Mandatory gender pay gap reporting within a year?

The Small Business, Enterprise and Employment Act (“SBEE Act”) received royal assent last week, incorporating a late amendment requiring the mandatory reporting of gender pay information by larger companies.

Whilst the Government has always had the power to introduce secondary legislation compelling large employers to publish information showing whether there are differences in pay between men and women in their organisation under s78 Equality Act 2010, to date, this power has not been used (and indeed s78 has not yet been brought into force). The Government has instead focussed on voluntary alternatives. However, despite in the region of 275 employers having signed up to the Government’s voluntary scheme, only 5 businesses have published their pay gap data. This is against the backdrop that according to latest figures, the gender pay gap stands at 19.1% for all employees with women in full time employment earning 9.4% less than men and the gap for women working part-time is even wider.

The amendment made to the SBEE Act now indicates that the next Government will make regulations under s78 Equality Act 2010 within 12 months of the date the Act received Royal Assent, so we should see the introduction of the new rules early next Spring.  However, the relevant provision of the SBEE Act providing for this still needs to be brought into force itself (together with s78 Equality Act 2010).  We are awaiting commencement orders to bring in various provisions under the SBEE Act.

The precise details of any new regulations will be subject to consultation, but it is anticipated that private and voluntary sector employers with at least 250 employees will be required to carry out an equal pay review and publish on an annual basis the differences in pay (including starting salaries) within their organisation between their male and female (full and part time) employees. Public sector organisations will be exempt.

Organisations that fail to comply with the regulations are likely to face a fine of up to £5,000.  But for most large businesses, it is the real risk of reputational damage arising from negative publicity that is likely to give the most cause for concern.

The Equality and Human Rights Commission has stated that it will provide further guidance to help employers best tackle any identified pay gaps. Employers should in any event seek to use this new disclosure obligation to their advantage in demonstrating to their workforce their commitment to pay equality and which should in turn assist in retaining talent.

In the meantime employers should remember that since last year Employment Tribunals now have a power to order an employer to undertake an equal pay audit where it is found in breach of the equal pay laws or has discriminated on the grounds of sex in non-contractual pay matters. The audit should be made available on its website. However, given the small number of discrimination and equal pay claims that make it successfully through the Employment Tribunal system, it is this latest development which is likely to impact most on businesses.

We shall update you on further developments on this as they arise.