March 14, 2018

Gender pay reporting becomes business risk

As many will have noticed, organisations reporting their gender pay gap statistics have been creating negative headlines in the press. But as businesses attempt to reduce their gender pay gap, it's important to understand the risks that this can present.

Employers with 250 or more employees have until 4 April 2018 to publish their gender pay gap figures on a government website. The figures must also be published on the employer’s own website in an easily accessible place for the public to view. This exercise must be repeated on an annual basis thereafter.

The national gender pay gap currently stands at 18%, although in industries traditionally employing more men, such as financial services and insurance, the figure is estimated to be much higher.  It is anticipated that the overwhelming majority of those organisations reporting will have a gap of some kind and it is easy for employees to assume that these gaps show that unlawful discrimination is at play.

In fact, while there may be instances of breaches of equal pay laws causing the gap within an organisation – where a women is paid less than a man for the same work or work of equal value – the gender pay gap has its roots in much broader issues such as the lack of women in senior positions, a majority of part-time workers being women and the loss of women from the workplace following maternity leave.  Often these underlying causes can be lost in the reporting on gender pay gaps, with news agencies tending to assume that discrimination is to blame. 

Organisations face risks when improving gender parity

The business benefits of improving gender equality in the workplace have been identified in numerous research reports.  Coupled with the current legal and societal mood music, many organisations are looking to take steps to rectify their pay gaps.  These are tending to focus on getting more women into senior positions. 

However, there are risks which come along with these initiatives, in particular if action by employers to promote women in the workplace inadvertently contravenes discrimination laws by disadvantaging men. 

Care is needed in the recruitment and promotion process to ensure that lawful positive action is taken rather than unlawful discrimination.  For example, encouraging women to apply for promotion opportunities in a business with fewer women in senior positions is acceptable, while requiring that positions must be filled by women is unlawful. 

Running all female mentoring or return to work schemes, and setting targets to improve diversity at the senior levels is acceptable, while all female shortlists and minimum gender quotas is not. 

While the law already provides for positive discrimination where an employer decides to hire a woman over an equally qualified man, this provision is rarely used as “qualification” at senior levels is rarely clear cut and so a formal “tie break” situation is rarely seen, and therefore relying on the provision incurs risk of a discrimination claim by the unsuccessful male candidate.

Equality and Human Rights Commission fires warning shot

The number of organisations reporting has so far been low.  Out of an anticipated 9,000 eligible employers, only around 1,000 have reported to date, prompting the Equality and Human Rights Commission (EHRC) to write to employers in strong terms urging them to report without delay.  We can expect a flurry of reporting in the last several months before the deadline. Employers tempted not to publish their data at all should think again.

Although there are no formal monetary penalties for non-compliance, reputational risk of non-compliance is high since employers who fail to publish on the government website will be conspicuous by their absence. Even if the government fails to pick up on this, the press certainly will.

It is also possible for the EHRC to investigate an employer for breaching the Equality Act 2010.  Failing to publish gender pay data is not technically a breach of the Act but it could be used by EHRC as an indicator that investigating whether discrimination against women in opportunities or pay is contributing to the employer's reluctance to report.  Not only could an investigation be time consuming but failure to comply with requests for information could lead to unlimited fines. 

Ultimately, if insufficient employers end up publishing their gender pay data, the government can always give itself greater enforcement powers which will no doubt include real monetary fines for failure to publish or for publishing misleading figures.  There is already power for the government to do so in the legislation and the high profile of gender diversity issues in the current political climate suggest that this would be the likely next step. 

First published in Commercial Risk Europe