The EU has introduced a new pay transparency directive that will require employers to ensure they meet certain levels of transparency and commitment to how they set and advertise pay. How will the regulations affect UK employers, and could we see similar legislation enacted here?
What is the EU pay transparency directive?
In March 2023, the EU Parliament and EU Council approved the adoption of a set of pay transparency regulations aimed at closing pay gaps in the workplace. They focus on the pay differences between men and women but cement the principle of equal pay for equal work for all through enhanced transparency.
Lack of pay transparency has been identified as one of the key obstacles to closing the gender pay gap, which stood at around 13% on average across the EU in 2020.
Pay transparency
The legislation came into force in June 2023, but EU member states have until June 2026 to transpose the directive to their national legislation. Some countries will introduce new legislation or change existing regulations sooner.
What does the EU pay transparency directive require?
The regulations require employers with at least 100 employees to publish information on the pay gap between female and male workers.
Companies with at least 250 employees will report every year in the first stage and employers with 150-249 workers every three years. Those with a gender pay gap above 5% will be required to conduct an analysis on why this is the case, and then develop an action plan to address it.
There are a number of further requirements including:
- Job applicants have the right to receive information on the pay level and range for any advertised position.
- Employers cannot ask candidates about their previous salary or current pay.
- Employers must share information on how pay is set and managed, including details on promotion and progression criteria.
- Where countries have their own reporting mechanisms in place, they will have to certify that they meet the terms of the directive.
The directive also includes provisions on compensation for victims of pay discrimination and penalties for employers who break the rules.
Some EU member states already have pay transparency regulations. They are working towards ensuring that their current rules meet the requirements of the EU pay transparency directive, and some may create legislation that goes above and beyond what is legislated by Brussels.
Why will EU pay transparency affect UK employers?
Although the UK is no longer an EU member state, it will impact non-EU employers who employ people in the EU. Not only that, it will raise expectations of pay transparency in the UK, potentially placing pressure on the government to legislate to match EU standards.
Global employers in the UK may choose to streamline policies and practices to ensure they satisfy pay transparency obligations not only in the EU but also in numerous US states and other jurisdictions worldwide.
UK employers with more than 250 employees must already comply with gender pay gap legislation but this does not go as far as the requirements of the EU pay transparency directive. For example, employers are encouraged but not legally obligated to provide a narrative alongside their reporting to reflect on why a pay gap exists and what they plan to do about it.
Similarly, employers in the UK are not currently required to publish salary ranges when advertising jobs. The government announced a voluntary pilot scheme in March 2022 where participating employers would list salary details and stop asking candidates about job history, but this has not transferred into concrete legislation.
Could a Labour government introduce pay transparency regulations?
The Labour party has published its New Deal for Working People in advance of a likely general election later in 2024. If it wins the election it has promised a number of reforms on workers’ rights within 100 days.
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One of its pledges is that it will “go further and faster in closing the gender pay gap”, which could mean it decides to reform current reporting requirements to match those in the EU pay transparency directive.
What are the benefits of being transparent about pay?
There are a number of advantages to becoming more transparent about pay. In March 2022, research from Reed.co.uk found that four-fifths of jobseekers would be less likely to apply for a job if it did not contain salary information. One-fifth exclusively apply for roles that include this information.
Being more open about how pay structures are decided and what they are can help to close the gender pay gap more quickly. This is because organisations can identify gaps more easily and take action, and access to reliable data on pay scales and strategy offers (typically female) a route to challenge employers if they are not being paid equitably.
Not asking candidates about salary history also supports gender equality in recruitment, according to the Fawcett Society. The charity found that 61% of women felt their confidence had been affected when asked about previous salary, and that past pay discrimination can follow women (and other groups) if they declare their current pay.
What action should UK employers take on pay transparency?
How employers should respond to the EU pay transparency directive will depend largely on what measures they have already taken on gender pay gap reporting and how they manage their salary structures. And while there is no firm indicator the UK will match the regulations, there are advantages in terms of attracting and retaining employees who value organisations that embrace transparency.
A good first step is to look at your current practices against the proposed requirements of the EU pay transparency directive. For example:
- How are different pay grades set and benchmarked?
- Do you share guidance on reward and promotion decisions with employees, and could you do this?
- What performance management criteria are used and are they consistent?
- Do you advertise salaries or ranges on job adverts or ask about salary history in interviews?
Getting ahead of the regulations and stepping above and beyond what is currently required by UK law is not just of practical benefit, but can form part of a broader approach to pay equity and inclusion across gender, ethnicity, disability and other groups in the workplace that may have faced disadvantage in the past.
Cultural implications
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Conversations about pay can be tricky. Some UK employers are already quite transparent on the remuneration. For example in the health and education sectors, many employees will know their colleagues’ pay band and the corresponding salary range.
But other employers are far less transparent – some even have policies prohibiting conversations about one another’s pay. As pay transparency becomes more normalised, workplace cultures may also need to adapt. Line managers may need training to ensure how to discuss pay issues in light of new rules, and they may need support when pay discrepancies are identified.
