Being clear about pay: a comparative analysis of the approach to pay transparency in the UK and the EU

Posted: 30/05/2024

Salary transparency has emerged as one of the key requirements for workplace fairness and gender equality, with different approaches taken in the UK, US and EU. Pay secrecy, it is argued, makes it easy for bias and pay discrimination to take root, even if the employer is trying not to discriminate. Pay transparency is not just about gender; it can also significantly benefit other minorities and traditionally underpaid groups, as it promotes fairness and helps identify and rectify wage disparities across all demographics.

In the UK we do not have pay transparency laws, but the concept of equal pay has been enshrined in legislation since 1970. Over 50 years on and recent pay claims in the UK, particularly those involving group claims, underscore the ongoing battle for pay equity and transparency. 

Legislation in the UK, such as the Equality Act 2010, aimed to address pay disparities by prohibiting compensation discrimination based on protected characteristics such as gender. However, proving unequal pay remains a complex and challenging process for employees. 

Cases such as the Tesco and Asda equal pay claims have garnered significant attention for their implications on gender equality in the workplace. In these cases, employees, predominantly women, have challenged their employers' pay structures, alleging that they are paid less than their male counterparts for work of equal value. The claims, which began several years ago, highlight the persistence of gender disparities in compensation, despite existing legislation aimed at promoting equality.

Employees face numerous obstacles in demonstrating unequal pay

Some of these include:

• Limited access to information: employers may restrict access to salary data, citing confidentiality and commercial considerations, making it difficult for employees to gather evidence.
• Complex legal processes: bringing an equal pay claim before an employment tribunal involves navigating complex legal procedures and overcoming significant evidential hurdles.
• Employer defences: there are various defences available to employers, such as differences in job roles or performance, to justify pay differentials, further complicating the claims process.

Since 2017, annual gender pay gap reporting has been mandatory in the UK for organisations with 250 or more employees. In 2022, the government announced a pilot scheme with the aim of breaking down barriers for women, whereby participating employers would list salary details on job adverts and agree not to ask candidates about their previous salary (which, it has been argued, perpetuates the issue, as for men historical pay would tend to be higher), but this was quietly dropped. 

Therefore, over the past couple of years, as interested bodies have queried the usefulness of the information provided by gender pay gap (and other) reports, and with increased frustration at ad hoc policies (that are quietly dropped when headlines change), there have been calls for further legislative action to strengthen protections and promote greater pay transparency. Legislating for pay transparency, it is argued, holds the potential to address gender pay disparities and facilitate access to evidence for employees asserting their rights, which in turn promotes greater accountability and fairness in compensation practices.

Challenges of lack of pay transparency

The absence of pay transparency poses several challenges for employees, including:

• Difficulty in identifying pay disparities: without access to information on salaries, bonuses and incentives, employees may struggle to identify and address instances of unequal pay, particularly along gender lines.
• Limited evidence for claims: the lack of transparency makes it challenging for individuals to gather sufficient evidence to support claims of unequal pay, hindering their ability to assert their rights effectively.
• Gender pay gap reporting: while gender pay gap reporting provides some insight into disparities, it often lacks granularity, making it difficult for individuals to pinpoint specific instances of inequality.

Divergent approaches: US vs EU

In the United States, the approach to pay transparency is primarily driven by market forces and individual company policies. While some states have implemented laws requiring pay transparency, the overall landscape remains decentralised, with limited federal regulation.

Conversely, the European Union has taken a more proactive stance on pay transparency, with directives such as the EU Gender Pay Gap Strategy and the EU Pay Transparency Directive aiming to address gender wage disparities through increased transparency and accountability measures. While gender pay gap reporting already exists in the UK, the EU version has powerful enforcement mechanisms, which the UK regime does not.  

The EU Pay Transparency Directive came into effect on 7 June 2023, and member states have three years (until 6 June 2026) to transpose it into national law. Therefore, the first annual EU gender pay gap report for employers with 250 or more workers is due in 2027. Some member states are taking a proactive response, including Ireland, which has already introduced gender pay gap reporting well in advance of the full implementation of the directive. 

The key provisions of the directive

• Salary transparency at the point of recruitment.
• Ban on asking about salary history at interviews.
• Employers must make available a statement of criteria used to determine pay levels and pay progression.
• Granting employees the right to request (and receive within two months) their pay level and average pay level for those doing equal work. *
• Employer to report and publish a gender pay gap report.
• Right for employees to ask employers for clarification and additional information on their gender pay reports.
• Compulsory pay audits where a gender gap report shows an average pay gap of at least 5% for those doing equal work, or where the employer has not justified the differential and has not remedied the difference within six months of the report.
• New enforcement mechanisms, including uncapped damages for equal pay claims, including full recovery of back pay, bonuses, compensation for lost opportunities and interest.

*Equal work is defined as ‘the same work or work of equal value.’

While the UK is not subject to the EU directive, its impact is likely to be felt by UK employers. The directive applies to all employers (whether EU or non-EU) operating in EU member states. Therefore, UK companies with branches or operations in the EU may be subject to it. The directive will also give UK employees access to the pay data of those working in the EU, allowing them to compare their salaries with their EU counterparts.

Additionally, by setting new standards, the directive will influence practice outside EU jurisdictions. Companies in the UK, particularly multinationals, will need to consider the implications as employees' expectations, rather than legislation, may make opaque pay structures increasingly difficult to justify.

What can we expect in the coming years?

With pay transparency remaining a hot topic and pressure from groups, including The Fawcett Society and Sexism in the City, gaining traction for legislation to enforce pay transparency, it is expected that the UK government will implement similar provisions to the EU directive. Future legislation, therefore, may include measures to mandate pay transparency, requiring employers to disclose salary information and justify pay differentials based on objective criteria. Additionally, proposals may streamline the claims process for employees asserting their rights, ensuring greater access to justice and accountability.

The most common reasons why employers are unwilling to be transparent about pay are fears that being so could demotivate employees whose pay is below the average, create ‘unrealistic’ pay expectations, and cause a staff backlash. While these challenges persist in achieving pay transparency and addressing gender disparities in compensation, legislative efforts and increased awareness are now considered essential to creating more equitable workplaces. 

In preparation for likely changes ahead, employers need to plan for effectively implementing salary transparency. This is not as simple as advertising salary details and benefits on job ads; it requires a clear strategy, including benchmarking, establishing salary ranges and bands, educating managers on holding compensation discussions, regularly reviewing and adjusting ranges and mapping to market forces, and business planning to justify changes. 

Pay transparency may not be introduced in the UK overnight, but there will be an expectation that the requirements will mirror the EU directive and catch up fast. The key piece of advice for employers is to get their house in order now. Undertake salary benchmarking, understand if there are pay equity issues by conducting an equal pay audit and address these first so that employees' concerns can be pre-empted.

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