SMEs: the key to gauging the gender pay gap

Ireland’s true gender pay gap will only emerge when SMEs begin reporting and now is the time for this crucial business cohort to start preparing, writes Padraic Hayes

Dr BJ Fogg, a renowned behaviour scientist at Stanford University, postulates in his book Tiny Habits that small but frequent incremental changes are often the safest and most effective approach to delivering extraordinary results. One hopes this hypothesis will ring true for the SME sector when it comes to preparing for gender pay gap reporting. 

The first gender pay gap reporting obligation came into force in 2022 for companies with over 250 employees. 

This will extend to SMEs with over 150 employees next year and even further in 2025 when companies with over 50 employees will also be obligated to commence reporting their first gender pay gap.

These milestones are very significant when you consider that, according to the most recent Central Statistics Office figures, SMEs with fewer than 250 employees make up 99.8 percent of active enterprises in Ireland and employ 68.4 percent of the workforce.

Gender pay gap reporting thus far has only covered the other one percent of Irish enterprises. We can therefore infer that we have yet to see Ireland’s true gender pay gap figure. 

As a result, SMEs are going to be in the full glare of both industry and the media once their first reports are published in 2024. This could be Ireland’s de-facto ‘silver bullet’ solution to truly move the needle on the gender pay gap. 

What is the gender pay gap?

There continues to be a lot of confusion surrounding what exactly the gender pay gap is. It is defined as the difference between the average hourly wage of men and women in the workplace. 

The gender pay gap is an assessment of the gender representation of men and women at each level of an organisation characterised by the overall difference in their pay. 

For example, how many males and females are in the top quartile of an organisation’s earners versus the lowest quartile – i.e. how well-represented are females by comparison to males? 

It is important that the gender pay gap is not confused with “equal pay for equal work”, which is already a legal obligation for employers in Ireland. 

The gender pay gap can be caused by a variety of factors such as unconscious bias, company policies or the division of caring responsibilities in the home. According to the United Nations, women worldwide earn 77 cents for every dollar earned by men. 

This suggests that over their lifetime, women’s earning potential is significantly less, a staggering realisation in the modern age. 

In Ireland, the gap stands at 11.3 percent, which is slightly more favourable than the EU average of 13 percent (Eurostat). This still equates to about one month a year when a woman essentially works for free.

It is important to point out also that this is not just a ‘female’ issue, but an economic issue that affects us all. The reduced earning potential for females affects the overall household income. 

It is common for women to find it more cost-effective to stay at home to offset childcare costs, for example, and this places downward pressure on household income in an escalating cost-of-living crisis, and thus the cycle repeats. 

For this reason alone, we should all feel motivated to proactively figure out the root cause of this socio-economic issue and break the chain once and for all. 

Who needs to report and when?

Currently, the obligation to report remains solely on organisations with over 250 employees. The first gender pay gap reports were published in December 2022 and the second are due in December 2023. Next year, however, the obligation will extend to all employers with more than 150 employees.

The employers will pick a ‘snapshot’ date in June 2024 and report their gender pay gap metrics for the previous 12 months. 

Crucially, the employer will also be required to provide the underlying reason why the gender pay gap exists and, more importantly, what actions they are planning to take to rectify it. 

Furthermore, they will need to publicly publish their report either on their website or on the government portal planned for introduction later this year. 

As SMEs look ahead to this new landmark reporting requirement, they will be taking the steps needed to ensure they meet these first-time obligations. Here is my advice on the steps you should take and the pitfalls you will need to avoid.

Challenges for SMEs 

Data collection from disparate systems

The gender pay gap report will require inputs from a range of data sources. It is rare for any organisation, no matter what size, to be in a position to extract the data they need from a single source. Finance, payroll and HR systems are disparate in nature and contain data of differing quality. This challenge is amplified where spreadsheets persist in place of systems as the book of record. It can be time-consuming and challenging for non-technical users to extract, organise combine and compare this data and significant effort may be required to cleanse existing datasets in preparation for reporting. 

Resourcing

The amount of time and effort required to complete the gender pay gap report will be significant – it should not be underestimated. For SMEs, this could prove especially challenging because they are more likely to need to divert attention away from regular activities in situations where there is no dedicated reporting team. This may be especially challenging for the leadership team, who will be required to input into the report and sign it off. All of this increases the risk of introducing ‘bias’, akin to someone correcting their own homework so to speak, which you should avoid at all costs.

Availability of expertise 

Smaller organisations are highly unlikely to have access to the broad range of expertise needed to complete the gender pay gap report. To create a detailed report requires independent expert skills from a range of disciplines such as data analytics, visualisation and organisational change specialists. 

Navigating legislative nuances

The guidance in relation to how to report has evolved since the initial introduction of gender pay gap reporting. While many issues have been ironed out through the FAQs available on the government website (gov.ie), there are still nuances in the preparation of the report. My advice is to carefully study the available guidance to ensure you are compliant. 

Comparing results

While many organisations will be tempted to compare and contrast how they ‘measure up’ against their peers, it is worth bearing in mind that there is no right or wrong answer per se. The gender pay gap is a broad, multifaceted and pervasive issue that goes far beyond the numbers. Focus instead on assessing and improving the aspects of your own company practices, policies and culture that influence the gender pay gap – and your gender pay gap result will follow. 

Best practice recommendations for SMEs

Fail to prepare, prepare to fail

It is important to be prepared for the questions you may get from your employees once your gender pay gap report is published. It is critical that you communicate the result of the report and ensure they fully understand what the data is saying and, more importantly, what it is not saying. It is very common for people to misunderstand the metrics contained in the gender pay gap report. As they say, good news travels fast, but bad news travels twice as fast – lead the narrative.

Action planning

In your final report, you need to provide a list of actions that you are going to follow to improve your gender pay gap in the 12 months ahead. Set goals for the next year in your report using the SMART (Specific, Measurable, Attainable, Relevant and Time-Bound) technique. It is worth noting again here the importance of focusing on your company practices, policies and culture – and take advantage of the opportunity for a yearly reset. Remember, “what gets measured gets done”.  

Get help early on

I cannot overstate this enough: get help early on. The requirements of your gender pay gap report may look straightforward at the outset, but do not be fooled. 

Preparing such a report can be a time-consuming and intricate process requiring expertise in both data analytics and visualisation and organisational psychology, which together provide a complete assessment. 

Moreover, significant input from departments and teams across the organisation will also be needed – typically human resources, finance and payroll, and senior management. 

Final word

Numerous organisations have come to us seeking help having realised just how complex preparing a gender pay gap report can be. 

The best approach is to view it as an in-depth reporting process akin to an annual audit of your workforce analytics, practices, policies and culture.