Gender Pay Reporting PPMA National Event – Manchester 17 March 2016

Agenda Gender Pay reporting Other topical pay issues Apprentices – No NIC under 25s Apprenticeship Levy National Living Wage Salary Sacrifice – consultation Managing the people cost

Gender Pay Reporting Background and recent developments Summary of draft regulations Defining Pay and Bonus When and where organisations need to publish? How the process will be governed What should employers be doing? Case study Risks and challenges Key considerations 

Closing the gender pay gap 14 July 2015 – Government published a consultation “Closing the gender pay gap” – concluded Sept 2015 Focussed on commitment to workplace equality and the intention to implement regulations under Section 78 of the Equality Act 2010 - “Opportunity is nothing without equality” October 2015, Government issued a press release notifying employers with at least 250 employees to publish information about their gender pay gap Five-year summary report - Women on Boards published on the approach to increase representation of women on FTSE 100 boards to at least 25% by 2015

Closing the Gender Pay Gap – consultation response 12 February 2016, the Government Equalities Office (GEO) issued their response to the ‘Closing the Gender Pay Gap’ consultation - the response included: An overview of responses along with the Government’s conclusion to each question The proposed draft regulations, accompanied by a further consultation asking ‘What, if any, modifications should be made to these draft regulations?’ Organisations and individuals had until 11 March 2016 to reply to the latest consultation

What happens next? Responses to the latest consultation will then be collated, and the draft regulations (subject to any changes) will then be enacted The regulations are then expected to come into effect in October 2016 with employers having to publish the required information on a date of their choosing by 30 April 2018 – then annually thereafter Employers should take the opportunity to consider the implications of the proposals and, where appropriate, respond to the consultation with any concerns that they may have

Summary of the draft regulations The draft regulations propose that organisations will be required to report separate, aggregated figures on: Pay, Bonus pay Overall pay distribution by salary quartiles Which organisations will need to report this information? The reporting regulations will apply to private, public and voluntary sectors across Great Britain for employers who have more than 250 employees Employees who ordinarily work in Great Britain and whose contract of employment is governed by UK legislation Employers are required to take a snapshot of data for the period including 30 April 2017, and publish the required information on a date of their choosing by 30 April 2018

How is Pay defined? Pay is defined as: Basic pay including paid leave Maternity pay and Sick pay Area allowances Shift premium pay Bonus pay, and Other pay (including car allowances paid through the payroll, on call and standby allowances, clothing, first aider or fire warden allowances) It does not include pay for a different pay period, overtime pay, expenses, the value of salary sacrifice schemes, benefits in kind, redundancy pay, arrears of pay and tax

How is Bonus Pay defined? Bonus pay is defined as: ► Payments received and earned in relation to profit sharing, productivity, performance and other bonus or incentive pay, piecework and commission ► Long term incentive plans or schemes (including those dependent on company and personal performance), and ► The cash equivalent value of shares on the date of payment

What pay elements will need to be reported? Employers will be required to publish the difference in mean and median pay between male and female employees for cash payments and short and long- term incentives Bonus pay the difference in mean bonus pay between male and female employees, to include short and long-term incentives, as defined above, and The proportion of male and female employees who received bonus pay

What pay elements will need to be reported? Overall pay distribution by salary quartiles Employers will also be required to identify the quartiles of the overall pay range (based on the gross hourly rate of pay for all employees), and Report on the number of men and women in each four quartiles in order to demonstrate the overall pay distribution

When do organisations need to publish and where does information need to appear? Employers have 18 months from October 2016 to publish the required information for the first time, and then annually thereafter Employers are required to take a snapshot of data for the period including 30 April 2017, and publish the required information on a date of their choosing by 30 April 2018 The information will need to be published on the employer’s website and must be accessible to employees and the public The information will need to be searchable, presented in English, and should remain in place for at least three years from publication

How will this be governed? Employers will be required to send evidence of compliance to a government website The signature of a senior responsible person will be required to confirm accuracy of the data The Secretary of State will conduct periodic reviews of the regulations, and will also publish a report within five years of the regulations coming into force The Government will run periodic checks for non-compliance, produce publically displayed league tables by sector, and identify and highlight employers publishing full and explanatory information They may also publicise the identity of employers who have not complied

What should employers be doing? It is important to start to plan how to access, validate and analyse data to determine the gender pay gap from a data and resource perspective Organisations should consider what level of board involvement will be needed for the appropriate signature to be given Reward functions need to consider how this activity can be built into their existing processes, and consider carefully the best time to publish The first report will be critical in setting the baseline for future reports

Understanding the reasons for pay disparity It is essential to identify the underlying cause of the pay gap, as this will inform any action plan Two significant points for consideration to understand any gender pay gap will be: Occupational segregation: Is their an imbalance in the representation of each gender in certain roles or levels within the organisation? consider assessing the talent pipeline and the types of roles that women are conducting in relation to men is any inherent bias in recruitment or retention policies (e.g., levels of flexible working)

Understanding the reasons for pay disparity Pay: Is the pay gap driven by issues relating to pay, grading or performance management? For example, consider a review of pay practice by grade, taking material defence factors (e.g., performance ratings, length of service etc.,) into consideration rule out any equal pay issues

Case study – what are the issues? Please take 5 minutes to discuss the following Organisation has 2,000 employees and operates a pay spine Split 60% women, 40% men You had to settle an equal pay claim 8 years ago – the organisation has recently restructured and many jobs/responsibilities have changed Average tenure 14 years male, 8 years women 80% of senior managers are male Organisation pays market supplements where appropriate 15% of the workforce is part-time/job share (90% women), 3% of staff on maternity Significant number of men work shifts, receive on call and standby allowances. Male workforce more likely to have “mobile” jobs There are cash allowances for cars, these are grade related and essential user allowances Performance related pay – top 10% Salary sacrifice schemes – childcare, low CO2 cars and buying annual leave

What are the risks/challenges? Raised awareness may lead to discrimination claims How do you communicate to avoid reputational damage Recruitment and retention issues Recent survey suggests 66% would not work for an organisation with a gender pay issue Embedding change in the organisations strategic plans when female representation at senior level is lower Understanding the reasons why pay is different – pay and working arrangements can be complex Could this give rise to an increase to the pay bill when budgets are severely under pressure?

Key considerations Who should be involved? Reward teams undertaking the analysis should work closely with communications, legal, employee relations and diversity colleagues in order to shape the messaging Emphasis on increasing the understanding - where the gap in pay lies and how the organisation is addressing it How will the pay gap will be communicated to both employees and the external market? How to measure success a visible reduction in the pay gap from one year to the next but are there others? Put in place a transparent action plan to support your goals

Other topical pay areas

National Living Wage Compulsory from 1 April 2016 £7.20/hour for workers aged over 25 (£9/hr by 2020) NMW rate otherwise £6.70, lower rates for under 21 and apprentices (£6.95 from October 2016) Penalties of up to 200% (max £20k per worker) HR/systems/salary sacrifice issues

Apprentices – No National Insurance under 25s Employer guidance 2 February 2016 https://www.gov.uk/government/publications/national- insurance-contributions-for-under-25s-employer- guide/paying-employer-national-insurance-contributions-for- apprentices-under-25 No employer NIC in respect of apprentices under 25 from April 2016 on earnings below £827 a week Must be following an approved statutory apprenticeship framework – apprenticeship has to receive govt funding Similar provision to employing under 21s – no employer NIC up to UEL

Are you ready for the Levy? The new apprenticeship levy will apply from April 2017. The levy is set at 0.5% of total paybill costs Each employer has an allowance of £15,000 to offset against the payment An employer’s paybill costs would need to exceed £3m before any payment is due On this basis, fewer than 2% of employers are likely to pay the levy because it is set at 0.5% of total paybill costs, with each employer having an allowance of £15,000 to offset against the payment) The levy would be payable through their PAYE return to HMRC, and employers with multiple PAYE schemes will need to ensure that the £15,000 allowance has been correctly allocated to ensure the correct amount of the levy is paid Please note that further guidance is anticipated to be published in the near future

Are you ready for the Levy?

Are you ready for the Levy – issues? 0.5% Rate and “paybill” Meaning of the term “paybill” What is to be included in the paybill calculation? (e.g. earnings of secondees, agency workers) £15,000 threshold How is the threshold supposed to operate? Would you need to pay and then reclaim the amount? Apprentice”- unclear definition “Employer”- unclear definition Logistics and Implementation of the Levy Is the digital account only accessible to those in England or will Scotland, Wales and Northern Ireland also be included? How long funds will be accessible in the employer’s digital account (two years has been the main suggestion yet still undecided) How will administrative burdens be reduced? Definition of “direct training costs”? What can apprenticeship funds be used for?

Public sector apprenticeship targets January 25th “We're seeking your views on which public bodies in England should be set targets on the number of apprentices working for them.” See https://www.gov.uk/government/co nsultations/public-sector- apprenticeship-targets

Salary Sacrifice December - Autumn Statement The government remains concerned about the growth of salary sacrifice arrangements and is considering what action, if any, is necessary. The government will gather further evidence, including from employers, on salary sacrifice arrangements to inform its approach. January - Hastily arranged “Consultation” Lack of understanding HMRC Know Your Customer asking employers for figures on tax/NIC “saving” March – Budget Further consultation Risk of total abolition or just specific benefits at risk?

Managing the people cost Upward pressure on pay (NLW, AE, end of contracted out NIC, apprenticeship levy) – budget cuts Salary sacrifice/flexible benefits – increasing take-up and/or new benefits? Continuing benefits during maternity – Peninsula Business Services Flexible working arrangements – part-time/job share More apprentices/younger workers? Voluntary redundancy – impact of £95k redundancy cap Reducing agency spend – better use of internal resources, better internal controls/procurement

Managing the people cost Job evaluation – understanding the workforce, enhancing jobs Training – upskilling the workforce Managing the overtime and allowances spend Annualised hours contracts, seasonal jobs Payments to encourage workers to opt out of pensions? Better use of MI Shared service centres for managing HR Managing sickness and other policies currently managed by line managers More robust performance management