Pay Gap

Get ready for more pay gap reporting if Labour wins

All signs are pointing to a Labour Government coming into power some time soon in the UK. Damon Anderson, UK MD, Employment Hero reviews how this may impact the UK’s accounting profession.

This potential change in Government would undoubtedly lead to some major shifts that will be of interest to accountants, from auditing reform to changes in the way dependent contractors are classified. One of the largest shifts for payroll teams would be an expansion of which “pay gaps” need to be reported on.

Damon Anderson, UK MD, Employment Hero

The pay gap system as it stands

Currently, businesses with over 250 employees are required to report their gender pay gap data, unless they are in Northern Ireland.

This applies to a count of your total number of employees - not full-time equivalents - so part time staff are included, but agency staff are not. It occurs on a “snapshot date’ - April 5 for private businesses. So if you have 249 employees on April 5 you won’t have to report.

The actual numbers businesses publish come from the pay period on that snapshot date, and include a range of hourly pay statistics - including the mean, median, and quartile figures for both basic and bonus pay for men and women.

Notably the current system does not require businesses to undertake more complicated analyses, where you compare average pay for men and women in similar jobs. As a result, your overall figure may look lopsided one way or the other because, for example, the business has a lot of young women in junior roles and several senior men who are older. It also does not require the business to publish any kind of written action plan to address any pay gap - just the gap itself.

What Labour wants to change

Labour has not released its official election manifesto yet, but has set out several principles in a green paper on employment released a few years ago. These proposals could well be changed in some way before making it to the manifesto, let alone Government, but show a direction of travel well.

First off on gender, Labour wants employers to include “outsourced” workers in pay gap calculations - that means agency staff or other contractors. This could be complex as these employees are typically on an entirely different payroll structure, meaning accountants and other payroll staff will have quite a job on their hands, and more firms will tally up over 250 employees on the snapshot date.

Labour is also keen to require that businesses publish some sort of action plan to actually address and eliminate gender pay gaps. It’s unclear if the requirement to “eliminate” gender pay gaps will have much teeth or if it will be more about shaming organisations into at least formulating a plan to address the issue.

It will also allow businesses to compare the pay gap data with other businesses, which would allow for easier “like-for-like” comparisons in similar roles. For example: If you only have one operations manager at your firm, you can’t compare their pay data to another operations manager of a different gender - but you could if the data could be shared between organisations.

Ethnicity pay gaps

Labour is keen to go further than gender pay gaps and also introduce ethnicity pay gap reporting.

This would essentially mirror the rules for gender pay gap reporting, again with 250 employees being the trigger, but instead of looking at pay across genders it would compare the pay of white workers and those from Black, Asian, and Minority Ethnic (BAME) communities.

Obviously the first issue there for accountants will be making sure they have the necessary data to even assess this data. Many employers collect some sort of ethnicity data on their employees but this data is known to contain a lot of “don’t knows” etc so will not be particularly clean to work with.

It is unclear how exactly Labour will set out this ethnicity requirement. It could go for an approach where pay for white employees are simply compared to BAME employees, or it could go for something more complicated with different breakdowns of ethnicity.

Whatever the exact system Labour devises, it is likely that employers will have to gather similar data to what they do for gender pay gaps - so hours worked, average hourly pay, bonus pay - the lot. It is likely that collecting this data, analysing it, and supporting businesses as they try to write up any kind of plan based on it, will take quite a bit of time.

Good cloud-based payroll software should make the data reporting relatively simple, or at least make clear where data is lacking. Changes like this will not be implemented overnight but could come around sooner than you think from 2025 or so, given that the framework for gender pay gap reporting already exists. It will pay to make sure your clients or business are collecting the right data now - well before you need to. Indeed - many businesses have already followed the CIPD recommendation to start voluntarily reporting on ethnicity pay gaps themselves. That will make things a lot easier if the law does change.

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