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The UK’s main pay transparency measure is gender pay gap reporting, introduced in 2017.1
However, evidence mounts that progress to close the gender pay gap has been patchy at best. Some research shows that a quarter of organisations have made no progress in closing their gender pay gap since 2017, or they have seen it widen.
Future regulations are expected to require large employers to publish gender pay gap and menopause action plans from 2027, a measure the government hopes will stimulate initiatives to close pay gaps and create more supportive workplaces for women at all stages of their careers.
However, the government’s recent Call for Evidence signals a recognition that more robust measures, including greater pay transparency, may be needed to tackle the gender pay gap.
The cause of the gender pay gap – the difference in average pay between men and women in an organisation - is multifaceted. It includes occupational segregation, the overrepresentation of women in part-time positions, the unequal distribution of unpaid caring responsibilities, and, in some cases, discrimination.
Questions about salary history can entrench existing inequalities, suppressing women’s and other underrepresented groups’ pay and allowing historic wage discrimination to persist throughout their careers. A survey by the Fawcett Society found that 58% of women felt they had received a lower salary offer than they would have if they had not been asked about their pay history during the recruitment process.
Further, evidence suggests that women are less likely than men to negotiate higher pay. This is compounded by secrecy around pay, which can create fertile ground for inequalities to thrive.
It was for this reason that in March 2022, the previous government launched a pay transparency pilot scheme. Participating employers listed salary details on job adverts and stopped asking candidates their salary history during the recruitment process.
However, this pilot program was short lived. Citing pay transparency as an emerging area and the need to learn from what other countries were doing, the pilot was abandoned two years later with no clear takeaways.
The UK’s gender pay gap reporting framework offers a somewhat blunt measurement tool. The reporting requirements focus solely on the difference in average pay between all male and all female employees, rather than the proportion of each gender within different job categories. The lack of granularity therefore makes it difficult to identify specific areas for targeted intervention or to track genuine progress in closing the gap.
The absence of effective enforcement mechanisms has also been identified as a significant shortcoming in the regime, with no fines or penalties having been issued since its inception.
In contrast to the UK, the EU has opted for a bolder approach. In the midst of the UK’s pilot, the Pay Transparency Directive came into force, introducing a robust framework of obligations on employers.
The Directive not only imposes broader gender pay gap reporting requirements - with a wider definition of ‘pay’, a requirement to report on the gender pay gap by worker categories, and meaningful enforcement mechanisms including fines and the possibility of collective actions by employees - but also goes further to tackle pay discrimination in several other respects.
Among other things, the Directive requires employers to be more transparent in their hiring and salary determination processes, granting both prospective and current employees broad rights to access information about the pay levels of roles they are interviewing for and workers doing equal work or work of equal value to them.
While the UK is not subject to the Directive, it seems to have taken note.
April’s Call for Evidence outlines a range of potential steps the government are now considering to improve pay transparency. Appearing to draw inspiration from the Directive, the measures include:
Recognising that these measures may involve a cost burden, the government will now weigh up whether or not pay transparency measures would be proportionate and effective in improving pay equality in the UK.
After the statutory questionnaire procedure, which allowed employees to serve a questionnaire on employers to gather information relevant to their equal pay claim, was repealed in April 2014, claimants bringing equal pay cases now arguably face an uphill battle to get pay information about potential comparators.
If introduced into law, the pay transparency measures set out in the Call for Evidence would change that, increasing the availability of pay data and arming employees with significant tools to negotiate and challenge pay differences.
This new level of scrutiny of pay information would be likely to encourage employers to interrogate their rationale behind pay decisions and ensure that any differences in pay for equal work are objectively justifiable. As a result, it is hoped that the measures would drive employers towards fairer and more consistent and accountable pay practices.
However, the measures also raise competition concerns. Requirements for transparency over salary ranges create tension with existing rules around anti-competitive behaviour. With pay information more readily available in the market, there is arguably a risk that employers align pay, suppressing upward pressure on wages and undermining the objectives of the measures. With competition in labour markets increasingly under the Competition and Markets Authority spotlight (see this blog), this is an area on which we could expect to see more guidance for employers.
The Call for Evidence is part of a wider government effort to gather views and information to shape measures under the Equality (Race and Disability) Bill, a promised piece of future legislation reforming equality law.
The government has already committed to introducing mandatory ethnicity and disability pay reporting for large employers through that Bill, which has recently been the subject of a separate consultation.
The Equality (Race and Disability) Bill is expected to be published in draft before the end of the current parliamentary term, so it remains to be seen to what extent the pay transparency measures contained within the Call for Evidence feature.
For more information, see:
Contacts: Kloe Halls, Jennifer Granado Aranzana
1 Separate reporting regimes such as CEO pay ratio reporting are outside the scope of this blog.