12 April, 2022

Equal Pay Day 2022: Why is pay gap reporting important?

Pay gap reporting has been enshrined in law since 2017. Since then, companies with over 250 people have been legally obliged to disclose their gender pay gap data. This has revealed some eye-opening differences in men and women’s pay across many organisations and industries, exposing significant inequality, affecting millions of  women.  On Equal Pay Day – and in an era when women in the UK earn 90p for every £1.00 earned by men – we look at why pay gap reporting is not just important, but essential.

Pay gap reporting – the story so far.

In 2017, regulations were introduced which required large organisations to publish their gender pay gap data – the average difference between men and women’s earnings – every year, highlighting the disproportion of women in low-wage positions. The government’s aim was to “help break the glass ceiling and create a more modern workforce.” Analysis of the first set of returns in April 2018 showed that median hourly pay for full-time employees was 8.6 percent less for women than for men.

In 2019-20 gender pay gap reporting was suspended as the pandemic raged. This in itself prompted some to ask the question why was something as important as pay parity put on hold, when other regulatory reporting was still expected?

It was reinstated for 2020-2021, amid calls for data transparency, with mothers 47% more likely to have lost their jobs or have had to quit during lockdown. Organisations were given a six-month extension to report their figures, with the deadline moving from April 2021 to October 2021. Since 2017, the pay gap for full-time employees has dropped from 9.1% to 7.9% in 2021, and from 18.4% to 15.4% for full-time employees in the same period.

It is also important to consider equal pay reporting more broadly; In 2018, the government opened a consultation on ethnic pay reporting. Since then, organisations in both the private and public sector have begun to publish figures on a voluntary basis. However, figures on ethnic pay gaps are yet to become a mandatory requirement.  For many organisations they still have gaps in ethnicity data collection which brings into question the accuracy of any pay review, this makes the need to collect meaningful and accurate data more important than ever.

In addition to this when we think about the gender wage gap, we tend to think of the gender binary of male and female, but there’s an increasing awareness that gender isn’t binary, and in this respect organisations should of course start considering the experiences of, trans and queer people when calculating these measures, particularly when we consider that female-presenting people tend to experience all the discrimination that cis women [non-transgender women] experience —plus the discrimination they face as transgender individuals.

Why pay gap reporting is important.

Action to correct inequality can only start when we measure and monitor data. Pay gap reporting legislation has forced large organisations to publish and acknowledge their figures and encourage other employers to do the same on a voluntary basis. With growing focus on this data – particularly this year, thanks to @PayGapApp the Gender Pay Gap Bot – the onus is on organisations to convey their progress towards gender equality.  

This isn’t just good news for women, it’s good news for their employers, too. Pay gap reporting brings transparency, a cornerstone of good governance. Fair and non-discriminatory pay systems aren’t just a legal requirement, they’re also good management practice. Pay gap reporting lays the foundations for trust and openness leading to better staff morale and lower staff turnover.

It also enables organisations to recruit and retain more women and other diverse talent in the workplace; – with the pandemic spurring many to re-evaluate their employment choices, filling vacancies is an increasingly difficult challenge. Employers must tap into the broadest possible talent pool to find the best people. Those with smaller pay gaps stand a better chance of attracting women and therefore building a diverse workforce.

Competent leaders will have seen various reports on why this is key. For example, a Boston Consulting Group study found that companies with more diverse management teams have 19% higher revenues due to innovation. Diverse workforces are regularly found to be more resilient, creative, and profitable. It’s in everyone’s interests to eliminate inequity.

Closing the pay gap.

Pay gap reporting is an opportunity for organisations to achieve a truly diverse and inclusive workplace. By treating it as a gauge or indication of embedded diversity issues, they are identifying and tackling their pay gap’s root causes.

There are several steps you can take:

  1. Submit and implement an action plan.

Employers are encouraged (but not obliged) to submit an action plan for closing their pay gap, along with their figures. This can put your organisation on the path to reducing the disparity. It may well mean asking tough questions – do certain departments or locations have smaller or larger pay gaps than average? Are parents held back or disadvantaged by lack of flexible working practices and flexible cultural norms?

  1. Make sure you can see the whole picture.

Government advice on reducing the gender pay gap starts with a recommendation that organisations gather and analyse high-quality data so they can understand the drivers in their environment. Addressing the root causes of pay gaps means combining quantitative pay gap data with broader employee insight. Crunch your stats and ensure you take an  intersectional viewpoint, as this approach is likely to identify where diverse groups could be impacted the greatest.

  1. Provide agile working options.

Women are still often viewed as the primary caregiver, potentially impacted by both childcare and elder care responsibilities. Without flexible or agile working approaches in place, they may be forced to remain in lower paying part-time roles or unable to progress into more senior, higher paying roles. Make sure parents aren’t restricted to 9 to 5 hours and are given the chance to develop whatever their roles. In the wake of the pandemic, with remote working proven to be a practical and workable option, it’s possible to offer hybrid working in many situations and many organisations are now making this part of their future thinking. 

  1. Considering broader diversity when analysing pay.

One of the biggest and most important steps organisations can take is to extend pay gap reporting to ethnicity, disability, and other protected characteristics. Often, the systems for reporting are already in place. The findings enable organisations to make informed business decisions as they work to create an equitable workplace with diversity of thought. Monitoring data works. What gets measured gets done.

The business case for closing any pay gap is undeniable. We know that people make different talent decisions now, their drivers for moving to new organisations are much more centred around organisations with a strong social and moral compass, one that has an inclusive culture and is transparent in its attempts to demonstrate inclusion. In addition to this there is a strong commercial case – for example - Ethnically and culturally diverse businesses can also see up to 36% more profitability, and  addressing race inequalities in the labour market could boost the UK economy by £24 billion a year.

Pay gap reporting is an essential part of creating a sustainable inclusive culture. Going beyond the legal minimum and incorporating it into your Diversity, Ethics & Inclusion (DE&I) strategy has benefits for all – it’s a win-win situation!

For more information about pay gap reporting or support with any equality  law, or Diversity & Inclusion matters, contact Green Park’s D&I, Culture & Ethics Consultancy.

Jo Heath

Written By

Jo Heath

Managing Partner

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