Articles

Recent Corporate Governance Regime Changes

With the prevalence of commercialisation within central and local government we are starting to see an increase in the number of local authority trading companies (LATCs) being set up around the country. As the numbers grow the responsibilities of local authorities to ensure that the LATCs are compliant with relevant laws and regulations increase. It goes without saying therefore that the local authorities (and the board of the LATCs) need to keep abreast with the various regime changes which affect private companies.

Two recent key regime updates affecting private companies which may be applicable to LATCs are:

• persons of significant control regime
• gender pay gap reporting.

Persons with Significant Control (PSC)

The PSC regime came into force on 6 April 2016 whereby qualifying UK companies (and LLPs) are required to keep a register of ‘persons with significant control’. This was part of the government’s drive to increase transparency and trust in UK companies, whilst at the same time tackling crimes such as terrorist financing and money laundering.

In summary, the PSC regime requires companies and LLPs to identify and record people who have significant control over the company/LLP and include stipulated information about such people in their PSC register.

However the UK’s implementation of the Fourth EU Money Laundering Directive (4MLD) has involved certain changes to the current PSC regime. The key change to the PSC regime which are relevant to LATCs (which came into force on 26 June 2017) affect the process for delivering PSC information to Companies House – this will now be events driven rather than being dealt with as part of the LATC’s confirmation statement (CS01). LATCs which are obliged to keep a PSC register will be required:

• to update their PSC information within 14 days of any change occurring
• file the information at Companies House within 28 days of such change occurring on a series of new forms (PSC01 to PSC09).

The confirmation statement will be amended to remove the PSC information, which is currently contained within Part 5 of the CS01.

Next steps for the PSC regime:

• Companies House has recognised that the PSC legislation can be complex and companies may need support to help them complete their PSC records properly. We understand that Companies House are updating their guidance, contacting companies with clearly incorrect PSC data in a collaborative rather than punitive approach and working to make it easier for those accessing information on the public register to report issues by introducing a ‘report it now’ button on their website;
• further changes are waiting in the wings by virtue of 5MLD which is likely to introduce further key amendments to the PSC regime (including the reduction of the 25% threshold to 10% in the PSC regime. At present a person is generally a PSC if they hold (directly or indirectly) more than 25% of the shares or voting rights in the capital of a company – this could be reduced to a 10% threshold when 5MLD is implemented. As mentioned above please see the link to our previous legal update above for more details on who is (based on the current regime) a PSC). Updates on 5MLD are likely to follow over the next few months so watch this space…

Gender Pay Gap Reporting

Under the new Gender Pay Gap Regulations (Regulations) which came into force on 6 April 2017, all private and voluntary sector employers (i.e. including LATCs) with more than 250 relevant employees are required to publish their gender pay gap.

The key obligations introduced by the Regulations require employers to report on the following six metrics:

• the mean (hourly) gender pay gap
• and median (hourly) gender pay gap
• the mean (annual) bonus gender pay gap
• the median (annual) bonus gender pay gap
• the proportion of males and females receiving a bonus
• the proportion of males and females in each of the four quartile pay bands.

The reporting must be based on the pay period in which 5 April (‘the snapshot date’) falls each year. Private and voluntary sector employers will be required to publish data by 4 April 2018 for the data for the period from 5 April 2017, and thereafter annually.

The key points in respect of the reporting obligations are as follows:

• Relevant Employee – ’employee’ in the Regulations is defined broadly (in line with the definition from the Equality Act 2010) – it includes workers (and zero hours workers) and independent contractors who are directly engaged (i.e. where their contract obliges them to perform the work personally). Agency workers would generally not be included, as they will be employees of the agency that supplies them.
• Pay – includes any bonuses, allowances and shift premiums paid. Only ‘full-pay’ relevant employees are to be included when calculating the mean and median hourly pay rates. This means that employees on reduced or nil pay due to family, sick or special leave will be excluded from the calculations – which ought to give a more accurate pay gap picture. However whilst shift premiums are included in the definition of ‘pay’, overtime is excluded and benefits in kind and salary sacrifice schemes are also excluded – these may have the effect of distorting the pay gap.
• Bonus – as above bonuses are included in the definition of pay, so will be part of the calculation of the pay gap. However the gender bonus gap must also be reported separately. Bonus pay includes money, vouchers, securities, securities options and interests in securities and will include any payment which relates to profit sharing, productivity, performance, incentive or commission. Only the proportion of a bonus payment that refers to the relevant pay period should be included in the hourly rate of pay for the purposes of calculating mean and median gender pay. This ensures that only the portion of an annual bonus payment that properly belongs to the relevant pay period will be included. For an LATC’s first gender pay gap report, bonuses paid between 6 April 2016 and 5 April 2017 are to be included but bonuses paid to relevant employees who have left employment before the snapshot date do not need to be included. In respect of bonuses, there is no requirement or ability to provide data on a full-time equivalent basis – so where part-time employees receive a pro-rated bonus, the gender bonus gap may be significant (especially as part-time employees are more likely to be female). Where this is an issue for employers we recommend that this information is published alongside the bonus gap figure.
• Four Quartile Pay Bands – the four quartile pay bands require the employer to split the workforce into four equal sized groups which are organised in accordance with the hourly pay rate. The proportion of male full-pay employees within each band must be reported as a percentage of all full-pay employees. The actual figures in the pay bands do not have to be published.

Publication:

• the gender pay gap data must be published, in English, on the employer’s website and be kept available online for at least three years
• all gender pay reports must also be uploaded to a government website (i.e. the Gender Pay Gap Viewing Service which went live in April 2017)
• the information must be accompanied by a signed statement confirming that the information is accurate (in the case of an LATC, that signature must be from a director).

This article has focused on the gender pay gap reporting in the private sector. However the government has accepted that “it is only fair in that what we ask of business we should expect of ourselves”, as minister for women and equalities (and secretary of state for education) Justine Greening explained at the end of last year. As a result the gender pay gap regime was extended to public sector employers with 250 or more employees under the Equality Act 2010 (Specific Duties and Public Authorities) Regulations 2017 which came into force on 31 March 2017. As a brief summary the reporting regimes in both the public sector largely mirror those for the private sector – the key differences being:

• the annual ‘snapshot’ date on which the pay information is collected for public sector employers is 31 March each year (rather than 5 April which applies within the private sector). Therefore public sector employers will be required to publish their first gender pay gap reports by 30 March 2018
• public sector employers will have to publish the report on their website and on the government’s website in the same way as the private sector employers. However there is no requirement for this information to be accompanied by a signed statement from a senior individual within the relevant public sector organisation confirming that the information is accurate.