Closing the gap – recommendations from BEIS

At the start of August the BEIS committee published its report on gender pay gap reporting (the committee’s first report from its inquiry into executive pay and the gender pay gap). Among the report’s recommendations were the following:

• Partner remuneration should be included in the calculations;
• The reporting obligations, which currently apply to employers with 250 or more employees, should be extended to employers with 50 or more employees; and
• The EHRC (the body tasked with enforcing the regulations) should be given specific enforcement powers as there is a lack of legal clarity as to the existing enforcement powers (see this blog post for my view on why specific powers are needed).

The recommendation that partners (who do not fall within the definition of “employee” in the regulations, or indeed under any legislation) should be included in gender pay gap calculations is, in my view, correct. Linklaters, along with a number of other leading firms, voluntarily published partner data in March 2018 (pre-empting the BEIS committee’s request in May 2018 that “Magic Circle” law firms provide partner data). However, as partners are not employees and receive a share of profits rather than salary, if the regulations are amended the Government will have to give careful consideration to how partner data is treated in the calculations.

The recommendation that the threshold be lowered is less clear-cut. The initial rationale for imposing a threshold of 250 or more employees was that this covered larger employers and caught approximately 40% of all UK employees and the 2015 consultation response reported that more than half of those who responded to the consultation (including Linklaters) agreed with that threshold. Smaller employers are less likely to have suitable systems and processes, meaning the complying with the regulations will be disproportionately more expensive and time-consuming.

Nevertheless, the stated purpose of gender pay gap regulations is to use transparency as a tool for raising awareness and to incentivise employers to (i) analyse the drivers behind their gender pay gap and (ii) to explore the extent to which their own policies and practices may have contributed to that gap. It is noted in the report that, of the employers caught by the existing regulations, the gender pay gap tends to be higher in smaller organisations. If one of the purposes is to encourage employers to understand the reasons for their pay gap then it is clearly sensible for the regulations to cover those employers who are more likely to have a significant gap.

That said, where employers are less likely to have the resources to comply with the regulations, there is a significant risk that they will not properly comply, if they do so at all, and it is unlikely that it will be possible to enforce compliance. As the report recognises, even now it is impossible for the Government or the EHRC to be definitive about which employers are caught by the regulations, a situation that can only get worse if the number of employers increases significantly.

In the 2015 consultation it was suggested that the Government would review the threshold of 250 employees five years after commencement, at the same time it reviewed the regulations as a whole. This would suggest that there will be no change (both in terms of the threshold and the inclusion of partner data) until after 2022. However, it remains to be seen whether increased political pressure will mean that the Government reviews the threshold, and potentially the wider regulations, sooner than planned. We will wait with baited breath to see how the Government responds to this latest report.