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Getting to the “why” in gender pay gap reporting

Getting to the “why” in gender pay gap reporting

This article was covered in International Employment Lawyer.

As parents of young children will readily attest, it’s much easier to explain what something is rather than why it is. However, this is the challenge that will be faced by employers in Ireland when it comes to gender pay reporting – an issue has come into sharp focus with the recent announcement that December 2022 will be the deadline for applicable employers to comply with new gender pay gap reporting obligations.

These obligations were signed into law in July 2021, with the stated principle being: (a) to satisfy the need for employees and the public to have access to gender pay data by requiring employers to divulge particular data; and (b) to place an onus on employers to identify the reasons for, and take action to address, any gender pay gap that exists in their individual organisations.

To date, the focus of employers has predominantly been on the reporting aspect, which is entirely understandable given the relatively short lead-time to the first reporting deadline. However, prudent employers should realise that it will not be long before the focus will shift from whether there is a gender pay gap in their organisation to why there is one.

What the law requires of employers?

For the first two years, the regulations will only apply to employers with at least 250 employees. In the third year it will apply to those with at least 150 employees, and from the fourth year onwards, will then apply to employers with at least 50 employees.

Employers will need to publish information about:

  • the mean and median gap in hourly pay between male and female employees;
  • the mean and median gap in bonus pay between male and female employees;
  • the mean and median gap in hourly pay of part-time male and female employees;
  • the percentage of male and female employees who received bonus pay; and
  • the percentage of male and female employees who received benefits in kind.

Based on the government’s recent press release, it appears likely that the regulations will also require employers to report on:

  • the mean and median gap in hourly pay between male and female employees on temporary contracts; and
  • the percentage of male and female employees in each quartile pay band.

The mean gap identifies the entire pay range in an organisation, while the median gap is meant to illustrate any pay gap in a manner that is less skewed by unusually high earners. It is envisaged that the employer will choose a “snapshot date” in June 2022, which will establish the data set for its December 2022 report, and which will then be used for year-on-year comparison purposes into the future.

Much of the remaining detail will be set out in regulations that are due to be published “in the coming weeks”. For example, it is not yet clear what class of employee these requirements will relate to, how pay will be calculated, or the form and manner that this information needs to be published or how frequently (other than this won’t be required more often than once a year).

Critically, the legislation also imposes a positive obligation on the part of employers to publish reasons for any differences and measures being taken (or proposed to be taken) to eliminate or reduce those differences. In this respect, the legislation varies from the UK equivalent, which does not impose any requirement beyond reporting the existence of a gender pay gap.

What are the risks of not complying?

The legislation empowers the Irish Human Rights and Equality Commission to apply to court for an order compelling compliance, in circumstances where it reasonably believes an employer has failed to comply with the regulations. A failure to comply with such an order would be a contempt of court. Similarly, employees will also be able to make a complaint to the Workplace Relations Commission which, if it upholds the complaint after an investigation, can order the employer to take action to comply with the regulations. 

On that basis, the focus seems to be on ensuring compliance, as opposed to punishing non-compliance. There is currently no mechanism for financial penalties to be awarded against an employer who does not comply, nor is there any power on the part of any body to legally require that an employer follows through on any stated proposals to eliminate the pay gap in their organisation.

What are the practical ramifications of disclosing a large pay gap?

Unless equal pay provisions are breached, there are no legal ramifications for employers who disclose a large gender pay gap – a fine will not be levied, nor will any other penalties be imposed. The principal ramification is reputational and, ultimately (but indirectly), financial.

Employers with a large gender pay gap will face significant public scrutiny, particularly where it is at odds with how that organisation is seeking to portray itself in public. For example, on International Women’s Day earlier this year, a Twitter account went viral by using UK gender pay reports to reveal the disparity between the tweets of companies celebrating its female employees, and the amount that they pay those same employees relative to male colleagues.

A notable feature in the UK has been that companies who are not actually required to provide gender pay reports due to their size are choosing to do so voluntarily for reputation management reasons. Already, gender pay and diversity criteria are becoming important elements in vendor selector and procurement processes. As gender pay reporting becomes more embedded over time, and it becomes clear which companies are serious about taking steps to address any existing pay gaps, then this will also inevitably have an impact from an employee recruitment and retention perspective.

This aspect will be amplified in Ireland by the statutory requirement to set out reasons for, and the measures that are being taken to eliminate, any gender pay gaps. Employers will be held to account. Applying the adage that sunlight is the best disinfectant, it will become clear over time which employers are making tangible progress in the measures that they adopt, and those that are not.

If the data is not positive, how should an employer respond?

Rather than seek to hide behind it or deny its existence, employers should treat the data as what it is – a snapshot in time, the seeds of which have likely been sown years before. A gender pay gap that arises now is a function of a multitude of different actions and decisions that have led up to this point – both individual and societal.

By definition, gender pay data does not include the data of female employees who have left an organisation, perhaps because of lack of opportunities for advancement, or its incompatibility with other aspects of their life such as family commitments. Similarly, it doesn’t capture the data of employees who never joined that organisation in the first place, whether due to gendered expectations as to what is a “man’s job”, bias at hiring (whether conscious or unconscious), or a workplace culture that feels unwelcoming or even hostile.

What it does capture is the outcome of these actions and decisions. The lack of female representation at senior levels in an organisation, the higher attrition rate of female employees, the disproportionate number of female employees in part-time roles, and the concentration of female employees in what are perceived to be “family-friendly” (and lower-paid) roles are all reflected in gender pay gap data.

However, these are also the levers that can be applied by employers to bring about meaningful change from a gender pay perspective. By seeking to combat or ameliorate some or all these issues, employers can make tangible progress. It will not be easy – there is no silver bullet. However, Irish employers can at least learn from other jurisdictions that are further down this road – for example, very helpful, evidence-based advice can be found in a recent UK Government Equalities Office report on reducing the gender pay gap. The key is to try and identify the particular levers that are most appropriate to, and applicable in, a given organisation.   

How can an employer use its data to create a more equitable workplace?

Taking steps to address a gender pay gap without seeking to identify and ameliorate the root causes is the equivalent of trying to make the sun shine by selling more ice cream – it fundamentally confuses correlation with causation. Identifying and addressing the root causes will result in sustainable and long-lasting improvements, whereas short-term steps focused solely on improving a gender pay “score” will not.

The key is to view the data as a starting point to create a more equitable workplace, rather than a destination in its own right. Over time, year-on-year, progress can be measured – ultimately leading, one hopes, to a question of “what gender pay gap?” rather than why there is one.