A guide to minding the gap

With the deadline looming, three-quarters of employers have yet to publish their reports, perhaps waiting to see their competitors' reports first.

The annual report must contain:

• the difference between the mean and median hourly pay for full-time male and female employees;
• the difference between the mean and median bonuses paid to men and women;
• the proportion of male and female employees who received a bonus; and
• the proportion of male and female full-time employees in the lower, lower middle, upper middle and upper quartile pay bands.

There are no specific penalties set down for failing to comply with the requirement to report, although the Equality & Human Rights Commission has confirmed that it will approach employers informally at first but businesses could ultimately face "unlimited fines and convictions". Equal pay claims could follow a report, but a business with a gender pay gap is not necessarily breaching equal pay laws. As the BBC's experience over its publication of top earners' salaries is showing, the reputational risks and employee relations issues are equally important.

Several of the larger accountancy firms have already published their figures. These appear to show that the sector is broadly in line with the national averages for private sector employees, and specifically those with high earnings. The bonus pay gaps reported are significantly larger, however: part of the explanation for that may be the fact that more women work part-time.

Whilst the reporting requirements cover employees, workers, agency workers and self-employed people personally performing work, they do not cover partners, including LLP members (in the reporting, although they are counted in the threshold number). The exclusion of partners derived from the difficulty of calculating partners' earnings but the effect will be to skew the figures where the partner cohort is predominantly male. Professional practices, including accountancy firms, who have excluded partner remuneration from their reports, are facing criticism for complying with the letter but not the spirit of the law. Firms should consider whether to include a narrative commentary on this if they do not include partners in their figures.

Whilst it is not mandatory, we recommend that employers use the option of providing a narrative in their report: this can contextualise the stark figures and, importantly, give details about actions that have been taken to reduce or eliminate the gender pay gap. The narrative offers an opportunity to explain what challenges the employer faces to combat pay inequality, their successes and their plans for long-term results. It can also help to pre-empt queries and potential criticism from existing staff, campaign groups, media and clients. Explanation not excuses is a good mantra.

The Government says it will publish sector-specific league tables, highlighting companies which are failing to address gender pay differences. In the war for talent, businesses will want to use the narrative to attract and retain female talent. They can emphasise the benefits they offer, such as flexible working and childcare vouchers (which are not taken into account in calculating the gender pay gap). If there are historic figures available, the narrative also gives an opportunity for the employer to highlight if its pay gap has narrowed over time: this will certainly be a key feature of future reports. A carefully drafted narrative can help employers to mitigate any possible reputational damage by demonstrating that they are honest, accountable and putting forward a credible plan for change.

Companies who have voluntarily reported already advocate transparency with individual employees over where they are within pay scales and the action they can take to progress within the business.

Whilst the focus initially will be on the reports published by 4 April 2018, businesses should not lose sight of the incentive to improve their gender pay gap over time. This will include reviewing their recruitment, pay, promotion and family friendly practices to ensure that employees with caring responsibilities can advance within the business even if not working full-time, and developing mentoring and career progression initiatives to support female staff. 

The introduction of gender pay reporting is already affecting the quality of public discourse and, over time, is likely to force businesses to act on the more persistent issues that underpin pay inequality.

This article also appears in Economia.