Future of gender pay gap reporting: review or reform?

In this article, we take a look at the Conservative’s position on the future of gender pay gap reporting, discuss Labour’s proposals for reform, and consider the impact of the Pay Transparency Directive.

Gender pay gap reporting review is underway (maybe)

The government has said that it is carrying out a review of the gender pay gap reporting regulations. Last year, we made an FOI request to ask about the status of this review. We were told in October 2022 that it is “currently being prepared” and will be published “in due course”. No further details about this review have yet been published.

Related to this, the brief Liz Truss government said that any regulations under review and which imposed any reporting requirements would include a change to the headcount threshold and would apply only to employers with 500 or more employees. This would include gender pay gap reporting – only those companies with 250 or more relevant employees are currently under an obligation to report.

The government said at the time that this would save 40,000 employers from “red tape”. This was a massive overestimation – only around 4,000 employers with 250-500 employees report their gender pay gaps each year (and only 11,000 employers in total).

It’s unclear whether this policy statement was adopted by the current Rishi Sunak government and we don’t know whether a change to headcount might be something that the government plans to do. If it does, it could choose to do so overnight - gender pay gap reporting regulations are a piece of secondary legislation and so can be amended swiftly without the need for an act of parliament.

Besides a small change in headcount, the government may decide to do something more radical. With a general election set for next year, the government will need things to pledge. The labour market is shaping up to be a key focus area across the political spectrum in the run up to the election and a fuller reform of gender pay gap reporting as part of a plan to reduce “red tape” may be something that finds favour with conservative supporters.

Labour proposals on pay gap reporting

Labour has prepared an extensive set of policy proposals for a potential Keir Starmer-led government. Although not a public document, this 86-page paper has been obtained by website Labourlist, who have sent us the pay gap reporting sections.

The paper draws on the 2021 Labour Green Paper A New Deal for Working People and is likely to serve as the foundation for the party's upcoming general election manifesto. These proposals must still be debated and agreed upon by Labour’s national policy making forum. But with the Tories trailing in the polls and a general election due next year, these proposals stand a decent chance of becoming law.

Labour has committed to bring forward measures to close gender, ethnicity and disability pay gaps and we explore these policy proposals below.

Gender pay gap reporting action plans

Employers will face greater gender pay gap reporting obligations. Today, employers must only calculate and report their statistics. Identifying the causes of the gaps and developing a plan to reduce them is not required although this is common practice for employers wanting to demonstrate they are taking gender diversity seriously.

If Labour wins (and crucially, if this policy makes it to the final manifesto), it won’t be enough to simply report a basic set of statistics, employers will have to go further. They will have to “develop and publish action plans”. This means that all employers will need to have a proper understanding of the causes of their gaps, and what they need to do to reduce them. This is already the position with gender pay gap reporting in Ireland.

Ethnicity and disability pay gap reporting 

Labour proposes more reporting requirements for employers, with ethnicity and disability pay gap reporting being made mandatory.

This is in stark contrast to the government’s current position. As we discussed recently, the new ethnicity pay gap reporting guidance makes clear how complex an issue ethnicity pay gap reporting can be. It sets out the many different factors that affect the calculation and interpretation of ethnicity pay gaps. In our view, the three biggest issues are response rates and incomplete data, the big differences in how ethnicity is spread across the UK, and, related to this, the small groups problem. Labour’s 2021 Green Paper said it would mandate ethnicity pay gap reporting for those with 250 or more employees, but this position may now have shifted. Although the 86-page policy paper is silent on any headcount for ethnicity pay gap reporting, a leading Labour MP has spoken to us and said ethnicity pay gap reporting would apply only to those with 1000+ employees. This is a significant difference and perhaps reflects the many practical difficulties with ethnicity pay gap reporting.

Gender pay gap reporting has been a relative success. It has prompted many employers to apply their minds to gender diversity in a structured way. Labour are likely keen to see the same sorts of benefits for ethnicity. If Labour win and reporting in these areas becomes mandatory, it will have to think hard about how to provide the necessary support to employers to help ensure accurate reporting.

Menopause action plans

Large employers will be obliged to develop and publish “menopause action plans” setting out how they will support employees through the menopause. No detail is provided on what might have to be contained within these action plans, although Labour say this will be “much like gender pay gap reporting”. It remains to be seen how onerous a requirement this might be for employers, but it may be a simple policy statement that must be reviewed periodically.

Impact of the Pay Transparency Directive

Although the UK is not in the EU, the recently finalised Pay Transparency Directive will be highly influential.

Besides a similar obligation to report six gender pay gap statistics, the Directive’s requirements are much greater. Employers have to analyse gender pay gaps within different “categories” of employee and, if any are greater than 5%, carry out a “joint pay assessment” covering their whole workforce. This is essentially equivalent to an equal pay audit. Employee representatives will have the right to question the methodologies used in the analysis and ask questions about the causes of the gaps. This means that employers will have to have a really good understanding of what their data is telling them.

This creates a mammoth task for UK-based European employers, requiring the careful collation of data across countries (and avoiding the GDPR issues that come with this), analysing and properly understanding what is driving their gaps (and whether any equal pay issues arise), and developing a strategy for dealing with employee representatives.

Moreover, employers often want to have a single approach that covers all jurisdictions to ensure employees in one country don’t feel like they are being treated better/worse than others. In any event, Labour’s proposals would take the UK much closer to the requirements of the Pay Transparency Directive by imposing more requirements to understand and take action on pay gaps. We may see the implementation of the Directive in all but name.

We look at these issues in depth in our analysis of the Pay Transparency Directive and gender pay gap reporting in Europe.

To read more about what the employment law landscape might look like under a Keir Starmer-led Labour government, we’re producing a series of articles examining their proposals to reform workplace rights and protections. You can read here.

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