Recent developments on gender pay gap reporting
Having been through five stages of debate, the Gender Pay Gap Information Bill (the Bill) was approved by the Dáil on 19 May 2021. It now goes to the Seanad, the upper house, for the entire process of debate and committee examination to be repeated. The Seanad has 90 days (or any longer period agreed by both the Seanad and the Dáil) to consider the Bill and pass it, reject it, or return it to the Dáil with amendments.
There is pressure on the Seanad to progress the Bill quickly, having recently received the Citizens’ Assembly’s report on gender equality. Almost 97% of the Assembly’s members recommended that that the Bill be enacted and implemented without delay. There is a good chance that it will become law in the next few months.
What’s in the Gender Pay Gap Information Bill?
The Bill does not itself contain gender pay gap reporting obligations but creates a power to make Regulations mandating employers to report on their gender pay gaps. As such, the Bill is relatively light on detail and we can expect a consultation on draft Regulations quite soon after it becomes law. The Regulations are expected to provide clarity for employers on what will be required (see below), although there is the potential for delay because they will need to properly implement the requirements of the proposed EU pay transparency directive.
What gender pay gap obligations will apply?
Under the Regulations implemented in due course by the Minister for Justice and Equality, employers will be required to report on:
- mean and median gender pay gaps;
- mean and median bonus gaps;
- mean and median gender pay gaps for part-time workers;
- the proportions of men and women within each of four quartiles;
- the proportion of men and women who received a bonus;
- the proportion of men and women who received a benefit in kind.
In addition, the Regulations may include a requirement to report mean and median pay gaps for temporary workers.
The Bill currently provides that the Regulations will initially only apply to those organisations employing 250 or more, before reducing to 150 after two years and 50 after three years.
Employers in Ireland must explain their gender pay gaps
Like under the similar UK legislation, employers in Ireland will have to produce a report displaying their gender pay gaps, but the Irish legislation will be significantly stricter. Employers will have to publish the reasons for the gaps, which is is often a complex and difficult job.
From our experience of advising UK employers on the reasons for their gender pay gaps, a range of different techniques may be useful in finding out what is the cause. These include:
- Proportion of men/women in each grade/department. Because pay gaps are calculated based on the average man and woman, it is important to understand the spread of each gender. Raw numbers of men and women do not directly affect gaps. It is quite possible and not uncommon, for example, for an employer with a 90% male population to have little or no gender pay gap (if, for instance, senior management is predominantly female). Identifying the areas of underrepresentation is therefore important.
- Percentile pay gaps. This is an extension of the median pay gap, which compares the 50th percentile woman against the 50th percentile man. It is sometimes useful to look a little beyond this percentile (i.e. the middle people), for example, by examining the gap between the 40th or 60th percentile woman and man. In our experience, reviewing these additional gaps can give a greater understanding of the spread of each gender in the workforce, and might even show that an employer is tantalisingly close to no median gender pay gap.
- Hypothesis testing. What if gender equality were achieved at certain levels of seniority within a business? What if the CEO were a woman instead of a man? Testing various scenarios like these can help explain gaps and ensure that an employer’s initiatives can be targeted at those areas.
- Gaps broken down by seniority (e.g. grade), job type/title and/or department. A seniority or grade analysis can also be useful in flagging potential equal pay issues, as distinct from gender pay gap issues.
- Employers will also have to explain what measures are being taken to reduce any gaps. There are no penalties in the Irish legislation for having a gender pay gap, so employers would be under no legal obligation to implement any measures. Although it might suffice to simply state ‘no measures are being taken’, employers are unlikely to take that approach given the damage such a statement might do to their reputation.
Potential problems in drafting of the Gender Pay Gap Information Bill
While the purpose of the implementing Regulations will be to explain what employers are required to do and how they are expected to do it, there are some potential problems in the Bill which need to be resolved resolve.
Calculating gender pay gaps
As drafted, the Bill refers to legislation requiring the reporting of ‘the difference between the mean hourly remuneration of employees of the male gender and that of employees of the female gender expressed as a percentage’. A significant point here is that the calculation of a gender pay gap by reference to the male salaries may produce a different result than doing it the other way around (i.e. comparing male salaries to female salaries).
For example, a man who is paid EUR 24 per hour receives 50% more than a woman who is paid EUR 16 per hour, but that doesn’t mean the woman is paid 50% less than the man. The figure cannot be flipped around: the woman is getting 33.3% less than the man. This is a basic mathematical point, but one that is important to get right.
The Bill requires employers to calculate the gender pay gaps for part-time workers, but there is currently no definition of what a ‘part-time’ worker is. The Regulations will need to be clear about this.
If an employer’s normal working hours are (say) 37.5 a week, could anyone working any time less than this be classed as ‘part-time’? For example, would someone who leaves half an hour early on Fridays and so works a 37-hour week be part-time? What about someone who works 37.5 hours a week, but on a term-time only arrangement
Benefits in kind
Employers will have to report the proportion of men and women who receive a ‘benefit in kind’. Defining this will be important as it is potentially very broad. The Revenue state that a benefit in kind is any ‘non-cash benefit with monetary value’, which could include anything from life assurance to a free lunch.
Lessons from UK gender pay gap reporting
Lawmakers in Ireland have had the benefit of learning from the UK’s gender pay gap reporting regime which has been in place since 2017. This provides an opportunity to create legislation that avoids some of the more common issues impacting UK employers, such as:
- Pro-rating of bonuses. The UK rules require employers to calculate hourly rates using all pay and bonuses paid in the period that includes the ‘snapshot’ date of 5 April. (The period examined will depend on the employer’s payroll.) All pay is used in the calculation but only a pro-rated part of any bonus. Pro-rating involves dividing a bonus by the length of time to which it relates, then multiplying by the length of time for which the employee receives basic pay (typically a month). So, in addition to the potential for employers to conflate all types of bonus and pro-rate everything equally, another problem is identifying the period to which a bonus relates. Employers often struggle with this and inaccuracies can creep into their statistics. While identifying a bonus period may be easy for bonuses that are expressly monthly, quarterly or annual payments, it can be harder for more nebulous payments such as ‘spot’ bonuses. This may involve a line-by-line examination of the facts behind each bonus, a laborious process, especially if managers haven’t kept contemporaneous notes of the reasons for any awards.
- Salary sacrifice. In the UK, all gender pay gap calculations are made on the post salary sacrifice amount of pay and bonus. Because men and women do not tend to sacrifice equal proportions of pay, it is important to factor this into the calculations to ensure that gaps are accurately calculated in accordance with the legislation. Salary sacrifice is more limited in scope in Ireland, however, so this may be less of an issue. (It is limited to travel passes, shares and cycle-to-work schemes; pension contributions are not covered.)
- Bonus gaps. Unlike pay gaps, bonus gaps do not take account of the fact that part-time workers receive smaller bonuses because of their reduced hours. Employers will typically award bonuses depending upon the proportion of FTE and the proportion of the year that someone has worked. Since women tend to be more likely to work part time, this can have an impact on the gap.
- Definition of ‘employee’. The Regulations will need to be clear about who should be included when calculating pay gap statistics. In the UK, gender pay gap reporting uses a broad definition of ‘employee’ that covers ‘workers’ (a hybrid status not legally recognised in Ireland) and self-employed contractors. It does not, however, include partners or LLP members. For UK employers such as law firms and accountants, this can mean that some of the highest paid individuals in the business (typically male) are outside the scope of the analysis. While many employers voluntarily produce and publish additional figures to include that category in their gender pay gap reports, many do not. A more sensible approach for Ireland might be to expressly include partners and LLP members within the definition of employee (as is the case in the Employment Equality Acts).
- Hourly paid staff. When calculating the hourly rates of those employees who do not work regular hours, the UK legislation requires employers to look back over 12 weeks and use an average figure for their weekly hours, but still rely on just their April pay for the purposes of the calculations. Because this average might be much higher or lower than the number of hours worked in April, the resulting hourly rate calculation might be wildly different from the hourly rate that employees are actually paid.
What should employers in Ireland do to prepare for gender pay gap reporting?
The devil is in the detail when it comes to gender pay gap reporting. Pending a more precise idea of what the legislation will say, it is difficult for employers to take too many steps to prepare for it at the present time. Without knowing the definition of ‘pay’ and ‘bonus’ (and even ‘employee’), trying to do any sort of ‘dry run’ that might result in comparable results is impossible.
At least until the Bill is passed and draft Regulations published, employers with group companies should focus on ensuring they know which of their entities may have to report and when. Employers should also check and monitor the headcount of all such entities.
Separately, employers should consider who the key stakeholders in the business are likely to be. In order to be done properly, gender pay gap reporting normally requires the involvement of a team of people from across the business. These include: payroll (to obtain the pay data), HR analysts (to collect the people data); more senior level HR/ER (to understand the initiatives that can be created or which may already exist to reduce any gaps); and PR/comms (to assist with writing the report).