What is the gender pay gap?

You may well have read in the press about the gender pay gap. But what is it – and how does it affect small businesses? In this blog post Simon Jones outlines what you need to know.

Firstly, the gender pay gap is not the same as Equal Pay. It is unlawful to pay men and women differently for doing the same job – and has been the case since the 1970s. The law applies to all companies regardless of size.

The gender pay gap, in contrast, compares average pay of men against average pay of women in a company. A company which paid women on average £20,000 pa and had a 5% pay gap would pay men on average £21,000.

There might be many perfectly understandable reasons for this. For example, our fictitious company may employ lots of women, but they are generally in more junior roles than men. They may operate in a sector which has traditionally been very male dominated (such as construction) and employ very few women. Or it may be that the sales force – who receive bonus/commission on top of salary – are predominantly men while admin staff – who don’t qualify - are mostly women.

Since 2018, companies employing more than 250 people must publish a report annually on their gender pay gap. The precise details of what must be published and how to calculate it can be found here on the Government website.

The purpose behind the rules is three-fold:

  • to make companies aware of how big the problem is
  • to identify ways that the gap can be reduced, through pay policies, recruitment practices and internal staff development
  • by making the information public, it allows both competitors and potential job candidates to see how individual businesses are performing and what they are doing to tackle any identified problems.

Of course, it’s very unlikely that the gender pay gap for any organisation will be ever be zero over a long time period, although it could conceivably be zero in a specific year. The aim is to make it as small as possible over time and to be aware of the current situation in order to take appropriate action. And remember also that new initiatives may take several years to work, so pay gap figures may not always change significantly year on year.

So why would a small business – with fewer than 250 staff – want to compile and publish its own data? There are a number of good reasons why you may wish to think about it:

  • If you already employ a large number of staff (say 180-200) and are expanding, you may fall into the scope of the regulations in the near future. It would make sense to prepare now rather than having to react after the event
  • Being aware of how you are performing against larger competitors – particularly if you are struggling to recruit – might well give you useful insights into how you can attract candidates
  • Compiling the data voluntarily – especially if it results in managerial action – sends a powerful message to current staff that you are treating equality and diversity issues seriously.

Very small businesses (fewer than 30 or so people) should take care, however. The size of your workforce may be too small to yield meaningful results and it’s possible that individuals may be identifiable from any data you compile. There may be other, more effective ways, of assessing whether there are any issues with pay between men and women – say by looking at the composition of your workforce and their attendant pay overall. For example, if you employ a workforce of 20, of whom 10 are men and 10 are women, but your pay bill for men is £300,000pa and your pay bill for women is £200,000pa, it suggests that there is a gender pay gap. Again, you would need to analyse the reasons why (and you can’t compare with other firms as the calculation method is different) but it may lead you to take action to address any apparent problems.

Author: Simon Jones is the Director of Ariadne Associates and is a Chartered Fellow of the CIPD

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