GUIDE TO THE GENDER PAY GAP Frequently asked questions

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1 GUIDE TO THE GENDER PAY GAP Frequently asked questions 1

2 Who counts as an employee for these purposes? The Equality Act 2010 (Gender Pay Gap Information) Regulations ( the Regulations ) only apply to relevant employees defined in section 83 of the Equality Act ( the Act ). This is a wide definition. What about an employee who is sent abroad to work, where their employer is based in the UK? If an employee is based overseas, the general rule is that they will still be within the scope of the Regulations if they are eligible to bring a claim in the Employment Tribunal. Things to consider will be whether there is a stronger connection with UK employment law, whether their employment contract is subject to UK legislation and whether UK tax applies to their employment. What about an employee of an overseas company who is seconded to the UK? If an overseas organisation has employees working in the UK, some or all of these may be relevant employees for the purpose of gender pay reporting. The range of factors that an employer will need to consider in determining their reporting obligation for these employees is as above. What about Agency Workers and Self-Employed Contractors? The wide definition of employee in the Regulations means that individuals who are not employees in the traditional sense will needed to be counted. Usually, though agency workers are in a contractual relationship with the agency that supplies them rather than having a direct contract with the end user. This means that the agency will be the relevant employer for gender gap reporting purposes and will have to tackle the question of whether the individual s employment status meets the definition of a relevant employee. However, if an individual is simply introduced to an employer by the 2

3 agency, it is likely that the individual will count towards the headcount of the employer and not the introducing agency. Self-employed contractors may also come within the scope of the Regulations and will be considered as employees if they are employed directly by the employer under a contract that obliges them to perform the work personally employers. The Regulations recognise that this could represent some practical difficulties for employers and so they contain exclusion for self-employed contractors for whom the employer does not have, and it is not reasonably practicable for them to obtain, the relevant data. Are non-executive directors covered by the Regulations? Section 83 of the Act defines employees as those who are employed under a contract of employment, apprenticeship or contract personally to do work. It is arguable that a nonexecutive director falls within this scope, or within section 49 of the Act because they have personal office. For these reasons, the Equality and Human Rights Commission ( EHRC ) are of the view that they are covered by the Act. However, the Regulations apply to employment and not personal offices. It is therefore unclear as to the extent to which nonexecutive directors are covered by the Regulations. The argument that a non-executive director works from a position of independence and not under the direction of the company leads strongly to suggest that the majority of employers will disregard them for reporting purposes. This is an area that requires further clarification. What about partners? Because a partner takes a share of the profits, they are not paid. This cannot be directly comparable with an employee s pay and therefore the Regulations exclude partners from the definition of a relevant employee. The partners excluded are those in traditional partnerships and LLP s. 3

4 Where there is joint employment of an employee, who has the reporting obligation? Where an employee is jointly employed, the Regulations are not clear on this position. The likelihood for this is that joint employment is quite uncommon. In this circumstance, it would appear likely that both companies would need to include the employee for the purpose of reporting. Given that there is an apparent lack of enforcement with regard to verifying data, companies may wish to take a pragmatic view and, as an alternative, consider between them who will include the employee in their report, whilst providing a narrative to explain the situation. Where an employee has two jobs with the same employer, how should this be treated for the purpose of reporting? The employee s hourly rate is used for the purpose of the gender pay gap calculation. Therefore, even if an employer has two or more jobs with the employer, this will not make a difference to the reporting requirements. The employer is simply required to calculate the employee s hourly rate by adding all of the amounts earned by the employee and then filtering them into the appropriate formulas to work out an hourly rate for the employee. What Constitutes Pay How should the following be treated for the purposes of gender pay gap reporting? Pension contributions Employer pension contributions should not be counted for the purpose of reporting as they do not fall within the definition of pay in regulation 3(1) and 6(1). The position on employee pension contributions is not as certain. However, a pension contribution is deemed to be a deduction from pay and therefore, the employee s pay before this deduction would be used for the purpose the reporting calculations. 4

5 Bonuses payments from a parent company Although there is no clear guidance in this regard, it is arguable that if the bonus relates to the employment of the employee, then it should be declared as bonus pay. Otherwise, this could create a loophole where employers could pay bonuses through the parent company to avoid having to report it. What if I fail to publish the gender pay report? Employers are under a legal obligation to publish their gender pay report. The ECHR have the power to enforce compliance with the Regulations. Further, there could be a negative inference drawn if an employer fails to publish their report, which could cause substantial reputational damage. 5

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