Why businesses should explain their gender pay gaps

With the reporting deadline looming, Angharad Aspinall considers the benefits of providing an accompanying narrative – including a reduced risk of costly claims and reputational damage

Mandatory gender pay gap reporting for employers came into force in 2017. While the gap between men and women's average pay has been monitored on a national level by the Office for National Statistics since 1997, the government wanted an initiative to close the gap and hoped businesses publishing the information would help focus this. The first published reports were due by 6 April 2018.

Organisations with 250 employees or more are required to publish their data each year. However, with the onset of the pandemic in March 2020, the government suspended reporting for the year 2020-21. After a year ‘off’, businesses are now again required to report by 4 April 2021 (or 30 March for public sector organisations).

Employers must publish mean and median pay figures for men and women employees, for both salary and bonuses. This means anyone employed under a contract of service, a contract of apprenticeship or a contract personally to do work. This includes employees, casual workers and some contractors, although it is not always clear whether a particular worker is caught by the regulations. 

If they receive less than full pay because of being on leave, employees are excluded from the pay reporting obligation. This generally refers to employees on sick leave, family-related leave or sabbatical. Currently, it can also include employees on furlough leave if they are not being paid full pay. This may temporarily distort pay disparities in sectors where a lot of women in low-wage jobs have been furloughed and therefore aren’t included in this year’s calculations. But an artificial fall in inequality this year will inevitably have a knock-on effect on future reports, when those employees return from furlough and the pay gap widens again.

And as evidence that the pandemic has deepened gender inequalities continues to mount – with the Equality and Human Rights Commission recently urged to investigate ministers for 'equality failures' in the Covid response – there’s no doubt the figures will be scrutinised, both internally and externally.

In this context, how employers present their figures and explain any widening or narrowing in their gaps will be crucial. Doing so will help reduce confusion around what the figures mean and avoid employee concerns that could, in extreme cases, lead to staff to wonder about potential equal pay issues. Gender pay gap and equal pay are not the same, but it is not difficult to see how stark differences in gender pay could lead to incorrect conclusions that perhaps there are issues around equal pay. The time and cost investigating potential grievances into such allegations and perhaps then responding to employment claims can be great.

Gender pay can also affect recruitment, with top talent looking beyond financial compensation to the culture of the workplace and whether the business they are considering applying for considers equality and diversity as an important factor.

An accompanying narrative can help avoid negative publicity – most of the well-known newspapers report those businesses that publish large pay gaps. The headlines can often be brutal, such as ‘naming and shaming’ or ‘the worst offenders’. Explaining anomalies can help to avoid such negative press. It can also help reputation with others such as customers. Customers are more likely now than ever to boycott, or protest against, a brand for failing to meet equality standards, which can have consequences for business. 

So, now is the time for employers not only to gather data, but also to think about the way they present it. Including a narrative to explain any pay gaps and setting out what action you intend to take is not compulsory – but highly recommended. 

Angharad Aspinall is an employment lawyer at Capital Law