Wage transparency: EU developments impacting UK employers?

A new EU Directive aimed at ‘strengthening the application of the principle of equal pay for equal work or work of equal value between men and women through pay transparency and enforcement mechanisms’ (“EU Directive”) has been finally adopted through the EU’s legislative procedure. It will enter into force in the next few weeks, triggering a three year deadline for member states to transpose it into national law.

Although UK employers could be forgiven for assuming that the EU Directive has no relevance to their UK operations in light of Brexit, a number of implications do arise. In particular, the EU Directive goes further than the UK pay reporting obligations in several respects, meaning that once it is transposed across the EU, the UK obligations will be out of kilter with the rest of Europe. Businesses with European operations looking for consistency of approach to pay reporting and transparency may therefore seek to “level-up” obligations across all operations, resulting in changes to UK practices.

Points of divergence between the EU Directive and the existing UK equality and gender pay gap reporting legislation include:

• information for job candidates: under the EU Directive, employers must inform candidates about the initial pay level or the initial pay range of the role in the job vacancy notice or otherwise before the job interview. In addition, employers must not be allowed to enquire or proactively try to obtain information about the current pay and prior pay history of job applicants. There is currently no such obligation or restriction in the UK.

• information for workers on average pay levels for the same work: member states implementing the EU Directive must ensure workers have the statutory right to request information about their individual pay level and average pay levels, broken down by sex, for categories of workers doing the same work or work of equal value, with the possibility of receiving that information also through any employee representatives. Employers must inform workers of this right on an annual basis as well as the steps to be taken in order to exercise that right.

Again, there is no such existing obligation in the UK - a statutory questionnaire procedure that previously allowed individuals in the UK to ask questions to explore whether their employer had breached equal pay obligations was repealed in 2014 and replaced with an informal, non-statutory approach to questions and answers that is rarely used outside a litigation process.

• pay levels and career progression information: the EU Directive requires that employers make available to workers, in an easily accessible manner, a description of the criteria used to determine pay levels and career progression (i.e. how a worker moves to a higher pay level). Although many public sectors employers in the UK provide visibility over pay bandings and how success is measured as part of its statutory equality duty, such visibility is not currently a common feature in the private sector.

• joint pay assessments and action plans: the EU Directive introduces a framework of onerous obligations on employers requiring them to prepare gender pay gap reports, be interrogated on those reports and be subject to compulsory pay assessments in certain circumstances. The deadline to comply with the pay reporting requirement and the frequency of reporting will depend on the number of employees, with the reporting requirement applicable to all employers with 100 or more employees.

The EU Directive imposes an obligation on employers caught within the scope of the Directive to carry out a joint pay assessment in conjunction with the workers’ representatives and develop a plan with “concrete measures and goals to close the gender pay gap” where the gap is 5% or more for any category of workers doing the same work or work of equal value, where the employer has not justified that difference by objective and gender-neutral factors, and where the difference is not remedied within 6 months of submitting the pay report.

No obligations for joint pay assessments or action plans currently exist in the legislative framework in Great Britain, although under new pay gap reporting legislation expected to be implemented in Northern Ireland soon, employers will be required to publish an action plan to eliminate pay gaps where published pay statistics show a gender pay gap exists. The involvement of workers’ representatives in this process is significantly different to current general UK practices and would represent a major shift of approach in many cases.

• access to justice: under the EU Directive, any worker who has suffered harm as a result of any infringement of any right or obligation related to the principle of equal pay between men and women for equal work will have at least three years to bring a claim. This limitation period is significantly longer than the current position in the UK, where equal pay claims can be brought at any time during the employment or, if the employment has ended, any time before the end of the "qualifying period" - generally 6 months after the termination date.

While the UK government does not appear to have any current plans to change the existing requirements, perhaps indicative of future plans is that a two-year transparency pilot was launched by the government in March 2022, where participating employers commit to listing salary details on job adverts and avoid questions about salary history during recruitment.

Action points for UK employers and how we can help

The impact of the EU Directive will not be seen immediately, as the Directive will need to be transposed in each member state by 2026 (it will not apply automatically). Nevertheless, its effects are likely to be significant, both directly for those companies with operations in Europe and indirectly for UK businesses through potential latent impact.

In addition, some companies falling under the scope of the Corporate Sustainability Reporting Directive may need to report earlier on their gender pay gap than the EU Pay Transparency Directive will require. This is due to the requirement to report on pay equity being a key element for companies preparing sustainability reports.

With brand values, corporate reputations, goodwill, share prices, the ability to recruit and retain key talent and the opportunity to win new work all increasingly at risk from employment practices that are perceived to be unfair, the impact of the EU Directive and the issue of pay equality more generally should not be overlooked.

Effective due diligence to understand current pay practices is required. Understanding where differences in pay exist, and the reasons for these, will not only be important from a gender perspective, but also from an ethnicity reporting perspective too, where voluntary reporting is being strongly encouraged. This level of knowledge will be key for businesses in planning for any change in requirements, effecting meaningful change and addressing challenges from stakeholders.

Our team of specialist lawyers has been at the forefront of equal pay and pay transparency developments for many years with the experience and track record of helping organisations navigate through this complex and reputationally-sensitive area. The advice and practical support of our specialist team can help with comprehensive risk assessments, data analysis and root cause diagnosis and practical action plans.

Further reading: EU Pay Transparency Directive now adopted: What does this mean for employers?; Navigating the global challenges of diversity data; Significant changes in companies’ workforce and human rights reporting: new EU legislation; Diversity in the workplace: strategies for success.

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