paid through payroll, on-call and standby allowances, clothing, first aid or fire warden allowances). It will not include overtime pay, expenses, the value of salary sacrifice schemes, benefits in kind, redundancy pay, arrears of pay and tax credits.
Employers will be required to publish their overall percentage mean hourly rate pay gap. This is useful where there is over- or under-representation of gender in an income bracket. They will also be required to publish the percentage median pay gap to show typical, if any, difference in pay.
This will help identify and make comparisons of the pay gaps between men and women in large companies. Employers covered will also need to publish the difference between the mean of bonus payments made to men and women; and they will also be required to publish the proportion of male and female employees who received a bonus.
Employers will also be required to report on the number of men and women in each quartile of their pay distribution.
Those covered by the new laws will have to publish the information on their websites and upload it to a government-sponsored website with a statement declaring it to be accurate. The information will have to be retained by them online for three years. It will be reviewed, and monitored by the government.
A database of complying employers will be built up on the website with examples of compliance and non-compliance identified, effectively “naming and shaming” employers who don’t comply.
There is no plan at this stage to create additional civil or criminal penalties for non-compliance with the regulations at this stage, but the government will closely monitor levels of compliance.
This will herald a new era of pay transparency, and increases the likelihood of equal pay claims where employees feel there is a pay imbalance because of their gender. Supporting guidance to help employers implement the regulations will be published this year.
While the government says it does not believe there will be significant additional cost in calculating the gender pay gap figures, this will be a large administrative burden on all businesses, whatever their size.
Employers have until midnight on 11 March to respond to the proposed regulations. They should take steps now to audit the pay of relevant employees with a view to fixing any anomalies that cannot be explained, or justified, as soon as they can.
Last week we saw the public naming and shaming of 92 employers who did not pay national minimum wage. Unlike the minimum wage and proposed living wage name-and-shame schemes, which rely on HM Revenue & Customs identifying non-compliance before publication, these steps will be much further reaching. The planned pay reporting requirements will be compulsory, and public from the outset.
• Katy Wedderburn is an accredited employment law specialist and head of employment at MacRoberts