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Gender Pay Regulations: Frequently asked questions for FIs

  • United Kingdom
  • Employment law
  • Financial services

01-02-2017

The Government Equalities Office and Acas have jointly published guidance on the Gender Pay Gap Regulations. Click to read the GEO/Acas guidance. Read the revised draft regulations, published on 7 December 2016, and our general FAQs on the regulations.

The regulations raise particular concerns for financial institutions and we set out below FAQs specific to you.

1. Is there any official guidance?

The Government Equalities Office and Acas have jointly published guidance ‘Managing gender pay reporting in the private and voluntary sectors’. Whilst not legally binding, it is unlikely that an employer will be criticised if it follows the guidance.

2. In a sector with a highly mobile workforce, will a ‘relevant employee’ include overseas workers assigned to the UK for a fixed period?

The earlier draft regulations stated that a relevant employee was one who ‘ordinarily works in Great Britain’ and whose contract is governed by UK legislation. The final regulations have changed and pared this definition down to: ‘a person who is employed by the relevant employer on the snapshot date’. A ‘relevant employer’ is an employer who has 250 or more employees on the snapshot date.

The explanatory memorandum (which does not form part of the regulations) sets out the territorial extent of the regulations as Great Britain, but this does not really assist since this is intended to acknowledge the extent of the Equality Act. It remains unclear which employees should therefore be taken into account for reporting purposes.

The GEO/Acas guidance offers a little clarity. As a general rule, an employee based overseas will be within the scope of the regulations if they can bring a claim before an Employment Tribunal under the Equality Act 2010. The guidance states that, whilst rules around international employment/jurisdiction are complex, indications that someone would be included for GPG reporting purposes include:

  • having a contract subject to GB legislation
  • continuing to have their home in GB and
  • having the UK tax regime apply to their employment

These tests are the GEO/Acas’s attempt to summarise the main features arising out of the complex case law on jurisdiction.

3. If an employee is seconded from overseas and is paid according to the pay levels in his home jurisdiction, should this be taken into account?

As above, the position is not straightforward. The guidance states that a multinational organisation that has employees working wholly or partly in Great Britain may find that some or all of these employees will need to be counted for GPG reporting purposes. In any event, there is scope to explain any anomaly in the publication of additional information.

There is also limited comfort to employers in reg. 2(3) which provides that the employer does not have to include data if it does not have, and it is not reasonably practicable for it to obtain, the data.

4. What needs to be included in the calculation of bonus pay?

Bonus pay is defined in reg 4 to be any remuneration that:

  • is in the form of money, vouchers, securities, securities options, or interests in securities; and
  • relates to profit sharing, productivity, performance, incentive or commission

but does not include ordinary pay, overtime pay, redundancy pay or remuneration referable to the termination of employment. The guidance clarifies that non-consolidated bonuses (sometimes called red-circle payments) are included. Gross amounts should be used.

The final regulations also provide that remuneration in the form of securities, securities options and interests in securities must be treated as paid to the employee at the time and in the amounts in respect of which such forms of remuneration give rise to a liability to income tax.

5. How do we calculate the bonus GPG?

Under the earlier draft regulations, only the difference in mean bonus pay needed to be reported. The final regulations require relevant employers to report on the difference in both the mean and median bonus pay. The intention is to provide greater transparency around the distribution of bonuses in an organisation.

6. What happens when an employee is advised that he has earned a cash bonus but does not receive the cash bonus until some time later?

The previous draft regulations were unclear as they referred to bonus payments which had been ‘earned and received’. Whilst the final regulations have not retained this reference to bonus pay ‘earned and received’, the regulations are not entirely clear when deferred cash bonus payments need to be included in the calculation of bonus pay. It is likely that deferred cash bonuses will be treated in the same way as remuneration in the form of securities, securities options and interests in securities (ie they will be treated as paid to the employee at the time, and in the amount in respect of which, they give rise to a liability to income tax). The guidance states that where an employer has decided to defer an entitlement to bonus pay (for example in the case of a long term incentive plan) then that amount would be captured when the amount gives rise to a charge to income tax.

7. Does the ‘hourly rate of pay’ include bonuses and, if so, do we have to report bonuses twice?

If the bonus is paid in the relevant pay period, yes. Regulation 6 defines the ‘hourly rate of pay’ to include all amounts of ordinary pay and bonus pay paid to the employee in the relevant pay period – though the amount of bonus pay is pro-rated if the period in respect of which the bonus is paid is not the same length as the relevant pay period. Reporting needs to be made on the difference in mean and median hourly rate of pay and mean and median bonus pay. Many FIs will pay bonuses in the February or March payroll and so it is likely that this will impact on reporting, although this is unlikely to show any gender bias.

8. Are employer and employee pension contributions into occupational pension schemes included?

Reg. 1(3) states that ordinary and bonus pay should be calculated ‘before deductions made at source (for example deductions in relation to income tax’). Therefore pay should be calculated before any employee pension contributions are deducted. However employer contributions should probably not be included since they are not ‘paid’ to the employee for the purposes of calculating the hourly rate of pay (see 7 above). The guidance clarifies this, noting that since employer pension contributions go directly to a pension fund these do not affect the GPG calculations.

9. How does the application of malus and clawback affect reporting?

There is no specific reference to malus and/or clawback in the final regulations or guidance. However the definition of bonus pay (see 4 above) makes clear that remuneration in the form of securities, securities options and interests in securities are treated as paid to the employee at the time, and in the amount in respect of which, they give rise to a liability to income tax. Therefore any calculation of bonus pay in relation to such forms of remuneration would be adjusted to reflect a malus deduction since the liability to income tax would not have arisen when the deduction is made. The position is different in the case of clawback since the bonus payment will already have been made and a liability to income tax will have arisen when the deduction is made.

As the purpose of the regulations is to compare pay awarded, a bonus pay calculation that does not take into account malus and clawback deductions arguably will not accurately reflect the true picture. Where malus or clawback applies, further information may need to be included in the report to explain how these deductions have affected the calculations.

10. When do we report deferred variable remuneration?

See the answer to Q6 above.

11. How do we treat LTIP awards that have been granted in the form of conditional awards or nil cost options?

Share awards made to employees under long-term incentive plans (LTIPs) are ordinarily made either in the form of conditional awards or nil cost options. A conditional award will ordinarily be taxed when the award vests whereas an option will ordinarily be taxed at the time the award is exercised.

This means that LTIP awards granted as nil cost options will fall within the definition of bonus pay for the relevant year depending on when a participant exercises the option. It is therefore possible that different LTIP participants could exercise a nil cost option granted at the same time in different tax years so that one employee’s award might count towards the gender pay gap in one reporting year but another employee ‘s award may not count until a later reporting year.

12. If we identify a gender pay gap, does this mean that we are automatically more at risk from equal pay claims?

A gender pay gap does not mean that an equal pay claim can be proven. The equal pay legislation is distinct from the gender pay gap regulations but a gender pay gap may encourage an employee to bring an equal pay claim. It is therefore important to have an explanation for the pay gap.

13. Will bonus buyouts be included in the definition of bonus?

The regulations do not make this clear. It is assumed that bonus buyouts will be included and you should work on this basis and include an explanation in the accompanying statement.

14. Will role based allowances (to the extent that they are still used) be included in the definition of pay?

Ordinary pay is defined in reg 3(3)(a) to include allowances which include sums paid with respect to any duties of the employee that is ancillary to the main duties of the employee’s employment. This would seem to include RBAs.