11 November 2024
Pay transparency legislation
What is pay transparency, and why has it been in the news lately? This blog will give you a brief overview of pay transparency legislation and how it’s shifting.
Pay equity vs pay transparency
Pay equity is making sure there’s no discrimination (direct or indirect) in your pay. Everyone should ensure they are paid equally for equal work.
Pay transparency is ensuring that employers are open about pay. Note that this is not the same as posting salary information of job listings, rather it involves disclosing pay details, reporting pay rates to the public (through gender pay gap reports and other, similar reporting methods).
Naturally, there’s a lot of overlap between these two concepts. To prove you’re paying equitably, you need to be transparent. Likewise, if you’re transparent about your pay, and that shows a lack of equity, you could face some risks with litigation and compliance.
However, many countries (especially the EU and UK) mandate reporting on gender pay gaps, for instance. You can’t just sweep poor pay equity under the rug. Taking a holistic approach where both factors are equally considered will help.
Current and upcoming legislation
If you’re in the UK, you need to take a look at the Equality Act. This act means people of all genders need to be given equal pay for doing the same job (or a job of equivalent value). This also applies to other protected characteristics (such as race, disability and sexual orientation).
If you operate within the EU, you’ll need to stay abreast of upcoming legislation changes, especially EU Directive 2023/970. This directive aims to strengthen existing transparency requirements.
Even if you don’t operate within the EU, you might end up competing with EU employers, especially in industries where remote or ‘digital nomads’ (people who work for a company but live in a different country) are a source of talent.
You have to consider:
- Your duties to job applicants- providing pay ranges, and ensuring job titles are gender neutral
- Your duties to current employees- ensuring knowledge about pay progression is easily accessible to all employees
- Reporting requirements- you have a duty to report your gender pay gap and gender composition data to the relevant state government
- Pay equity- ensuring that you remedy any gender pay differences that cannot be justified by objective criteria, keeping that gap lower than 5%
Impact on employers and employees
That urgency comes from the fact that you could find your team liable for fines, unexpected back pay, and other means of punishing non-compliance. That’s before you get into the potential reputational damage.
However, there are some key benefits for employees. It impacts their perception of your organisation, making them feel more satisfied at work, like they’re being treated fairly, and can even boost performance.
There can be some concerns to be handled with potential pay compression, and it’s also worth noting that it’s line managers that will often have to deal with the fallout of any issues flagged up by greater pay transparency. Making sure they’re given support to handle that is vital.
Preparing for changes
While the nuances vary between governments, the drive towards pay equity is not likely to go anywhere anytime soon. Over in the UK, the government has mooted a ‘plan to make work pay’, which would enshrine the right to equal pay for disabled people and people from minority ethnic groups. This would likely involve mandatory reporting on ethnicity and disability pay gaps, similar to how the gender pay gap is currently handled.
Even if you have no obvious compliance goal to aim for, getting ahead of the curve is wise. Take a look at your pay structures and see if you can spot any concerns. You could also consider equal pay analysis or other analytical techniques.
It’s critical to make sure you fully understand the data before making any decisions, otherwise you could wind up making the situation worse.
One of the best ways to make this process painless and consistent is to invest in a unified HR, payroll and finance platform. This will ensure you have a clear, holistic view of all your people, operational and financial data, which is vital for providing full context for what you’re dealing with.
While a global approach ensures some level of consistency, the patchwork of laws across different territories add extra complexity, so you shouldn’t aim for a one-size-fits-all approach. The new EU directive is designed to help create a consistent approach, which will be a great help for multinational companies, but US states have highly variable requirements. Taking preparatory steps will ensure you find the sweet spot of transparency that works for you.
