What is the Gender Pay gap?

As firms begin to prepare their gender pay gap information and get ready to provide key statistics under the statutory reporting regulations, IDR considers what each of the statistics measures and the insights they provide for employers.

Gender pay gap

The gender pay gap is a simple calculation that takes an average measure of pay for female employees and compares it to that for male employees. The difference is expressed as a percentage of men’s pay. For example, if an organisation has a gender pay gap of 11%, this means that on average, women’s pay at the organisation is 11% less than men’s. The gender pay reporting regulations require employers to base gender pay gap calculations on hourly ordinary pay for 'full-pay' employees employed on the snapshot date. ('Full-pay' employees are either paid their usual full basic pay – including paid leave – or paid for piecework during the pay period in which your snapshot date falls, or paid less than their usual basic pay or piecework rate, but not because of leave - for example, because they have irregular working hours.) ‘Ordinary’ pay is defined as gross regular pay before any deductions for tax or National Insurance but after salary sacrifice. For most employees this includes basic pay, shift pay and fixed allowances.

Employers must calculate the gap based on both average (mean) and median earnings. The median pay gap is generally smaller since it takes pay for the middle male or female employee when lined up in order from smallest to largest earnings and is subsequently less affected by very high or low earners in the sample. The average by contrast adds all the pay rates for male or female employees and divides this by the total number of employees and therefore the result can be affected by outliers. Generally, where firms have large average pay gaps this is usually due to a small number of very highly-paid men pushing up the average measure of pay for male employees.

The main issue with the headline pay gap statistic is that it is a relatively crude measure which tells us nothing about the possible reasons for differences in pay for men and women. To understand this employers need to analyse pay gaps for similar cohorts of employees, for example by grade or age. At present the regulations do not require this level of detail, but this could change in the future.

Pay quarters

The pay gap reporting regulations also require firms to publish the number of male and female employees in each pay quarter. To do this employers list all employees from highest to lowest pay and divide the list into quarters, followed by calculating the number of male and female employees with earnings in each quarter. This approach provides employers with more detailed information about the earnings distribution. The largest pay gaps tend to be found in organisations where women make up the majority of staff in the lowest-paid quarter and men make up the majority in the highest pay quarter. Analysis of the earnings distribution like this can be useful for identifying where women are underrepresented and helping employers take steps to improve the numbers of women in more senior roles.

Bonus payments

Employers are also required to publish the proportion of men and women in receipt of bonus payments, where relevant. This figure can indicate whether gender bias exists in decision-making over bonuses. However, further analysis by grade is often necessary as the headline figure could be affected by the types of roles in which men and women are employed, rather than discrimination per se. For example, certain male-dominated roles (such as in banking) tend to attract bonus pay more frequently than some female-dominated roles (such as those in clerical, caring, catering and cleaning work). At the same time, understanding of the operation of bonus schemes, and the criteria governing access and amounts, is also important. 

Understanding pay gaps

As outlined above the statistics required from the current pay reporting regulations alone are not enough to understand the cases of pay gaps, however, and that the Government and other bodies have also emphasised the importance of organisations providing a written narrative. This is central to understanding and explaining the reasons for any gaps and for setting out action plans to address their root causes.