Proposed gender pay gap legislation – what is it and does it go far enough?

The Government has announced action on pay transparency, with the intention to introduce legislation requiring large companies to disclose their pay gap for women. Under its proposal, approximately 900 organisations with over 250 employees would be required to publicly report their gender pay gap, with this progressing later, to those organisations with over 100 workers. This article summarises what is proposed, why, and what action employers can take to develop structures supporting fair pay in their workplaces.

What is a pay gap?

The pay gap refers to differences in pay between groups of workers. In New Zealand, these exist between gender, ethnic groups, those employees with disabilities, and people who are gender diverse. 

The Statistics NZ Household Labour Force Surve 2021 found that for every $1 a Pākehā man earns:

• A Pākehā woman earns $0.89
• A Māori man earns $0.86
• An Asian man earns $0.86
• An Asian woman earns $0.83
• A Pasifika man earns $0.81
• A Māori woman earns $0.81
• A Pasifika woman earns $0.75

For a country that prides itself on everyone getting a ‘fair go’, these gaps should be of significant concern to all New Zealanders.

How and why do pay gaps exist?

The causes of gender pay gaps are complex. Pay gaps are driven in part by discrimination, and the behaviours of employers. There are factors that contribute to the gender pay gap, which include:

• Jobs predominantly occupied by women, which traditionally, have been more likely to be at the lower to mid range of an organisation;
• The under-valuing of roles traditionally occupied by women; and
• Work arrangements and caring responsibilities, with women more likely to combine primary care giving with part time work, which tends to be more readily available in lower paid occupations.

However, 80% of the gender pay gap can be attributed to ‘unexplained factors’, i.e. unconscious bias and discrimination. 

Closing the gap – What is the benefit of reporting a gender pay gap?

Despite having equal pay legislation (the Equal Pay Act, which came into effect in October 1972), in nearly 50 years, New Zealand has not closed the pay gap.

Gender pay gap reporting is already successfully in place in countries including Australia, Canada and the United Kingdom. Of seven countries that have mandatory reporting of gender pay gaps, there has been a reduction by between 20-40 percent. Women on lower to middle incomes have been shown to benefit most. 

What can employers do now to assess and address any pay gap within their organisation?

Pay transparency is a critical part of addressing pay gaps. Transparency increases accountability and drives action to advance equality in the workplace. Once an issue is identified, it is easier to put strategies in place to address it: This requires good leadership to drive change and a commitment to address workplace inequalities. Once identified, organisations are wise to develop a plan to address the gap. This might be stand-alone, or part of a broader diversity and inclusion policy. Set realistic timeframes to realise tangible, sustainable results. To be effective, a plan should be informed by the organisation’s data, with measurable objectives, regular and transparent reporting on targets and clear accountabilities.  

Actions that organisations can take to address and close gender pay gaps include:

• Conducting pay audits with explicit reference to how compensation is determined and what factors are driving pay/remuneration;
• Assessing and redesigning the talent management process. Consider criteria for recruitment, promotions, bonuses and benefits;
• Training managers so that they understand the impact of gender (and other) bias on their decision making, and put clear and consistent criteria in place to reduce bias in staff decisions and performance reviews; 
• Review decisions for groups of employees, such as annual performance and pay reviews, and check the gender balance of the results. Consider if there is a legitimate reason for any imbalance, or whether this is a result of bias. If so, address it;
• Maximise talent by providing improved and equal access to employment and advancement opportunities, including addressing the proportion of ‘office housework’ that is commonly delegated to women, but not reflected in ‘work of value’ by an organisation (i.e. paid work or work that attracts promotion);
• Provide opportunity for negotiation in pay reviews - women traditionally have been encouraged to have a more collaborative style, by including a negotiation component within reviews, this normalises discussions around pay rather than an employee having to request this;
• Provide improved equitable access to training, mentoring, education and experiences that support advancement to higher paid roles;
• Normalise flexible work and parental leave – promote and encourage men to take parental leave. Career breaks and part time work can act as barriers to career advancement, with gender pay gaps increasing when working women have families. The gap remains throughout their working life and in turn, impacts on the gender gap in retirement savings. Organisations that normalise men and women taking time for caring duties and offering support on re-entry to the workforce can improve employee retention and sustainability within the workforce;
• Raising the minimum wage within the organisation – research shows that the less overall inequality in wages, the lower the penalty for being at the bottom of the wage hierarchy/lowest paying or status jobs.

Pay gap reporting also has wider behavioural impacts. It enables women to choose to apply for jobs with a low pay gap. Increasingly consumers, especially women, are making ethical spending decisions, including decisions based on pay gap reporting. 

Is it hard to calculate the pay gap within an organisation?

No. Pay gap reporting is not complex. It is a simple business performance calculation.

Does the announcement go far enough?

The Equal Employment Opportunity Commissioner has stated that the proposal does not go far enough, given the pay gap for Māori and Pacific peoples, as well as other minority ethnic groups. It is expected that once drafted and introduced to the House, submissions will likely feature an extension of the proposed reporting to include ethnicity. However, at this stage, reporting ethnic pay gaps is more complex. Individuals can identify with multiple ethnicities for example, and there is not an internationally recognised calculation for ethnic pay gaps presently.

What comes next?

The Government’s announcement of its plan to introduce a reporting system now moves to stakeholder input to inform system design before legislation is drafted.  

We will keep you informed of any proposed legislation, with the opportunity for public submissions at that time. In the meantime, the specialist employment law team at DTI Lawyers can assist with helping your organisation create fair remuneration structures, or advocate to address any disadvantage arising from a pay gap. You can contact our specialist employment law team by email at [email protected] or phone 07 282 0174.