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A government push to get British companies to report their gender pay gap has had unintended consequences by discouraging some family-friendly policies, even as further questions emerge about its methodology.
The UK is leading the way in attempting to reduce gender inequalities in the labour market by shining a light on the worst offenders, with growing concerns in other countries such as the US, where the big tech groups are attempting to encourage gender-friendly policies.
Policymakers want to help close the yawning gap between male and female pay. By April next year, all UK companies and public sector organisations employing 250 people or more must report the difference between men and women’s mean and median salaries and bonuses, as well as the number of women and men in their company divided by quartile.
However, the reporting exercise has had some unintended effects, according to executives tasked with overseeing their companies’ efforts who are otherwise supportive of government policy.
“We almost feel we’re being penalised for offering a good work/life balance,” says Debbie Mavis, head of talent and resourcing at TSB, the bank where 29 per cent of staff work part-time, and 95 per cent of those part-time workers are women.
If women use salary sacrifice arrangements, such as childcare vouchers or extra holiday days, more than their male colleagues, a company’s gender pay gap looks worse than it should.
Meanwhile, the data fail to reflect the fact that part-time workers, where women tend to dominate the numbers, earn proportionally lower bonuses because of their choice of working hours.
Executives also complain that companies’ pay gaps are likely to suffer from policies designed to help boost the number of women in senior positions — such as flexible working or recruiting more junior women.
All TSB employees are eligible for a bonus calculated as a fixed percentage of salary, so those working reduced hours receive a pro-rated bonus to reflect the number of hours they work. But the bonus gender pay gap data on the government portal does not factor this in.
At PwC, bonuses as a percentage of fixed pay have been scrapped — precisely because the policy makes the gender pay gap worse.
The government says that as the overall gender pay gap calculations and earnings quartiles are all based on headcount, adopting an alternative methodology for the bonus gap calculations risked being confusing for employers and employees, and that if a gap had been skewed as a result, employers could highlight this in their accompanying narrative.
Salary sacrifice schemes, which allow staff to take some of their earnings in non-cash benefits, are also inadequately accounted for under the reporting requirements, companies say.
The benefit to employee — and employer — of these schemes is that they reduce the income tax and National Insurance Contributions paid on salaries. But because many of the benefits that can be included, such as childcare vouchers, appeal particularly to women, those who take advantage of them see a disproportionate impact on their cash salaries and thus on a company’s gender pay gap calculations.
“This is not because we are paying women less,” one employer told the FT. “It’s because they are using what they regard as a worthwhile benefit more.”
Deloitte offers staff the option of buying extra holiday days, a benefit which tends to be taken advantage of by more women than men. That choice then means the company’s gender pay gap looks worse, as women’s cash salaries are proportionately lower than men’s as a result.
“It drew attention to something we didn’t know before,” says Emma Codd, Deloitte’s UK managing partner for talent.
Employers have also discovered that schemes they have put in place precisely to support female employees and improve workforce diversity can actually make the gap worse over the short term.
“If you bring in more junior or part-time women you actually make your gender pay gap worse,” says Sheila Flavell, chief operating officer of FDM, a computer support and services company.
“What does success look like? It is very difficult to penalise bad performers without including people who are committed [to improvement] and making progress.”
Sarah Churchman, PwC’s head of diversity, was one of the business representatives on the group convened by the Government Equalities Office to give feedback as it designed the gender pay gap reporting requirements. She says it was challenging to agree on what or how to report.
“Many businesses with 250 employees don’t have the HR systems, and bigger companies with global reach can make the analysis more complex,” she says.
“It was quite shocking to recognise that lots of very big employers didn’t already do any analysis by gender.”
At PwC, a push to get more women promoted to more senior grades had a short-term but adverse impact on their gender pay gap as they entered that level at the lower end of the pay band, while men already at that level moved up within the band.
Employers must report their gender pay gap by the end of March next year. As of Thursday, only 321 of an estimated 9,000 covered by the requirements had done so.
The government says it recognises that gender pay gaps reported by employers may fluctuate, especially in the early years of reporting, as they take actions which will improve gender equality in the longer term.
The government said that by being open about their figures, and the reasons behind any increase, employers can actually enhance rather than damage their reputations.