What impact has the pandemic and economic crisis had on pay gaps?

According to the Office for National Statistics’ (ONS) October 2022 report, Annual survey of hours and earnings, while the median UK gender pay gap for full-time workers was lower than 2019’s pre-pandemic figure of 8.9%, it increased in 2022 to 8.3% from 7.9% in 2021, and 7.4% in 2020. Such figures demonstrate the impact of the Covid-19 pandemic and the subsequent economic crisis on employers’ pay gaps.

Impact on pay gaps

The UK government suspended pay gap reporting in 2019/20 due to the pandemic and delayed enforcement for 2020/21, giving organisations an additional six months to publish their data. Those who were furloughed on full pay were included in reporting figures, but those furloughed on less than full pay were not. As it became a legal requirement for employers with more than 250 workers to publish their gender pay gap in 2017, the result of the suspension was that three out of five reporting years have been significantly affected.

The majority of employees who were furloughed were in the lowest-paying jobs; in April 2021  more women than men were furloughed with reduced pay, and the opposite was true in April 2020. This could explain why the gender pay gap was slightly bigger in 2021, says Melissa Blissett, senior consultant of pay gap analytics at Barnett Waddingham.

“The biggest business change is that the pandemic was a fuse that lit an explosion in flexible working,” she explains. “Working women, particularly mothers, who may previously have been locked into local employment, have found themselves with more employment opportunities over a wider geographical area because they are not required to be physically present in the office [from] nine to five.

“Losing female talent to competitors could turn the clock back on any reduction in an organisation’s gender pay gap and make the journey to diversity much harder. There needs to be an urgent focus on retaining, rewarding and progressing women in the workplace.”

Those in insecure work, such as zero hours contracts and temporary employment, suffered greater falls in earnings and hours during the pandemic than those on secure contracts.

This will only continue with the current economic uncertainty, says Julia Hanna, director at Verditer Consulting. “Occupational segregation, where women are concentrated into low-paying industries, has a significant impact upon gender pay gaps. Women also remain the primary care giver and this was exacerbated during the pandemic, as children were home schooled. They were more likely to be trying to work while simultaneously trying to care for children, with some only able to work part-time.”

Pay gaps were improving before the pandemic, but any progress that had been made was put on hold once it hit. Employers were struggling to hire the talent they needed to be economically viable and thrive, often due to budget cuts. They had to pay significantly high premiums to attract staff who were looking for a better salary, says Tony Guadagni, senior principal for human resources peer and practitioner research at Gartner. “This has led to growing pay gaps within teams, where the newer hires who were offered higher salaries to attract them to the role were paid more than their colleagues who have been at the business longer, but might do a similar job.”

Unavailable pay data

Disability and ethnicity pay gap data is not widely available as a whole; there is no legal requirement to publish it in the UK.

In its 2019 Ethnicity pay gaps report, published in October 2020, the ONS reported that white employees’ median hourly pay was £12.40 per hour compared to £12.11 per hour for ethnic minority staff, resulting in a 2.3% pay gap, its narrowest since 2012. The ethnicity pay gap was at its largest in 2014, at 8.4%.

It is widely reported that individuals from non-white ethnic backgrounds or who have a disability are often at a disadvantage, says Blissett. “The difficulty is that until ethnicity and disability pay gap reporting is a legislative requirement alongside gender pay gap reporting, it is difficult to obtain the data to fully evidence this.”

The Institute for Employment Studies’ UK labour market analysis of workers furloughed and made redundant, published in November 2020, concluded that low-income workers are bearing the brunt of the pandemic and were more likely to be women, single parents, of Black, Pakistani or Bangladeshi ethnicity, or have no qualifications, explains Hanna. “These groups have been disproportionately impacted by both the pandemic and the economic crisis, as they are more likely to work in low-paid or less secure sectors.”

Steps to address pay gaps

For some employers, a big achievement is to stop a pay gap worsening, as opposed to trying to close it entirely. Organisations that have not taken actions to tackle a wide pay gap could start to see a consequence of their actions in terms of recruitment, retention and engagement.

Flexible work arrangements such as remote working, flexible hours and job sharing, can aldo help address pay gaps; these keep employees in work when otherwise they might have had to leave due to home-life commitments.

Benefits such as additional paid time-off and enhanced parental leave can also add weight to employers’ efforts by ensuring that employees are able to take the time they need after welcoming children while not missing out on any wages, thus leading to pay gaps widening further.

Recruiting and hiring from a diverse pool of candidates, and using inclusive language in job adverts, is a key objective, says Hanna. “[Employers] are also carrying out equal pay and pay equity audits to identify and address gender or ethnicity gaps, and reviewing the employee lifecycle and identifying the points at which inequality can occur, making adjustments to processes to negate them.”

As more employers become proactive about communicating pay gaps, the details are becoming more transparent. This approach is helping more organisations to understand what a pay, ethnicity or disability gap is and to plan how they are going to close any that exist, says Tanya Jansen, chief marketing officer at Beqom.

Annual pay equity analyses will determine how employers will need to budget over the next few years to reach pay equity. There are also new types of software emerging to measure pay in a more sophisticated approach in a rapidly changing pay landscape.

Conducting deeper analytics and workforce segmentation to have a better understanding of the employees that are driving the pay gap, is a good way of really understanding them, says Blissett. “Take a more cost-effective and targeted approach, by focusing action planning on the cohorts driving the pay gap and the issues that may be causing this. Overlay the data with employee experience feedback. If employers cannot conduct this analysis themselves efficiently, they should look at outsourced options.”

Long-term actions

Budgets and working environments have changed greatly because of the pandemic and the economic crisis, causing a ripple effect on pay gaps. Considering how quickly the pandemic, the economic crisis and rising inflation took effect, it is still too early to tell if the impact of these will continue to be felt in the future, says Jansen.

“Not every employer has the budget, as a result of these issues, to give pay rises to combat the pay gaps and help with rising living costs, so part-time and blue-collar workers who are most dependent on a pay cheque and have been more negatively impacted by the economic crisis, may continue to be affected,” she says. “Employers need to be systematic with their pay strategies and when they give rises in order to close pay gaps. Legislation has also been a big driver in improving communication of defining pay grades and ranges for current and future jobs and is likely to continue doing so.”

Many organisations are currently addressing their pay gaps, working to establish pay equity by increasing wages in general and to be in line with others at a similar level or role; for example, newer employees may be on higher salaries than others as a result of the employer trying to attract new talent, says Guadagni.

Awareness and visibility of pay gaps on a global basis has increased. If employers want to remain competitive while attracting and engaging key talent, those who report their pay gap data should be taking action to reduce or close these.