Autumn usually heralds a flurry of new employment legislation and 2016 is proving to be no different. The most immediate change that employers had to get to grips with was the increase in the National Minimum Wage (NMW) rates that was introduced on 1st October. The government has accepted the Low Pay Commission’s recommendation that the NMW should be increased, but in a change from past increases, the new rates will only remain in force for six months instead of the usual twelve. The reason for this change to the calendar is to bring the NMW increases in line with the proposed increase in the National Living Wage (NLW). As employers will recall, NLW came into force in April 2016 amidst much controversy. NLW only affects employees over the age of 25. The increase in NMW will not affect employees earning NLW.
With the introduction of the NLW, the NMW increase (whilst expected by employers) represents another forced pay rise that employers will have to fund during 2016. With the effect of NLW now starting to bite, many small businesses are reporting that they are being placed in a state of ‘financial distress’ because of the increase in overheads caused by growing staff costs. This situation is only likely to get worse given stated aim of the former Chancellor, George Osborne, for the government to increase NLW to £9 by 2020.
In addition, following the outcome of the referendum on the UK’s membership of the EU, whilst no-one can say with any certainty what ‘Brexit’ will look like, it remains to be seen whether smaller employers can absorb these increased wage costs in the long term.
The risk to employers who do not pay NMW is of course greater since April 2016 when the penalties for paying below NMW increased from 100% to 200% of the money owed to the employee. Furthermore, in an effort to promote compliance the government is also now publishing lists of those employers who have been found to be paying below NMW.
There was however some respite for employers with the announcement of a delay in the implementation of the draft Equality Act 2010 (Gender Pay Gap Information) Regulations 2016. These regulations have received much publicity in recent months as the government seeks to redress the imbalance in gender equality by making it mandatory for companies to publish details of the difference between their male and female employees’ pay. A report by the Equality and Human Rights Commission estimates that in the UK there is a gender pay gap of 20%, with women earning on average 80p for every £1.00 earned by a man. The hope is that by fostering more transparency, the new regulations will incentivise employers to take proactive steps to promote fairness between the genders and identify inequality.
Not to be confused with equal pay or discrimination, the gender pay gap looks at the differences in average pay between the genders in an organisation over a period of time, irrespective of whether they do ‘like work’. The regulations will require employers to provide information not just about salary gaps but about bonus gaps as well.
The regulations requiring employers to publish their gender pay information are now expected to come into force in early 2017 for private and voluntary sector employers with over 250 employees. Employers will be required to look at the mean and median figures for pay in their organisations, which includes bonuses etc. Employers who are subject to these regulations will then be required to publish details of their gender pay gap by uploading that information to the government’s website.
Although not a mandatory requirement, there will be an option for employers to supply a written narrative to explain the information they disclose. It is anticipated that many employers will take advantage of this facility to place their information in context. Not all employers are the same, and there is a fear that simply publishing raw data without providing a commentary (particularly in respect of an adverse report) could lead to significant reputational damage. There may be a legitimate reason why there is disparity between male and female wages, so it is only appropriate that the employer at least has an opportunity to put forward an explanation.
The first reports are not due to be published until 2018 and will be required every year thereafter. Given the increased administrative burden that will be placed on those who are required to comply with these new reporting obligations, employers are advised to start looking at the processes they need to put in place now to ensure that the correct data is collated. As the information due to be published in 2018 relates to pay differences in the preceding year, information will need to be gathered from April 2017, and in some cases even earlier. It is important that employers have the necessary tools to cope with this requirement.
Preparing the gender pay gap information at the last minute may comply with the reporting obligations, but it will not achieve the purpose of the regulations – namely to identify any pay gaps and incentivise the employer to do something about it. Employers who are required to report in 2018 should already be applying the principles of the regulations to their organisations to identify any significant pay gap. This will give them time to address any inequality before they are required formally to upload their information to the government’s website.
At present there is no specific sanction contained within the regulations for employers who fail to publish their information. There has been some debate as to whether the regulations can work if there is no viable sanction for non-compliance. However, one view is that a simple fine would not work because larger employers may take the view that it is cheaper to pay the fine rather than increase remuneration. This is not what the government wants to achieve.
There is however a financial incentive for compliance that employers should consider, namely the potential for Employment Tribunal claims if the information gathered points to a substantial gender pay gap between the sexes. The first reports from larger organisations will undoubtedly be reviewed with interest by employees, and those who feel that they are being underpaid as a result of the gender pay gap may decide to seek redress via legal action.
It is also highly likely that employers who have a large gender pay gap will be at risk of public “naming and shaming” which could have a significant impact on business. As with much new legislation, action groups will probably be looking to make an example of those household names which disclose a significant gender pay gap and have taken no steps to redress the imbalance. It is not beyond the realms of possibility that we will see famous brands being boycotted because their gender pay gap reports reveal that they do not have an inclusive culture.
Paul Kelly, Employment Solicitor at Blacks Solicitors
(Source: Blacks Solicitors LLP)
