October’s Employment Law Digest: Equal Pay audits and gender and ethnicity pay gap reporting
6th October, 2023
This month we take a closer look at three of the projects that employers may be considering as part of their annual review: equal pay audits, gender pay gap reporting, and the relatively new concept of ethnicity pay gap reporting.
We’ll explain what they are, what they entail and how they might benefit your business’ strategic vision as a whole.
What is “Equal Pay”?
The concept of equal pay for equal work is well established, having been introduced into law by the Equal Pay Act 1970. The governing statute is now the Equality Act 2010.
There are three kinds of equal work, namely:
- Like work – the same or broadly similar work that involves similar tasks which require similar knowledge and skills, and any differences in the work are not of practical importance.
- Work rated as equivalent – work that has been rated under a valid job evaluation scheme as being of equal value in terms of how demanding it is.
- Work of equal value – work that is not similar and has not been rated as equivalent, but is of equal value in terms of demands such as effort, skill and decision-making.
- Equal pay is a day one right afforded to employees, workers, apprentices and personal and public office holders, whether they have a full time, part time, fixed term, zero hours or casual contract.
- It applies to all contractual terms which include non-discretionary bonuses, overtime rates and allowances, performance-related benefits, severance and redundancy pay, access to pension schemes, benefits under pension schemes, hours of work, company cars, sick pay, fringe benefits such as travel allowances and benefits in kind.
What is an equal pay audit?
Firstly, an equal pay audit is not mandated by statute (whereas, for employers with 250+ employees gender pay gap reporting is). But undertaking an equal pay audit will enable you to review employers’ pay data in a methodical and structured way to determine whether employees are being paid fairly, or whether some groups are being treated more favourably than others. An audit is a means of analysing potential justifiable reasons for the pay disparity (“material factors” which must be untainted by sex) such as start dates, contracted hours and any regional allowances, and then taking positive steps to eliminate instances of unjustifiable unequal pay.
How do you conduct an equal pay audit?
The manner in which you conduct an equal pay audit can vary depending upon the number of staff that your organisation has. However, once you know what data you have, we endorse the 5 step methodology recommended by the Equality and Human Rights Commission (ECHR) for employers of over 50 staff.
- Decide the scope of the audit:
- Are you going to include all workers, or just employees?
- Are you going to cover all departments or just a few to start with?
- Are you going to do this as an internal exercise, or instruct external support – from Ward Hadaway for example – to assist?
- Will you involve recognised unions or employee representatives?
- What data do you have (regarding all elements of pay, gender, job, grade / pay band, contracted hours, when contracted hours are worked and length of service) and who is responsible for collating it?
- How will conclusions of the audit be translated into an action plan, and who will be responsible for delivering the action plan?
- Determine where men and women are doing equal work:
- How will you make this determination?
- Will you be assessing equal work on the basis of “like work” (by way of reliable job titles), “work rated as equivalent” (with reference to a job evaluation scheme (JES) untainted by sex), or “work of equal value” (by way of a reasonable assessment of effort, skill and decision making)?
- Collect the pay data:
- Is your pay data complete and accurate?
- How will you filter your pay data into equal work categories (for example, will you sort your pay data with reference to gender distribution by job title (like work) or JES bands (work rated as equivalent)?
- How will you analyse the pay for the male and female staff in each equal work category? Will calculation of average earnings be arrived out with reference to the median or mean figure, and how will you assess access to and amounts received of each element of pay?
- Identify causes of pay disparity:
- You should check pay policies and practices relating to basic, performance related, working time and other benefits, and the consistency of application of those pay policies.
- Is there a material factor which justifies the pay disparity?
- Where pay disparities which cannot be justified are identified, develop an action plan, and commit to it:
- How will you rectify the pay issue and within what timescales?
- Do you need to involve trade unions or employee representatives
It is worthwhile to note: The focus of an equal pay audit tends to be on pay disparity between men and women. That said, if the data is available, it is also possible to conduct a review on pay disparity between those with another protected characteristic, compared to those without that protected characteristic which (in turn) could highlight other equality issues in the organisation.
Benefits of an equal pay audit
Doing an equal pay audit is a big investment of time. However, the (very lengthy) judgments of the Employment Tribunal on both liability in remedy in the case of Stacey Macken v BNP Paribas London Branch  are stark reminders of the real risk of expensive litigation if organisations get equal pay wrong. In this case, despite the fact that the employer had undertaken an equal pay audit in 2019, the tribunal found that audit to be lacking given that it assessed basic pay only. It was held that the Claimant had suffered discrimination in relation to both basic pay and her bonus. The employer was ordered to undertake an extensive equal pay audit and to pay the Claimant compensation to the tune of £2million.
A good equal pay audit will help to:
- Identify key risk areas and develop a plan to put those risk areas right
- Minimise expensive legal fees (expensive awards and an order to do a “better” equal pay audit) should a claim be brought, and succeed
- Improve employee satisfaction and, in turn, productivity
- Attract corporate stakeholders who place a higher emphasis on corporate social responsibility
- Enhance the reputation of your business and, in turn, improve staff and client retention and attraction
Gender Pay Gap Reporting (GPGR)
There is a common misconception that GPGR is the same as an equal pay audit. It is not. GPGR is mandated by statute and has a prescribed methodology. A gender pay gap identified as a result of GPGR does not necessarily evidence discriminatory pay practices.
What is the gender pay gap (“GPG”), who needs to report on their GPG, when (and how) do you need to do it by?
The GPG is the difference in average pay between men and women. It is calculated by working out the difference between the average pay of all male employees and the average pay of all female employees, and dividing that number by the average pay of all male employees.
A negative pay gap figure would mean that the average pay of men is lower than the average pay of women.
Since the GPG Regulations came into force on 6 April 2017, employers (whether in a group of companies or not) with 250 employees on their “snap shot date” have been legally required to report on and publish their GPG data on the gender pay gap service on their own website.
The reporting deadlines each year are 30 March for most public authority employers and 4 April for private, voluntary and all other public authority employers.
So, if you have not already started to prepare, now might be a good time to get the ball rolling.
What GPG figures must be calculated, reported and published?
You must calculate, report and publish the percentage of men and women in each hourly pay quarter, mean (average) gender pay gap for hourly pay, median gender pay gap for hourly pay, percentage of men and women receiving bonus pay, mean (average) gender pay gap for bonus pay and median gender pay gap for bonus pay.
How do you do the calculations?
Broadly speaking, you need to:
- identify the correct pay period to use (namely the pay period in which your “snapshot date” falls
- decide which employees need to be included (and sensitively record their gender)
- identify the ordinary pay of full pay relevant employee
- add bonuses paid to (a) each full pay relevant employee and (b) all employees
The method of calculation is complex. We do not propose to set out the detail in this article but recommend the very useful Gov.uk tool here.
What should your GPG report include?
If you are a private or voluntary sector employer, your GPG report must include a written statement which is signed off by an appropriate body as accurate. On the other hand most public authority employers do not have to produce a written statement.
You can also choose to produce a supporting narrative which helps anyone reading the GPG report understand the figures.
Why is GPG reporting important?
Firstly, if you are caught by the GPG Regulations, you have a legal obligation to comply with them and produce an annual GPG report by no later than the reporting deadline which applies to your organisation. If you don’t you will likely be issued with a warning notice from the EHRC requiring action which, if not in turn actioned, could result in the EHRC seeking a court order to impose an unlimited fine. If you don’t take action you’re also at risk of being named and shamed on the EHRC website – which will leave a digital footprint and have negative reputational consequences.
Top Tips on GPG reporting
If you are caught by the GPG Regulations you will likely already be well versed in the process. You may though have received a number of queries or negative comments from internal and or external stakeholders, and potentially even members of the public, about your report. Sometimes this type of negative reaction stems from a misunderstanding of what the data reported on shows.
We would recommend to all employers that they take time on their written statement and supporting narrative (even if they are not obliged to do so), and ensure that an action plan is included (and followed up).
This will help educate readers of that report, hopefully minimise negative feedback, and shape strategy for the next reportable year.
Ethnicity Pay Gap Reporting
In July 2023 the Government published its response to consultation regarding ethnicity pay gap reporting, and has decided not to go ahead with mandatory ethnicity pay gap reporting.
However, the ethnicity pay gap is real and, in an effort to encourage businesses to voluntarily be proactive in identifying and addressing potential ethnicity pay gaps within organisations, the Government has produced guidance for employers on how to measure, report on and address any ethnicity pay differences within their workforce – Click here to view the guidance.
It’s certainly worth a read, and considering as part of your social responsibility agenda.
How can we help?
Ward Hadaway have significant experience in conducting equal pay audits and gender pay gap reporting, or assisting clients in developing action points following clients’ own analysis of their data. We can help assess whether you are caught by the GPG Regulations, structure the scope of your audits and reports, guide on data collection, review that data, report on the findings, and recommend and an action plan to put any issues right.
If you have any questions relating to anything discussed in the article or if you would like advice on any other matter please do get in touch one of our expert Employment lawyers.
 Including casual workers engaged on an umbrella contract, salaried partners of limited liability partnership members who are treated as employees for payroll purposes, and employees on sick leave or working overseas, but not workers engaged on a contract where there is no mutuality of obligation
 The snapshot dates are:
- 31 March for most public authority employers (most government departments and arm’s length bodies, the armed forces, local authorities, NHS bodies, universities and most schools, including academies and multi-academy trusts and
- 5 April for private, voluntary and all other public authority employers (private limited companies, private limited liability partnerships, charities and independent and private schools)
 corporate body other than a limited liability partnership – director (or equivalent), limited liability partnership – designated member, limited partnership – general partner, other kind of partnership – partner, unincorporated body of persons other than a partnership – member of the governing body or a senior officer, any other type of body – the most senior employee