Firms focus on gender pay gaps as staff compare annual reports
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Employers have become keenly aware of their need to review gender pay gaps, now that the EU’s Pay Transparency Directive has been finalised.
One of the key changes with the EU’s Pay Transparency Directive is that employers will be required to calculate and report gender pay gaps broken down by “categories of workers” who perform the same work or work of equal value.
Síobhra Rush, partner and head of the Dublin Office at Lewis Silkin Ireland, says that this new reporting requirement will prove quite challenging for many employers as identifying which employees fall within the same category is not always straightforward.
Here Síobhra answers some of the questions that many employers are now asking themselves about their new reporting obligations and the risks around any potential for reputational damage.
Whereas many public sector employers operate structured job evaluation schemes with different roles being analysed, scored and placed on a transparent grading or levelling system, this is much less common in the private sector.
Roles will need to be categorised so that those with the same “skills, effort, responsibility and working conditions” are grouped together. Regulations and guidance will be necessary to make clear how employers should do this. Developing and applying a job evaluation scheme is a specialist process that some employers will not be familiar with and may find tricky to navigate.
Getting the categorisation right will be very important.
The most pressing reason to get the categories correct is because where the gaps within these categories are greater than 5%, employers will have to demonstrate to workers’ representatives that there are reasons for the difference that are not discriminatory. If employers cannot agree this with representatives, it could prompt a more wide ranging “joint pay assessment”. Essentially, this is an equal pay audit that will need to be carried out in cooperation with workers’ representatives.
Another change as a result of the Pay Transparency Directive is that employers will be required to have someone senior within their organisation to vouch for the accuracy of pay gaps and employee representatives will also being given an opportunity to interrogate the methodology used. Currently, the Irish regulations do not contain any obligations for employers to confirm the accuracy of the statistics, nor the right for employees (or their representatives) to interrogate the methodologies used.
This means that the existing Irish regulations will have to be amended to include the rights of employee representatives and also to outline what is to happen if there is no existing representative body in the workplace. This may include the right to elect appropriate representatives, then set out their rights to ask questions. Essentially, this right provides a mechanism for someone to “check your homework” in a way that doesn’t exist at the moment, meaning that employers will want to be extra certain that they have followed the regulations and calculated their statistics accurately.
The new requirement for someone senior within the employer to vouch for the accuracy of the statistics will also present an additional practical requirement for employers in order to meet their gender pay gap reporting obligations in Ireland.
Although the threshold for reporting currently stands at organisations with more than 250 employees, next year this drops to 150 employees and from June 2025, employers with just 50 employees will have to comply.
Gender pay gap reporting came into force in Ireland only last summer and it proved tricky for many employers with government guidance and FAQs being regularly amended. But now that the dust has settled, and some of the trickier legal issues have been addressed, it should be easier for smaller employers to understand how to properly calculate and report their gaps. Although there remain a few quirks and grey areas, the legal position is more certain.
For small companies who are not yet caught by the Irish regulations, there is still a lot of value in making an early start and doing a “dry run” of their pay gap statistics this year as a way of identifying any potential issues so that they can be considered in good time for when they will actually be required to publish their reports.
As there are so many stakeholders involved in compiling and identifying the correct data needed to provide the required information, doing this early will allow smaller companies to flush out any potential difficulties gathering this information and allow them to identify ways to collate it in a sensible and useable format for when the time comes that they will be required to report.
Voluntarily reporting is also a clear and positive signal to your workforce that you are committed to reviewing and acting on gender equality in your business. By deciding to voluntarily report, rather than only reporting when legally obligated, the story that organisations tell differs.
If gender pay gap statistics are good, and they are likely to remain that way, smaller organisations could start to report them. Doing a dry run will help smaller companies identify the scale of the gender pay gap issue (or opportunity) that sits before them. This may even enable some companies to fully close out any gender pay gap ahead of time.
In the current climate where businesses are competing to attract and retain talent and to win business, and where factors such as diversity, inclusion and equity rank high in employee demands, taking steps to address any gaps, or to highlight the lack thereof, makes good business sense.
The Pay Transparency Directive says that “any benefits in addition to the ordinary basic or minimum wage or salary, which the worker receives directly or indirectly, whether in cash or in kind, should be taken into account” and the definition of “pay” expressly includes consideration “in kind”. Including the value of BIKs might have a big impact on the overall statistics. The current definition of BIKs in the Irish regulations is very broad: “any non-cash benefit of an estimated monetary value”, which means that potentially anything could be a BIK (e.g. the provision of a gym or a free/subsidised canteen).
Currently, however, BIKs only factor into the data collection in a binary way. Employers must report the proportion of men and women that received any BIK — the value of the BIK is irrelevant. This means that someone receiving €1m of life assurance counts just as much towards this statistic as someone receiving €2 worth of free coffee. With the value of BIKs having to also factor into the pay gap statistics, employers will have to figure out the value of the BIK that the employee is receiving.
This presents a challenge because BIKs can be hard to value. Legislation and guidance will need to clearly set out what the appropriate amount to include in the calculations will be for gender pay gap reporting purposes. Building on the previous example, what would be the appropriate value of the life assurance — the amount that it is worth (in the event of the employee’s death), the amount that it costs the employer, or the amount that the employee would have to spend to buy it themselves? Where BIKs are already taxable benefits, there should already be ways of identifying an appropriate amount. There is already some clear guidance from the Revenue how to do this but whether it’s the Revenue amount that should be included for pay gap reporting purposes remains to be seen.
There have been slow signs of progress in this area both across Europe and in Ireland in the last few years. A gender pay analysis of up to 500 companies who reported their pay gaps in December 2022, revealed a mean average pay gap of 12.6%. The latest available national gender pay gap for Ireland (reported by Eurostat in 2019) revealed a slightly lower national average pay gap of 11.3%. The last reported statistics of the EU average reported an average pay gap of 13% (in 2020), down from 16% which had been reported in 2012.
What will be interesting is now that pay gap reporting is in its second year, organisations will not only have to report again on their gender pay gap, but also on what they’re doing to address it since their last report. Organisations are aware that comparisons are going to be made between this year’s reports and the previous year. This has focussed the minds of many organisations in terms of how they can make a real difference in their organisations so that improvements are reflected year on year in their reports. As this pattern continues, and more information about an organisation’s pay gap is published, we expect to continue to see progress being made in this area.