Guidance

Preparing your payroll data

Updated 26 May 2023

This was published under the 2022 to 2024 Sunak Conservative government

As well as gathering ethnicity data, you’ll also need to gather specific payroll data for each relevant employee to calculate your ethnicity pay figures. Once you have gathered this data you will be able to make your calculations. If you have already gathered your payroll data for gender pay gap reporting then you can use the same data.

You’ll need to:

• determine who your relevant employees and full-pay relevant employees are from your headcount of employees
• gather specific data from your payroll on each relevant employee and full-pay relevant employee (outlined in 5 tasks within this guidance)
• use this data to make your ethnicity pay calculations in the next step

The advice for completing this step mirrors the approach set out in the gender pay gap guidance. If you are already familiar with the process and have the payroll data that you need, you can go straight to the guidance on making your calculations. If you need it, the full instructions for this step are also included here.

Which pay period to use

A pay period is a timeframe in which you pay your relevant employees basic pay. The duration of your pay periods will vary but will typically be a week, a fortnight or a month. The duration might vary for different employees.

Pay periods inform the calculations of ordinary pay.

The duration of a pay period may vary between employees. You will need to make your calculations taking into account these differing pay periods.

Pay periods for employees who don’t receive basic pay

If an employee does not receive basic pay, but receives some other form (or forms) of ordinary pay, their pay period is the period in which you most frequently pay that form of ordinary pay.

Examples of pay periods of employees who don’t receive basic pay:

• if the employee receives pay for piecework only, and you make payment for the number of pieces created in a week, then the employee’s pay period is a week
• if the employee receives an irregular amount every month or irregular pay in arrears, then it may be useful to designate up to a year as their pay period

Relevant pay period

The relevant pay period is the pay period in which your ‘snapshot date’ falls.

For example, if your pay period is monthly from the 1st of the month, and your snapshot date is 5 April, your relevant pay period would be 1 April to 30 April.

Payments you should exclude from your relevant pay period:

• any ordinary pay received in the relevant pay period that would normally be received in a different pay period (such as a payment to remedy an accidental underpayment for the previous period)
• any payments made at other times even if they relate to, or should have been paid in the relevant pay period

Only take into account earnings that have been received in pay periods described in this guidance

When gathering your data you should only take into account earnings that have been received in pay periods that are described in this guidance. You should exclude any earnings that have not yet been paid, or were already received in earlier pay periods.

Task 1: Make a list of employees and their ethnicity

Use your list of employees in your headcount to establish which are your relevant employees, and your full-pay relevant employees. You’ll need to gather different data for relevant employees, and for full-pay relevant employees. If you’re using a spreadsheet, keep these lists separate.

For this task you will need to create a full list of:

• your ‘relevant employees’
• your ‘full-pay relevant employees’
• the ethnicity of each relevant employee and full-pay relevant employee (see guidance on collecting ethnicity data of your employees)

Tip: Set up a list with 2 groups, one for relevant employees, and one for full-pay relevant employees

Full-pay relevant employees are also relevant employees, so you’ll record some of their data in both lists. Identify which employees count as relevant employees, and another list identifying those employees which also count as full-pay relevant employees. You will need to gather specific payroll data for both lists.

Relevant employees

Relevant employees are all employees employed by the employer on your snapshot date of a given year, who:

• have a contract of employment with your employer (including those employees working part-time, job-sharing and employees on leave), or
• are self-employed (where they must personally perform the work)

You should exclude partners that are salaried, or are LLP members who are treated as employees for payroll purposes from your list of relevant employees.

Relevant employees are counted on an individual basis, not as full-time equivalents. This means that each part-time employee, including job-sharers, employed by you on your snapshot date counts as one employee. When 2 people share a job, they are counted as 2 employees.

Read more about who counts as an employee

Full-pay relevant employees

Your list of full-pay relevant employees is made up from your list of relevant employees.

Your list of full-pay relevant employees is the basis for your ethnicity pay gap calculations, apart from your bonus pay gap calculations.

Full-pay relevant employees are all employees who are employed by the employer on the snapshot date, and are paid either:

• their usual full basic pay (or pay for piecework) during the pay period in which the snapshot date falls (the relevant pay period)
• less than their usual basic pay or piecework rate, or none at all, during the pay period that includes their snapshot date, if it is for reasons other than leave (for example because of irregular working hours)

When to exclude full-pay relevant employees

You should not count any employee as a full-pay relevant employee if they are paid less than their usual basic pay or piecework rate, or none at all, because of being on leave during the pay period in which the snapshot date falls (the relevant pay period). They would still count as relevant employees.

Exclude from your list of full-pay relevant employees, those on ‘leave’, and who are receiving less than full pay, including those on:

• annual leave
• maternity, paternity, adoption, parental or shared parental leave
• sick leave
• special leave
• any other forms of leave (for example, study leave or sabbaticals)

Example: full-pay relevant employees

Jalissa, Jenny, Jackie, and Javed all do the same role on the same terms and conditions:

• work 5 days a week, and get paid weekly
• usually earn £400 basic pay in the relevant pay period.

Jade carries out the same role as Jalissa, Jenny, Jackie, and Javed, but in a part-time arrangement where she works the equivalent of 3 days per week, earning £240.

They are all full-pay relevant employees because:

• Jalissa worked all week and earned £400
• Jenny worked 4 days but took a fifth day as fully paid special leave to deal with a childcare-related emergency and earned £400
• Jackie was off all week but took fully paid annual leave, so she still earned £400. This counts as leave, but she still earned her usual pay
• Javed worked 3 days and was involved in official strike action for 2 days and earned £240
• Javed earned less than usual, this does not count as leave
• Jade worked all her part-time hours in the relevant pay period

Example: when an employee is not a full-pay relevant employee

Omar and Safiah do the same role on the same terms and conditions in the example above, which are:

• work 5 days a week, get paid weekly
• would usually earn £400 basic pay in the relevant pay period

Omar and Safiah are not full-pay employees, they are relevant employees only, because:

• Omar worked 4 days but took a fifth day as unpaid special leave to attend a funeral and earned £320. This counts as leave and Omar earned less than usual.
• Safiah was on maternity leave and received statutory maternity pay, which was less than £400. This counts as leave as Safiah earned less than usual.

Even though Omar and Safiah are not full-pay relevant employees, they would still be ‘relevant employees’.

Because Omar and Safiah are not considered full-pay relevant employees they would be excluded from these ethnicity pay calculations:

• the mean (average) ethnicity pay gap using hourly pay
• the median ethnicity pay gap using hourly pay
• the percentage of people in each ethnic group in each hourly pay quarter

Task 2: Add ordinary pay

In task 1, you created a list of relevant employees, and a list of full-pay relevant employees.

You should now add the amount of ‘ordinary pay’ received by each full-pay relevant employee in the pay period that includes your snapshot date.

Use the employee’s gross pay:

• after any reduction for a salary sacrifice scheme
• before deductions such as tax, National Insurance and employee pension contributions

You do not need to add ordinary pay for people who are only counted as ‘relevant employees’.

Ordinary pay: what’s included

Ordinary pay includes any monetary payment such as:

• basic pay
• allowances (such as payments for extra responsibilities, location-related payments, car allowances, recruitment or retention incentives)
• pay for piecework
• pay for leave
• shift premium pay

Allowances

You should include all allowances in ordinary pay. In some cases, you will need to make a judgement on what is considered an allowance or expense.

Generally you should include any allowances if the employee would expect to receive this in their regular pay. If you are unsure you should seek professional advice if necessary.

Where payments called ‘allowances’ are paid for core duties (not additional duties), they are regarded as part of basic pay and you should still include them.

Examples of allowances include:

• extra amounts for roles including fire warden and first aider roles
• extra amounts due to location, such as London living allowances
• extra amounts paid to an employee abroad where an employer can reasonably obtain information from a host employer
• extra amounts for the purchase, lease or maintenance of a vehicle or item, such as a car allowance
• extra amounts to recruit and retain an employee
• extra amounts for being on call

Not included in ordinary pay

• overtime pay
• allowances earned during paid overtime hours
• redundancy pay
• pay related to termination of employment
• pay in lieu of annual leave
• any repayments of authorised expenses
• benefits in kind
• interest-free loans

Exclude benefits in kind from ordinary pay

You should exclude benefits in kind from your ordinary pay calculations. Benefits in kind are non-cash benefits not usually included in wages and usually found in the form of ‘perks’ or ‘fringe benefits’. For example, company cars or private medical insurance.

Exclude interest-free loans

Interest-free loans from an employer to an employee such as season ticket loans are not included.

When ‘one off’ incentive payments would be excluded from ordinary pay

Where payments for recruitment and retention are ‘one off’ incentive payments made at the start of employment, or are more in the nature of a bonus than an ongoing allowance, you should treat them as incentive payments falling within bonus pay, rather than as allowances falling within ordinary pay.

When expenditure reimbursements would be excluded from ordinary pay

To calculate ordinary pay, you should exclude any payments that only reimburse expenditure used entirely for business purposes. For example, the use of a hire car to reach an event, or repayment for a taxi fare between an office and a client.

Where ordinary pay is used to contribute to a salary sacrifice scheme

To calculate ordinary pay, you should use the employee’s gross pay after any reduction for a salary sacrifice scheme.

A salary sacrifice scheme is an agreement between an employer and an employee to change the terms and conditions of employment to reduce the employee’s entitlement to cash remuneration. This is usually in return for some form of non-cash ‘fringe benefit’, perk or benefit in kind that is not reflected in their salary or wages.

Where ordinary pay is used to make pension contributions

You should calculate the amount of an employee’s ordinary pay before deductions are made at ‘source’. Employee pension contributions are a deduction, so whether or not an employee makes pension contributions will not affect the ethnicity pay gap calculations.

Where an employee contributes to a pension by means of a salary sacrifice scheme, you should use the employee’s gross salary after the reduction.

Task 3: Add bonus pay

In tasks 1 and 2, you:

• created a list of relevant employees, and a list of full-pay relevant employees
• added how much ‘ordinary pay’ you paid to each full-pay relevant employee in the pay period that includes your snapshot date

In task 3a, you will add bonuses paid to each full-pay relevant employee within the pay period that includes your snapshot date.

In task 3b, you will add bonuses paid to all employees in the 12 months ending on your snapshot date. This includes all relevant employees, and full-pay relevant employees.

In both cases, only include bonuses that were actually paid within these periods.

Use the employee’s gross bonus pay:

• after any reduction for a salary sacrifice scheme
• before deductions such as tax, National Insurance and employee pension contributions

Task 3a: Bonuses paid to full-pay relevant employees

For this part, you will add bonus pay that you paid only:

• to full-pay relevant employees
• in the pay period which includes your snapshot date

You will use these figures later to work out each employee’s hourly pay.

You should add the full amount of the bonus if:

• you paid it to a full-pay relevant employee during a period which is the same as the 12 months to your snapshot date
• it is not related to a specific period

If a bonus was for a different time frame to the period which includes your snapshot date, you need to adjust (or ‘prorate’) it. This is so you have a bonus amount for the pay period which includes your snapshot date.

Prorating bonus pay

Divide the bonus amount by the number of days in the period which includes the snapshot date. Then multiply that figure by the number of days in your pay period.

Use the following figures depending on the length of your pay period:

• for periods in weeks, treat a year as having 52.18 weeks
• for periods in months, treat a month as having 30.44 days
• for periods of a year, treat a year as having 365.25 days

Example: Prorating a bonus payment

This is how to calculate a bonus that:

• was paid in a pay period which includes your snapshot date
• relates to a timeframe that differs from this pay period

Issa is a full-pay relevant employee and:

• is paid monthly
• received a bonus payment of £2,300 in the pay period which included the snapshot date

The period for which Issa received the bonus was 3 months.

Treat a month as having 30.44 days.

The period for which Issa received the bonus is 3 x 30.44 days, which equals 91.32 days.

Issa’s employer needs to:

• divide £2,300 by 91.32 – this gives a figure of £25.19
• multiply this figure by 30.44

This gives a result of £776.79 bonus payment for the pay period which includes the employer’s snapshot date.

This example works through the steps and rounds up the figures to the nearest penny. You can choose your own rounding rules.

Task 3b: Bonuses paid to relevant employees

For this part, add bonus pay that you paid:

• within the 12 months ending on your snapshot date
• to all relevant employees, including full-pay relevant employees

You will use these figures later to work out your ethnicity pay gap in bonus pay.

Do not prorate your bonus figures for this part.

What counts as bonus pay

Bonus pay includes any rewards related to:

• profit sharing
• productivity
• performance
• incentive
• commission
• long service awards with a monetary value (cash, vouchers or securities)

Include non-consolidated (one-off, non-pensionable) bonuses.

Bonus pay includes rewards paid as:

• cash
• vouchers
• securities
• securities options
• interests in securities

Bonuses used to make pension contributions

If an employee uses a bonus to make pension contributions, treat the bonus as either a deduction or a reduction.

A deduction is when an employee uses their bonus (or part of it) to make a pension contribution. Include the employee’s gross bonus amount before the deduction.

A reduction is when an employee uses a bonus sacrifice scheme to make a pension contribution. Include the employee’s gross bonus amount after the reduction.

Bonuses paid in securities

Bonuses paid in securities are a financial asset intended to gain the employee profit.

Securities include:

• shares
• bonds
• debentures
• futures
• securities options
• interests in securities

Only include bonuses paid in securities if they led to an income tax charge that occurred during the 12 months ending on your snapshot date.

If the income tax charge occurred in the pay period which includes your snapshot date, follow task 3a. If it occurred in the 12 months ending on your snapshot date, follow task 3b.

Do not include securities in bonus pay if:

• they do not give rise to a charge to income tax
• an employee earns a bonus payment under a long-term incentive plan but defers payment
• an employee is part of a share incentive plan of a specific length – only include them as bonus pay if the employee has sold them and received payment

Not included in bonus pay

Do not include:

• overtime pay or pay related to overtime pay
• redundancy pay
• pay related to termination of employment
• payments for untaken annual leave
• loan schemes provided by the employer
• benefits in kind

It may be difficult to distinguish whether all or part of an employee’s bonus pay relates to overtime hours. If it is unclear, you should include it as bonus pay.

Explaining your bonus pay gap

Bonus pay gap calculations include all bonuses paid in the 12 months ending on your snapshot date. They do not take into account how many hours an employee works. If you think there are important factors behind your bonus pay gap, you can highlight them in your supporting narrative.

Task 4: Add weekly working hours

Weekly working hours are used to help calculate an employee’s hourly pay.

The hours used to establish weekly working hours will usually be the same as those to establish ordinary pay with some exceptions which this task details.

For this task you will need to use the payroll data gathered in task 1 and task 2 to calculate:

• the weekly working hours for full-pay relevant employees only

To find the weekly working hours you will need to:

• identify your full-pay relevant employees
• identify if their hours are fixed or irregular
• use the methods outlined below to calculate their weekly working hours

You don’t need to record weekly working hours in your list of relevant employees who aren’t full-pay relevant employees.

Don’t include paid or unpaid overtime in weekly working hours figures.

Employees with regular working hours

For employees that usually work the same number of hours every week use the hours specified in their contract of employment, effective on the last day of the pay period that includes the snapshot date.

Employees should be treated as having normal weekly working hours if they have the same contractual hours each week, even if they often work additional unpaid hours.

Calculating in weeks, months and years:

• where periods are calculated in weeks, a year is treated as having 52.18 weeks
• where periods are calculated in months, a month is treated as having 30.44 days
• where periods are calculated as a year, a year is treated as having 365.25 days

Example: An employee with minimum annualised hours

Jacob is a teacher and is:

• a full-pay relevant employee on the snapshot date
• required to work a minimum of 1,265 hours over 39 weeks
• doesn’t need to have annual leave added separately because his paid hours per week are the same for annual leave and work

Jacob’s employer calculates his weekly working hours by:

• dividing his 1,265 minimum hours by 39 working weeks
• this makes his basic weekly hours 32 hours and 26 minutes

Example: An employee with unspecified hours

Gillian is a head teacher at the same school as Jacob above and:

• is a full-pay relevant employee on the snapshot date
• does not have specified working hours but her work amounts to broadly the same overall amount of work as Jacob in the example above
• does not need to have annual leave added separately because her paid hours per week are the same for annual leave and work

Gillian’s employer records her basic weekly working hours as 32 hours and 26 minutes so meaningful comparisons can be made.

Example: Term-time employees

Claire is a full-pay relevant employee on the snapshot date and:

• works 10 hours a week over 39 weeks
• gets 5 weeks of annual leave, which is taken outside of the 39 weeks
• gets paid in 12 equal instalments no matter how many hours she works that month

Taking a 12 week average of weekly working hours and excluding weeks Claire didn’t work is unlikely to represent how her pay and work matches up.

Her employer calculates her average weekly working hours by using a method that more fairly represents Claire’s average weekly hours by:

• adding her 39 work weeks and 5 annual leave weeks, making 44 paid weeks per year
• multiply this by the 10 hours Claire works to get 440 paid hours each year
• average out her hours over the whole year, just like the payments are, by dividing her 440 paid hours by 52.18 (the exact number or weeks in a year) – this makes Claire’s average weekly hours just under 8.5 hours a week, and the method works for other full-time and part-time term time workers too

Employees with irregular working hours

To find the ‘weekly working hours’ for employees not contracted to work the same number of hours each week you should calculate an average of hours worked over the 12-week period that ends with the last complete week of your relevant pay period.

To make this calculation you should take the total number of hours worked by each employee over this period and divide it by 12. Exclude any hours worked as paid or unpaid overtime.

Weeks where no work has been done (such as a week of sick leave) should be substituted for an earlier week. Weeks where some or all work has been done (such as a week with 3 days worked and 2 days taken as unpaid special leave) should be included.

If the 12-week period includes a week where no work was done, you should substitute an earlier week before this 12 week period where work was done, for the purpose of the calculation.

If the 12-week period includes a week where some work was done you should include this week as part of the average calculation. For example, if a full-pay relevant employee worked 12 out of the 18 weeks leading up to the pay period which includes the snapshot date (the relevant pay period), only 12 weeks where the employee worked would be included in the calculation.

If you can’t reasonably use the 12-week average (for example because the employee has not been at work for long enough), use a number which fairly represents the employee’s weekly working hours.

Example: a full-pay relevant employee with a variable hours contract

Kathy, a full-pay relevant employee with a variable hours contract, is paid weekly under the following contractual terms:

• basic pay of £7.50 per hour
• an evening shift premium of £2 per hour
• a productivity allowance of £5 for every 100 items packed

Kathy had a relatively quiet week during the pay period that includes the snapshot date. She worked 25 hours, including one evening shift of 5 hours and packed 400 items.

Her pay during the pay period that includes the snapshot date (the relevant pay period) is therefore:

• basic pay of £187.50 (£7.50 x 25 hours)
• an evening shift premium of £10 (£2 x 5 hours)
• a productivity allowance of £20 (for packing 400 items)
• a total payment of £217.50

However, Kathy actually worked significantly more than 25 hours per week over the last 12 weeks. On average (including the week during the pay period that includes the snapshot date), she worked 40 hours a week.

If her employer used the standard calculation outlined earlier in this section, they would need to divide the £217.50 into 40 hours, giving Kathy an hourly rate of £5.44 an hour. This is clearly unrepresentative because it is lower than even the basic hourly pay rate.

In this situation, her employer can calculate her weekly working hours so they are more representative and:

• calculates Kathy’s hourly rate of pay by dividing her £217.50 weekly pay that was received in the pay period that includes the snapshot date (the relevant pay period) by the 25 hours actually worked in that period

This calculation provides a more representative hourly rate of £8.70.

New employees and changes in role

If you have new employees, or an existing employee changes role, and have worked less than 12 weeks in their new role you need to:

• use a figure that fairly represents the number of working hours worked in a week
• use an average over a shorter period if you believe it fairly represents their working hours

If you have a new employee that has replaced someone who was previously working longer or shorter hours you can create a 12-week total by using a mixture of the old and new employees’ hours.

If you have employees that have changed roles you should take a 12-week average, even if the period covers more than one role.

Example: a full-pay relevant employee with less than 12 weeks employment

Vernillia has been hired for a newly created role and it isn’t clear what the normal working hours will end up being, or if there will even be normal working hours. So for now her employer has guaranteed a minimum of 15 hours work each week.

By the end of the pay period that the snapshot date falls (the relevant pay period):

• Vernillia has been working for 6 weeks and worked 150 hours.

Vernillia’s employer calculates her weekly working hours by:

• making an average calculation from the 6 weeks Vernillia worked, which is 25 weekly working hours.

If Vernillia had been taking over a more predictable role that someone else had been carrying out before she started, it may have been reasonable to come up with a representative number of hours for Vernillia based on the average number of working hours of the comparable employee.

On-call and sleeping-in arrangements

You should include the hours worked by employees that are on-call, awake and available.

You should only include the hours worked by employees who have sleeping arrangements as part of their work when they’ve been called on to work (their ‘waking time’).

Employee paid on the basis of piecework

You should use the number of hours worked in a week during the pay period as their weekly working hours for employees paid on the basis of piecework.

Task 5: Work out your employees’ hourly pay

Ethnicity pay gaps are based on hourly pay excluding overtime. This enables you to consider ethnicity pay gaps across your workforce as a whole. Hourly pay is the sum of ordinary pay and any bonus pay (including any pro-rated bonus pay) that was paid in the pay period which ends on your snapshot date

You don’t need to record hourly pay in your list of relevant employees who aren’t full-pay relevant employees.

When you don’t need to make this calculation in this task

You will already know what your employee’s hourly pay is, and you will not need to make the calculations in this task if your employees with regular working hours:

• have a fixed hourly rate of basic pay (including normal working hours, or working hours that differ from week to week, or over a longer period)
• do not receive any bonuses or any allowances, or other variable pay during the relevant pay period.

You will still need to include the hourly pay for full-pay relevant employees in your list.

Finding the hourly pay rate

To find the hourly pay you will need to:

• add together each full-pay relevant employee’s ordinary pay and any bonus pay paid in the pay period.

If the bonus pay relates to a period that is longer than the defined pay period, bonus pay should be prorated (see guidance above).

• multiply this by the appropriate ‘multiplier’ to find a weekly pay figure.

This is 7 divided by the number of days in the pay period which includes your snapshot date (the relevant pay period)

• divide the result for each employee by the number of their weekly working hours.

This gives you the full-pay relevant employee’s hourly pay rate.

Calculating in weeks, months and years:

• where periods are calculated in weeks, a year is treated as having 52.18 weeks
• where periods are calculated in months, a month is treated as having 30.44 days
• where periods are calculated as a year, a year is treated as having 365.25 days

Example: Calculating hourly pay

Aida is a full-pay relevant employee and:

• received £300 in bonus and £1000 in ordinary pay for the pay period that includes the snapshot date – a total of £1300

Aida’s employer calculates her hourly pay by:

• using her pay period of 14 days, divides 7 by 14

This makes the multiplier 0.5.

• £1300 multiplied by 0.5 brings the amount to £650
• £650 divided by 40 (her weekly working hours), makes the hourly pay £16.25 per hour