Although under the Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 only employers with 250 or more employees are required to report their gender pay gaps, many smaller businesses are deciding to do it anyway. It is certainly true that trying to reduce a gender pay gap becomes more difficult as a business’s size increases.
By making it an early priority, employers can get the right processes in place to prevent the growth of larger gaps as the business grows. However, gender pay gap reporting can be time-consuming and difficult, so why should a small business want to voluntarily report its gender pay gap when it doesn’t have to?
Research by the Equality and Human Rights Commission (EHRC) suggests that almost two-thirds of women look at a prospective employer’s gender pay gap before applying for a job with that employer. With fierce competition for talent, it’s important to attract the best candidates, irrespective of gender or ethnicity.
Historically, women have likely had a lower salary range in their previous roles and there is evidence that women are less likely than men to ask for higher salaries and raises. There can therefore be a temptation to simply offer female candidates and employees in your firm what they ask for or slightly above what they already earn. This is still likely to be lower than what men at the company in a similar or identical role receive and will not be helpful in attracting the best candidates.
Being open and transparent about pay gaps will demonstrate a commitment to gender diversity and can help give you a competitive edge in not only recruiting, but more importantly, retaining the right people for your business.
Issues Facing Small Businesses
There are a few practical issues that a small business should consider when thinking about gender pay gap reporting. The gender pay regulations require comparison of the average woman to the average man. If a company hires no or very few women in either the lowest-paid jobs or the highest-paid board roles, and only a few women in mid-level roles, it could end up with a seemingly very good-looking gap. But that doesn’t necessarily tell you a great deal about what that workplace is like for women.
Pay gaps are calculated from averages, so when the number of people in a group is small, the average could be changed dramatically by the addition or removal of just a few individuals. The smaller the business, the bigger the impact. For example, if an employer has just 12 staff, the inclusion or exclusion of just a single person will have a huge effect on the average female hourly rate, and therefore the apparent pay gap. There’s not much that can be done statistically to resolve this small group dilemma, which is why the associated narrative in your gender pay gap report is so important.
Crafting the Narrative
The narrative in the report allows for any gender pay gaps to be properly explained and given some context. There is a fine balance to be struck in writing the narrative between giving enough information so that the statistics have relevance, but not so much that the fundamental message gets lost.
Anonymity is also important, and you need to be wary of publishing anything that might reveal personal data. For example, a gap in a business of 13 men and 1 woman could reveal that woman’s pay, relative to the average man.
It is also important for employers to be sensitive to how an employee identifies in terms of gender and, if employees have not already provided gender identity information, then employers should establish a method which enables all employees to confirm or update their gender.
Reducing the Reporting Threshold
The Fawcett Society, a UK charity established in 1886 and active in pursuing women’s rights, recently suggested that the threshold for pay gap reporting be dropped to 100 or more employees. In Ireland new gender pay gap reporting legislation will apply to employers with just 50 staff while employers in France and Spain with 50 employees or more must currently report gender pay gap information.
The trend is undoubtedly towards more transparency and more reporting of data and although small businesses are exempt from gender pay gap reporting at the moment, that may not be the case for much longer. Those businesses investing in transparency now may find themselves reaping benefits in the short and long term.
The team of Motion Paradox start-up lawyers based in London and Los Angeles is female-founded and female-led, so we have the personal experience that makes our legal advice and guidance here more insightful, practical and useful for your business.