When do two people with a £25k salary not earn the same amount? Well, potentially when you’re reporting on gender pay.

To understand why this may be the case, we need to look carefully at the regulations. In particular, how we calculate the average hourly pay for employees with salary sacrifice arrangements.

These agreements may provide alternative non-cash benefits, such as childcare or a bicycle. However, pay is calculated as the amount of cash liable for deductions for PAYE and national insurance. Technically, an employee never receives the cash from a salary sacrifice arrangement and not being liable for tax the equivalent amount shouldn’t be included in the average pay figures.

So, if a person with a £25k salary is receiving the equivalent the £3k of annual benefits in salary sacrifice arrangements, their hourly pay would need to be calculated as if they had a £22k a year salary.

This peculiarity around salary sacrifice has prompted a great deal of debate. It’s something that could, and probably should, prompt academic discussion. It begs the question of whether men or women are more likely to adopt these arrangements.

If this is the case, it could have a significant impact on the gender gap that ends up being reported. Whether you agree with the decision to exclude these figures are not, these are the parameters we need to work within.

How benefits impact reporting

Salary sacrifice is not the only benefit that needs to be considered when calculating the gender pay gap figures, however. We’ll also need to exclude overtime pay, expenses, redundancy pay, arrears of pay and tax credits. Employees who are receiving lower rates of pay due to maternity, adoption, parental or shared leave or because of sickness are also to be excluded.

But at the same time, we’ll need to include area allowances, shift premium pay, bonus pay and other forms of pay – that includes such things as car allowances paid through the payroll, on call and standby allowances and clothing, first aider or fire warden allowances.

Other factors to be considered

All these details of what should or should not be included were finalised and published at the end of 2016. The amended definitions also provided greater clarity over which employees should be considered ‘relevant’ when reporting. For example, in a previous blog, we explained how casual workers operating in the ‘gig economy’ may need to be counted – that includes consultants, self-employed workers and independent contractors.

This is adding an additional layer of complication. For example, companies will now need to calculate the time taken for each job, in order to meet their obligations. However, previsions do exist to omit employees if “it is not reasonably practicable for employers to obtain the data.”

Further discussion would be helpful

While the regulations have now been finalised, it is still helpful to hold discussions around how figures should be calculated. These debates will help companies familiarise themselves with the definitions outlined and help ensure we all meet the requirements.

Looking forward, it’s unlikely that this will be the last time companies will be asked to review the pay received by a specific demographic group. The lessons we learn from this exercise will go a long way to guiding how definitions are refined and how pay gaps are calculated in the future.