Pay transparency: is change afoot in the UK?

Pay transparency: is change afoot in the UK?


30th April 2024

With the deadline for gender pay gap reporting in the UK having just passed in early April, we explore some of the broader pay gap reporting, pay equity and pay transparency developments, and predict how these wider external influences may lead to future change for UK employers.

Overview

There is a general global trend emerging of introducing legislation regarding pay transparency and pay equity. Most notably, the EU has recently adopted the Pay Transparency Directive, the United States has an increasing number of states now requiring employers to disclose salaries on job adverts, and many other jurisdictions have or are considering implementing pay transparency and pay gap reporting legislation.

So where does the UK sit in respect of pay equity and transparency laws? Currently the UK does not have any pay transparency laws but does have gender pay gap reporting obligations for certain employers. It is likely that global efforts to address pay transparency, increasing external pressures within the UK calling for reform and internal pressures from workforce expectations may lead to increased pay transparency initiatives impacting UK employers, whether or not specific UK legislation is introduced.

The EU Pay Transparency Directive

The Pay Transparency Directive came into force for EU employers in June 2023 and Member States have until June 2026 to implement legislation to give effect to the Directive. You can read our article here outlining the rights and obligations created by the Directive, which include:

  • the right for workers to receive information about their pay and the average pay levels for workers doing the same work or work of equal value;
  • the right for job applicants to receive information about the role’s pay or pay range;
  • the requirement for certain employers to report on gender pay gaps; and
  • the requirement for certain employers to carry out a “joint pay assessment” where gaps of at least 5% are identified and are not justified on the basis of objective, gender neutral criteria.

Post-Brexit, this Directive does not directly apply to UK employers, but there are indicators that it may impact UK employers, which we discuss below.

Progress on the UK's gender pay gap?

Since 2017 in the UK, employers with at least 250 employees at the “snapshot date” of the previous year (5 April for majority of employers) have been required to report on their gender pay gap. Employers with fewer than 250 employees at the snapshot date can report on a voluntary basis.

The latest figures from the Office for National Statistics show the gender pay gap to be reducing across UK employers on the whole, though progress in this regard remains slow and pay gaps have notably increased for some employers.

In particular, the ONS suggests that the gender pay gap among higher earners is much larger than that for lower-paid employees. The EU is seeking to address this concern in part through its Directive, known as the “Women on Boards Directive”, by improving gender balance for directors in listed companies. The Directive requires that 40% of non-executive directors or 33% of all directors at listed companies are members of “the underrepresented sex” by the middle of 2026.

Other factors at play for UK employers

As mentioned above, whilst the Pay Transparency Directive may not directly apply to UK employers, there are strong indications that the Directive will have (and is possibly already having) an impact on UK employers. For international employers, they are likely to want to maintain a consistent approach to their practices across their business. Therefore, if they are subject to pay transparency rules in one market, such as the EU or the US, they may decide it is preferable to adopt the same approach for their UK workforce.

In addition, the looming general election in the UK has also seen various groups pushing for pay transparency laws to be on the agenda for any future government.

Although no commitments have been made to alter pay transparency legislation with regard to gender by the current government, the Labour Party has announced that if it were to gain office, it would act to close gender, ethnicity and disability pay gaps. The Labour Party’s Green Paper, 'A New Deal For Working People’, says that it would do this by expanding the pay gap reporting requirements to include requiring the publication of ethnicity pay gaps for firms with more than 250 staff. Recently, Labour has also said it would extend the ability to bring equal pay claims to include claims on the grounds of ethnicity or disability, with the current law limited to just claims based on sex. For more on the Labour Party’s proposals, see here

Regardless of whether the next government introduces pay transparency legislation, it is likely that other pressures will cause UK employers to consider reviewing and updating their pay transparency practices.

The Fawcett Society, a prominent charity campaigning for gender equality and women's rights, is calling for a ban on questions relating to a candidate’s salary history in job interviews and making it compulsory for job adverts to include salary bands. The current UK Government launched a pay transparency pilot scheme in March 2022 focusing on these two points, with participating employers including salary details on job adverts and not asking about salary history during recruitment. However, no formal action has been taken following this pilot.

In addition, on 8 March 2024, the Treasury Committee published its Sexism in the City report, which focuses on women’s experience in the UK financial services sector. Amongst the report’s findings was that “a lack of pay transparency, including at the recruitment stage, was highlighted as a key factor that exacerbated gender pay inequality in financial services”. The report highlights a lack of incentives for firms to address the gender pay gap in the financial services sector and recommends that more action be taken. For further information on the Sexism in the City report, you can read our article here

As well as being aware of these calls for change, employers are well advised to consider what their internal stakeholders, employees and competitors are saying and doing on the topic. Proponents for pay transparency reform advocate that along with helping to rectify wage disparities, it can help build employee morale and trust, and foster diversity and inclusion within the workforce, which can give an employer a competitive edge.

Conclusion

Despite the increasing noise on this topic, it is uncertain whether the UK will introduce new pay transparency legislation in the near future, and much will depend on the priorities of whoever is in charge following the general election later this year.

Nevertheless, the combination of internal and external pressures mean that all UK employers should be taking note of the calls for change and the increasing global pay transparency initiatives regardless of whether formal legislation is implemented in the UK. This is a topic of conversation that is unlikely to disappear anytime soon and UK employers would be wise to consider how they can get ahead of this and best incorporate pay transparency proposals into their policies, practices and culture.