Pay transparency: where the EU leads, will the UK follow?

Amid mounting debate about making salaries public, Catriona Aldridge outlines the case for businesses to embrace it

Credit: ShaunWilkinson/iStockphoto/Getty Images

Although increased pay transparency is not currently a top priority for the UK government or many UK employers, a report in March 2023 said that 63 per cent of employees are more likely to discuss pay with their colleagues because of inflation. The Pay Transparency Directive is driving the issue in Europe, as companies begin their preparations to comply with the directive, which must be implemented in member states by June 2026.  

This combination of challenging economic conditions and a new EU directive may have a ripple effect in this area and begin to drive change in the UK regardless of the government agenda. 

But there are two main challenges to greater pay transparency in the UK. First, it goes against the cultural norms within private sector organisations, and second there is the lack of legislation. 

Employees in the private sector do not have access to details of what their co-workers earn and are generally reluctant to ask for them. The culture is different in the public sector, where pay scales are the norm and people will be aware of colleagues’ salaries. 

There are some signs of change. One study revealed just over half of job adverts post salary details. The same study found that adverts with salary details attract six times more applicants. This pay transparency benefit is also borne out by studies that show increased pay transparency results in a reduction in the gender pay gap.

The other factor here is the lack of legislation. Although section 77 of the Equality Act 2010 bans pay secrecy clauses, the ban only relates to ‘relevant pay disclosures’. This is not an outright ban and the provision has had little impact on dismantling the culture of pay secrecy.

In 2017, the UK took the lead with legislation on mandatory gender pay gap reporting for companies with more than 250 employees. The regulation requires certain employers to carry out several pay gap calculations but stops short of the more progressive Pay Transparency Directive, where the pay gap reporting regime is not only more robust but is accompanied by a range of transparency measures. For example, a pay gap of 5 per cent or more can result in a joint pay assessment. 

The wider pay transparency measures will involve applicants having the right to receive information on the starting salary or pay range before an interview, and includes a prohibition on asking candidates about their pay history. Once employed, workers will be entitled to ask for information about their individual pay level and average pay (by sex) for employees doing the same role or work of equal value. Companies must also make information about pay, pay levels and opportunities for promotion easily accessible.

By way of contrast, in the UK on International Women’s Day in March 2022 the UK government announced a pilot scheme, under which participating employers would be asked to list salary details on job adverts and agree that they would not ask about salary history during recruitment. The rationale for the pilot was driven by a desire to close pay gaps and tackle inequality. 

However, it now appears that a different approach will be taken. In June a government minister said that pay transparency would fall within the remit of the new Inclusion at Work Panel, which will decide whether a pilot is the best way to progress this work and, if so, what the timetable would be.

Similarly, the UK Gender Pay Gap Regulations were due to be reviewed last year, yet there is no sign that this was carried out. This is a missed opportunity. The government could have legislated to introduce ethnicity pay gap reporting, but instead chose to produce voluntary guidance for employers. If the gender pay gap reporting experience is anything to go by, asking businesses to report ethnicity pay gaps voluntarily will result in few organisations actually doing so. 

Among employers, the reluctance around increased transparency seems to be that transparency will lead to discontent from colleagues who might push for higher pay at the top of the salary band, or that it will cause envy and dissatisfaction in the workforce. If gender is the issue, then an awareness of salary details could lead to equal pay claims. 

While these may be legitimate concerns in some cases, there is a strong case for facing them and embracing the benefits of increased pay transparency. Not only should it seek to head off challenges being raised by employees who are anyway increasingly discussing salary, it is also consistent with good ESG practices, from a diversity and inclusion perspective. Any employer looking for practical ways to become more transparent should look to the Pay Transparency Directive for suggestions.

Catriona Aldridge is a partner in CMS’s employment team