Closing the gender pay gap

Organisations that are working hard to reduce pay inequality between women and men in their workplace will now be recognised for their achievements.

And those that are lagging behind on taking affirmative action are now on notice that their shareholders, customers, clients and the general public will now have visibility of their pay inequality data.

On 30 March 2023, the Federal Government gave new powers to the Workplace Gender Equality Agency (WGEA) to publish data of individual organisation’s Gender Pay Gaps. 

The passing of the Workplace Gender Equality Amendment (Closing the Gender Pay Gap) Bill 2023 is welcome news and a step forward to closing the Gender Pay Gap in Australia. 

The overall aim of the new WGEA reporting powers is to promote further improvements to pay inequality through:

• Greater transparency of Gender Pay Gaps and Pay Equality measures at the employer-level
• Increased accountability for CEOs by requiring them to pass on to every member of their governing body the ‘Executive Summary and Industry Benchmark Report’ given to them by the WGEA
• Having consistent collection of information about incidents of sexual harassment and harassment on the ground of sex or discrimination.

We look forward to continued progress being made to ensure this measure can be more inclusive and provide greater clarity of the pay inequality that exists in the Australian workforce. Government and organisations alike can then use this data to make informed decisions about strategies to shift ingrained cultural norms around women’s participation in our workplaces. 

However, without addressing systemic and cultural drivers affecting women’s participation and experiences in the workforce like paid parental leave, affordable and accessible childcare and perceptions, expectations and norms of care giving roles, the Gender Pay Gap will likely persist.

Closing the gender pay gap

To be at the forefront of closing the Gender Pay Gap, organisations should be voluntarily looking at:

Inclusive gender identity data: Even the expanded Gender Pay Gap reporting is not able to tell us about the full extent of gender inequality within an organisation as it operates within strict parameters of a binary basis of gender (i.e. women and men). 

Although it is encouraged, the WGEA cannot mandate organisations to report on employee pay with diverse gender identities. Further amendments to make the Gender Pay Gap measure more inclusive would enable further clarity for people to better understand the data.

Reducing the “motherhood penalty”: The most significant contributing factor to the Gender Pay Gap is what is often termed the “motherhood penalty.” This term describes the income inequality between women and men after becoming parents. A recent study by the Federal Treasury found that there is “significant” and “persistent” income inequality between women and men that lasts up to 10 years after the arrival of a first child. Of particular alarm from the Treasury study is that in the first five years after entry into parenthood, women’s earnings were found to fall by 55 per cent on average, but men’s earnings remained unchanged.

We know that household and caregiving responsibilities are generally not shared equally between women and men. The most recent Australian Bureau of Statistics (ABS) data on work-life balance between women and men confirms that Australian women engage in significantly more unpaid work, housework and childcare activities than men. Another factor of concern is that childcare responsibilities remain the biggest barrier to women entering the workforce or working more hours, whereas for men it is sickness or disability. This trend persists into how women who are parents participate in the workforce, with previous ABS reports finding women are much more likely to use flexible work arrangements than men.

The statistics outlined above illustrate that Australian workplaces have much more progress to make to support women to participate in work to their fullest capacity.

Enhancing paid parental leave schemes: The recently passed Paid Parental Leave Amendment (Improvements for Families and Gender Equality) Bill 2022 now gives parents access to a shared 20-week scheme for children born from July 2023. This is inclusive of both primary carers (person with the most day-to-day responsibility for a child) and secondary careers. Parental leave entitlements will continue to be enhanced until it reaches 26 weeks’ pay in 2026. Unfortunately, this is still far behind the majority of OECD countries where the average length of parental leave for mothers is 50.8 weeks (and the median is 46.9 weeks) and the average length for fathers is 10.4 weeks (and the median is 4.3 weeks), according to the OECD Family Database.

If men take more parental leave, either as primary or secondary caregivers, it will begin to accelerate shifts in cultural norms about how childcare responsibilities are divided between women and men and allow more mothers to return to work earlier if they so choose. 

These longer and more flexible paid parental leave entitlements are a step in the right direction and will hopefully encourage more men to take parental leave, but there is a lot of ground to make up in this area. Men only make up five per cent of primary parental leave takers and 28 per cent of overall parental leave takers, according to the ABS data. Notably, there are at present no movements by the Federal Government to mandate for superannuation to be paid on paid parental leave. A 2020 report by the Federal Treasury found that, despite only having a small impact on narrowing the retirement income gap between women and men, receiving superannuation on paid parental leave would improve gender equity and lessen the impact of career breaks for women who take time off work to care for children (even though it was only to a small degree).

Australia’s national gender pay gap has dropped to the lowest ever recorded, but the data doesn’t include bonuses, overtime payments, or superannuation.

Changes to reporting of the Gender Pay Gap

Prior to the amendments under the Bill, the Workplace Gender Equality Act 2012 (the WGE Act) limited the WGEA’s powers to only publish Gender Pay Gaps at the industry level and not the employer-level. The Bill enhances the WGEA’s powers in three key areas:

• The WGEA can publish the Gender Pay Gap of individual employers and adopt quartile reporting (in addition to its current publishing of industry Gender Pay Gap data)
• Employers with over 500 employees need to report to the WGEA their policies and strategies for each of the gender equality indicators 
• Employers must give their board/governing body and shareholders certain information that has been provided by the WGEA.

What does the Gender Pay Gap measurement tell us?

Income inequality between women and men can be measured by various methods. The WGEA calculates the Gender Pay Gap by analysing annual reports of employers containing data relating to six gender equality indicators: 

• Gender composition of the workforce 
• Gender composition of governing bodies of relevant employers       
• Equal pay between women and men 
• Availability and use by employees of flexible working arrangements and supporting employees with family or caring responsibilities 
• Consultation with employees on gender equality in the workplace 
• Incidents of sexual harassment, including harassment on the ground of sex or discrimination 

The Gender Pay Gap is a global measure that compares women’s and men’s average weekly full-time equivalent earnings in the workforce. The difference between overall earnings is the ‘gap’ and it is expressed as a percentage of men’s earnings. A higher number means that there is a larger gap, and therefore more income inequality between women and men. 

Pay Equality is a separate measure which looks at the difference between women’s and men’s overall earnings for doing the same/equivalent types of work or roles.

Both the Gender Pay Gap and Pay Equality measures are important in understanding pay inequality. Taken together, they paint a picture about pay inequality between women and men within an organisation, an industry, and the workforce at large.

The gender gap is not only in pay but also in opportunities, according to a study.

Quartile reporting of employer Gender Pay Gap

Along with publishing an overall figure of the Gender Pay Gap of an organisation, the WGEA can now publish employer-level Gender Pay Gaps by quartiles along with the gender composition of each quartile. This will result in the following being reported:

• Top Quartile = Top 25 per cent of an organisation’s workforce by pay (who is being paid the most, by how much and by gender)
• Upper Middle Quartile = The next 25 per cent of employees by pay (above the median amount and by gender)
• Lower Middle Quartile = The next 25 per cent of employees by pay (below the median amount and by gender)
• Bottom Quartile = Bottom 25 per cent of an organisation’s workforce by pay (who is being paid the least and by gender)

The quartile reporting metrics will give a snapshot of the distribution of pay within an organisation by gender.

Such measurements provide further transparency about whether women are in more senior positions in an organisation and. if they are, that they are being paid equally to their male counterparts in similar senior positions.

For more information about the Gender Pay Gap in Australia, please see the Workplace Gender Equality Agency’s website.

Kiri Jervis is a partner at Clyde & Co in Sydney.