How the UK should prepare for the EU Pay Directive

The pay transparency era is here. In recent years, we saw a steady drumbeat of new pay reporting requirements both in Europe and across the globe. Post-pandemic we had the revival of Gender Pay Gap reporting in the UK, a laser focus on pay range transparency in the U.S., and many more employees openly discussing and sharing their pay. Workplace regulation is shifting and in a highly competitive labour market, organisations must follow the international direction of travel towards transparency to stay competitive.

Most recently, the new EU Pay Transparency Directive signalled that more parallel pay transparency legislation is still on the horizon for the UK too. Even if this legislation is not yet UK mandated, now is the optimal time for businesses to prepare. Global harmonisation of policy-making is becoming inevitable, so it’s crucial for organisations to stay ahead of the global curve. Understanding the 5 key requirements of the EU Pay Transparency Directive is a helpful place to start.

1. Equal pay for work of comparable value

Employers will need to develop tools, or a methodology, to compare the value of work with objective criteria. This means that if two different jobs contribute equal value to their employer's operations then the employees in those positions should potentially receive equal pay. Value could be measured by educational, professional and training requirements, the skillset needed, effort, responsibility and work undertaken. Comparators need not work for the same employer and statistics should be used if there is no direct comparator available.

This requirement means that workers in the EU who suffered gender pay discrimination can receive compensation, including full recovery of back pay and related bonuses or payments in kind.

We have seen this play out in the UK, most notably last year when a female former BNP Paribas banker was awarded nearly £2.1 million for damages for victimization and sex discrimination in the workplace.

Previously in the UK, an employment tribunal ruled that the women, who work in roles across the shopfloor at Asda supermarkets, could compare their jobs with those done for a higher wage in Asda’s warehouses, predominantly by men.

2. Pay and career progression transparency

Employers will have to provide information about the initial pay level or its range in the job posting, the vacancy notice or before the job interview. Pay secrecy on behalf of employers will be banned and critically, employers will not be allowed to ask prospective workers about their pay history.

People are calling for the availability of meaningful financial information upfront versus the uncertain promise of a ‘competitive salary’ when applying for jobs. So, it is unsurprising that secrecy around pay is being faded out, it is self-serving and unhelpful. Despite pressure to eradicate pay secrecy, this is still acceptable among UK employers, something that we expect will rapidly change.

3. Right to Information

Individual pay levels broken down by sex and pay levels of categories of workers doing the same work or work of equal value can now be requested by European employees. Employers must provide this in writing within 2 months of the request.

Power is being transferred to employees who can hold their employer accountable. This is now becoming easier using automated platforms which leverage company data to back complaints up. Alternatively, organisations can justify their pay banding – again with data to back it up. With more and more automation and digital transformation within organisations, we expect to see these data backed protocols normalised.

4. Public Pay Reporting

Employers will be required to complete public pay gap reporting on both base pay and “any other consideration”. Included within reports will be the overall mean and median pay gap, the proportion of female and male workers in each quartile pay band, and the pay gaps between “categories of workers” (i.e., workers performing the same work or work of equal value).

Pay gap reporting has been increasingly required on a global level. In the UK, regulations requiring big employers to publish data on their gender pay gaps came into effect on 6th April 2017. However, organisations aren’t required to extend their reports to cover a wider range of diverse categories. Ethnicity, disability and sexual orientation are just a few examples of demographics who are yet to be considered for pay reporting inclusion.

5. Joint Pay Assessment

If average pay gap is at least 5% in any category of workers and it is not explained by objective and gender-neutral factors, and the gap has not been remediated within six months of the submission of the gender pay gap report, employers must perform a joint pay assessment in all groups. This ensures that major, unjustified pay discrepancies are not allowed to go unnoticed.

It is undeniable that this requirement will make some execs nervous. If so, now is the time to ensure that employee wages have been fairly justified with evidence to back it up.

What Could This Mean for the UK?

While the EU Pay Transparency Directive will not directly impact UK employees following Brexit, nor impact countries outside the EU, proactively planning a strategy that strives for global harmonisation will ready your organisation for the likelihood of future expansion and minimise issues when mandates do come into force.

With these new regulations emerging, leading UK companies are already taking the initiative beyond just mandatory pay gap reports and are instead embracing pay scale transparency as a principle, not a mandate.

Regardless of what companies choose to make of pay transparency, the growing move towards global harmonisation is evidence enough that similar laws will be making their way to the UK very soon. Don’t let them catch you by surprise.