Gender pay gap reporting: 9 common mistakes made by employers

The gender pay gap reporting deadline is very soon: gaps relating to April 2021 must be reported by 30 March 2022 for most public authority employers and 4 April 2022 for private, voluntary and all other public authority employers.. Many employers try to struggle through with the calculations themselves and we often get asked to check things over, but we find that data and calculations can be full of problems.

In this article, we set out the common areas where employers can get things wrong.

Pay elements: wrongly including/omitting pay and bonus payments

“Pay elements” are the categories of payments made through a payroll system. Many employers will have reviewed their pay elements some years ago and decided whether or not each one should be “pay” or “bonus” for gender pay gap reporting purposes (or neither), and then use these each year in their calculations.

However, new pay elements are created are from time-to-time and, unless employers do a check each year, they can get missed. During the pandemic, many employers have compensated employees in a variety of different ways. As these can impact the reportable statistics, it’s important to check how they should be included. Often, this is not straightforward.

Bonuses paid in April: not pro rating these properly

Any bonus that is paid in the pay period that includes 5 April must be included alongside pay when working out the hourly rate. However, only a pro-rated amount of that bonus should be included.

This means dividing the amount paid by the period that it relates to, then multiplying it by the length of the employee’s pay period. For example, dividing an annual payment by 365.25 (this is how many days are in a year, according to the Regulations) and then multiplying it by 30.44 (for a monthly paid employee – this is how many days are in a month according to the Regulations).

Spot bonuses can be a particularly difficult area. They could be awarded for a busy month, or for completion of a difficult 6 month project, but all just processed on your payroll system as “spot bonus”. You would need to find out the specific facts behind each payment in order to pro rate properly.

Salary sacrifice: ignoring it

Gender pay gaps are calculated from gross figures, not net. However, any type of “deduction” made via salary sacrifice must be taken into account.

This is because salary sacrifices are not a true deduction, but instead a negative “payment”. A salary sacrifice is an agreement to get paid less on condition that a benefit is provided. Think of it this way: gender pay gap reporting only uses figures from the left side of a payslip, so any sacrifice payment that appears here must be taken into account.

This can often make no intuitive sense. Salary sacrifices are choices made by the individual employee, and why should an employee’s choice have an impact on pay gaps? There are arguments for and against calculating on this basis, but at the moment, the position is clear: the figures used in the calculations must be post salary sacrifice.

Self-employed contractors: not checking for any

As mentioned above, gender pay gap calculations are done using payroll and HR data. While this might capture the vast majority of data needed, it might not capture it all.

The definition of “employee” is broad for gender pay gap reporting purposes. It includes many self-employed contractors and these people might not have been paid via the payroll system. It is important to check whether there were any contractors engaged in April and make sure you properly understand the nature of the engagement. The precise details of the arrangement can affect whether or not someone is within scope.

Full pay employees: not checking paternity/maternity leave entitlements

Depending upon when parental leave started (and what your entitlements are), people may (or may not) be a full pay employee. It’s really important to know at what point each employee’s pay entitlement changes. For example, an employee whose maternity pay moved down from 100% to 90% of normal pay on 29 April would be a reduced pay employee, even though it was reduced only a little for only a part of April.

Non-binary employees: gender data needs updating

With anywhere from 0.1% to 2% of the population being non-binary, it’d be statistically unlikely for any large employer’s staff to be consistently only either male or female. If an employer keeps finding this, their gender data might be out of date. Often employees are only ever asked to complete this when they join and then not asked to look at it again.

To ensure they are using up-to-date data, employers should plan ahead a little and send periodic reminders to staff, asking them to update their diversity information. This can also help boost your dataset ahead of any future ethnicity pay gap analysis.

Spreadsheet errors: wrong formulas lead to wrong results

All gender pay gap reporting involves spreadsheets. Data comes out of payroll and HR systems then has to get spliced together and manipulated. It’s here where errors can creep in. Those spreadsheet geeks among us will know how easily this can happen. For example, the pain of only later realising an omitted dollar sign from a row of copied formulas, a cell formatted as text instead of a number, a range that omits critical values, a stray VLOOKUP on a far down row that hasn’t worked, or even simply just a secret rogue space after a value.

HR systems: relying on auto-generated figures

Some HR systems will produce hourly rates intended for use in gender pay gap analysis. These tend to be automatically generated and won’t take into account the pay elements that you’ve identified as falling within the definitions of “pay” and “bonus” in the Regulations.

It’s always better to calculate hourly rates yourself to ensure that only the correct data is being used.

The calculations: getting these wrong

There are a few ways in which calculations can go wrong.

• Hourly rates. The Regulations are very clear about how to calculate hourly rates. Hours must be used, and not FTE. The correct pay period must also be used. For an employee that didn’t work the full month, make sure you use an appropriate period.

• Bonus gaps. These are calculated only from employees who actually received a bonus (rather than being calculated from all employees). Employers should be careful not to bring the wrong employees into the calculation.

• People straddling two quartiles. All quartiles must be the same size (or as close to the same size as possible). Where there are people straddling a boundary, these must be allocated proportionately equally across each quartile. For example, if there are 20 people (5 men, 15 women) all paid £12ph, and the lower quartile has 4 too few employees, you would allocate 1 man and 3 women (then 4 men and 12 women to the other quartile).

Are you sure that your data is right? If you’ve done your gender pay gap calculations yourself and would like a second pair of eyes, contact us to find out how we can help.