The state of gender and ethnicity pay reporting in the Covid era

Despite some progress on narrowing the gender pay gap, the Covid-19 pandemic and cost-of-living crisis have had a negative impact, leading to concerns about backsliding. In-House Perspective assesses where we are and what it means for counsel.

The Organisation for Economic Cooperation and Development (OECD) has found that, between 2000 and 2020, the gender pay gap (GPG) fell in OECD countries from 18.1 per cent to 11.6 per cent for full-time employees. The OECD’s research, published in October 2022, defines the GPG as ‘the difference between median earnings of men and women relative to median earnings of men’.

Many countries saw the GPG widen during the Covid-19 pandemic, however. The UK’s GPG, for example, widened by 0.7 per cent to 7.7 per cent in 2021 and then to 8.3 per cent in 2022, according to Office for National Statistics (ONS) data, with more women working in lower paid jobs and taking on a larger share of childcare cited as the main causes.

Now as the cost-of-living crisis makes an impact around the world, there are fears that pay inequality will rise again, as businesses focus on other issues – dealing with rising costs, supply issues and wage demands, for example – rather than addressing pay gaps.

‘Where the “business as usual” is more challenging, issues such as pay gap reporting will likely slip down business owners’ priority lists,’ says, Samantha Owen, a senior employment law solicitor at Harper James in the UK. ‘The only real way to remedy this would be for businesses to actively prioritise it and commit to it – which is a big ask in the current economic climate.’

Soaring inflation may be contributing to pay gaps, she says, with a study published in March 2022 by human resources software provider Ciphr finding that women were 8 per cent less likely than men to have been offered a pay rise that was in line with inflation. ‘Women tend to be more reluctant to negotiate for more compensation generally, meaning this could further exacerbate the gap,’ Owen believes.

The bottom line is that pay gap reporting is yet another administrative burden on the employer, and increasing financial pressure means that many employers have had to let staff in support or HR roles go, says Jo Mackie, Head of Employment Law at Lawrence Stephens in London. ‘The best way to overcome this is to keep a steady record month-by-month rather than leave it all until the week before the report is due, or hire an external person to manage this as a project. It need not be expensive, as the right candidate can produce the statistics from documents that the business already holds on its employees – once redacted, of course.’

Compulsory GPG reporting arguably helps to close the gap, with the UK, for example, seeing GPG narrow for full time employees from 9.1 per cent in 2017 – when it became one of the first countries to introduce mandatory GPG reporting – to 7 per cent in 2020, according to ONS data.

While the GPG was narrowing in the UK even before compulsory reporting was introduced, such regulatory measures certainly drew attention to the importance of closing the gap and spurred corporate leaders to take the matter seriously.

Effective, simple and context-driven GPG reporting is crucial to achieving workplace gender pay equality, says Hina Belitz, a partner in employment at Excello Law in the UK. However, enforcement of GPG reporting is not particularly effective in many jurisdictions, such as the UK, she believes. ‘Whilst there may be some media attention given to a leading company’s extensive gap around the early April “snapshot” date, there is unlikely to be any real repercussion or sanction, economic or otherwise.’

In addition, Belitz says, legal loopholes are a problem within the current reporting structure and mean many companies avoid truly reflective reporting. ‘These include the development of different corporate entities under one umbrella to avoid reaching reporting thresholds, alongside the corporate outsourcing of entire lower wage functions such as office cleaning to third party agencies, meaning those – often female – employees are not included in reporting,’ she explains. ‘GPG reporting needs some work and careful consideration to close these loopholes, and is currently only so useful as a result of these issues.’

Indeed, says Mackie, it’s notable that the countries that have reduced their gender pay gaps to the lowest around the world – including Australia, France, South Africa and Sweden, according to the Global Institute for Women’s Leadership – are those where enforcement action is stricter.

One country of note is Italy, says Paul Kelly, Head of Employment at Blacks Solicitors. There, once every two years, private companies with more than 100 employees are required to submit a report on wages, positions, recent hirings and dismissals to their relevant trade union and to the ‘Regional Gender Equality Advisors’ (RGEO).

‘The RGEOs have the power to ensure compliance, issue fines to dissenting employers and enforce them to address any apparent discrimination,’ explains Kelly. ‘This process goes beyond what we have in the UK, for example, where fines are the only penalties for failing to report.’

Mandatory ethnicity pay gap (EPG) reporting has not been formally introduced in any jurisdiction, although some countries, such as the UK, have considered it. However, in its Inclusive Britain policy paper of March 2022, the UK government rejected such an approach as being too complex and burdensome on businesses recovering from the pandemic, opting instead to encourage a voluntary approach. Research by KPMG and published in February 2022 shows, however, that only 13 per cent of FTSE 100 employers voluntarily published their EPG in 2021, which casts doubt on the effectiveness of a non-mandatory option.

Given that ethnicity doesn’t play the same role in all jurisdictions, a voluntary approach can make sense for some, says Ueli Sommer, Co-Chair of the IBA Diversity and Equality Law Committee and a partner at LEL Lawyers Ltd in Zürich. ‘In addition, under Swiss privacy laws, for example, ethnicity is a protected category and employees do not have to provide information. So, any information may only be collected on a voluntary basis and hence might not be correct overall.’

Ethnicity data collection may prove difficult within countries subject to the EU General Data Protection Regulation (GDPR) countries, says Owen, because although gender is considered ‘non-sensitive’ personal data, racial or ethnic origin is considered ‘sensitive’ personal data and necessitates compliance with further conditions under the Regulation – placing a further administrative burden on organisations.

‘Companies have also historically not needed to collect it and so many employers will be starting from scratch,’ Sommer says. ‘Gathering data can prove challenging where this hasn’t been done before and where there can be some distrust of the process and its aims. As a result, work needs to be done to educate staff on what you’re doing and why and [to] seek their engagement and trust.’

Pay gap reporting is a good tool to force companies to observe overall compliance, he says. ‘However, since individual information is not provided, each employee has then to evidence that s/he is directly affected by the pay gap to make a claim. What would be more effective would be a direct penalty for companies for [not being] compliant and an obligation to close gaps retroactively and to provide evidence for having closed the gap for each individual.’ Ultimately, Sommer says, a global approach would certainly be preferable. ‘But who would enforce it? I guess a multilateral treaty on such an issue will not be possible.’