The Government has conceded an amendment to the Small Business, Enterprise and Employment Act 2015 which will require employers with 250 or more employees to report on the gender pay gap within their business.
The TUC have been eagerly awaiting this reform and have been lobbying for a date. It is expected that it will come into force in Spring 2016. If you are smaller than this, it will not be an issue for you!
This could be a big headache for companies with over 250 employees, in terms of the implications. Systems will already be in place to hold pay details as statutory records, but it is also how the information will be reported in a robust and accurate manner and what will happen after disclosure, which will be likely to cause issues.
In a nutshell, Section 78 of the Equality Act 2010 requires companies to publish information about the difference in pay between male and female employees. This will also include information on bonuses. The new measure will apply to private companies, public authorities and voluntary sector organisations, but the armed forces will be exempt.
Whilst this can be seen as a positive step for diversity and it will probably lead to transparency in employment practices, the implications could be harmful, and include:
- Damage to company reputation and potentially, ensuing negative publicity if the pay gaps are severe;
- Financial data, including sensitive information will be accessible and visible;
- Exposure to an increased risk of significant financial damage resulting from employee claims for equal pay, potentially going back over six years, yes, six years!
Whilst the proposed penalty for non-compliance is a £5000 fine, there may be issues with poor publicity, leading to customer loss, employee attrition, and issues with attracting great talent, and retention issues with current employees.
As Annual Employment Tribunal statistics currently show there are few successful equal pay claims, the question needs to be asked, will the number of successful claims increase? Perhaps the reasons for pay gaps should be explored in more detail by HR teams. As a minimum, companies should review all current pay practices in order to understand what differentials may exist, consider any gender pay gaps present at a departmental, geographical or functional level, and compare these with the composition of the total workforce. That means, at least, you’ll know the background to potential issues. The more proactive you can be, the better! Updates will follow as soon as we know more.