Changes on the horizon for UK employers

Why should I read this?

In the wake of a new UK government that has pledged to “go further and faster” to close the gender pay gap “once and for all” and a developing global environment of greater pay transparency, what should UK employers do to ensure preparedness?

In this briefing we consider the background and changing landscape around pay transparency, what developments are expected and what UK employers can do now to prepare.

What do I need to know?

The UK’s gender pay gap legislation was considered as a trailblazing approach to addressing equality of pay when introduced in 2017. Requiring employers with 250 employees or more to publish a report annually on its gender pay gap, the requirement was a significant step change for employers that had traditionally operated in an opaque environment regarding gender pay differentials.

Despite the gender pay gap reporting legislation, the gender pay gap in the UK has remained stubbornly persistent, with the mean gender pay gap falling by just 1.6% since the introduction of mandatory reporting. Various research studies have analysed how long it will take to close the gap at the current rate, with estimates ranging from 20 to 45 years.

The slow progress in closing the gender pay gap in the UK has resulted in calls for legislative change to force progress. Proposals have included requiring employers to prepare actions plans to set out how they will close their pay gaps, extending gender pay gap reporting to all employers with more than 50 employees, expanding reporting to include ethnicity and disability pay gaps, and requiring equal pay audits.

In addition to legislative change around pay gap reporting, there have also been calls for change to promote access to justice for those experiencing unequal pay. Bringing, proving and defending equal pay claims in the UK remains inherently complex. Further, equal pay claims can currently only be based on sex.

In the meantime, the EU Pay Transparency Directive (EU Directive) has leapfrogged the UK’s approach, introducing for the first time across the EU a framework of gender pay transparency requirements more onerous than in the UK. Not only does it require broader mandatory reporting and information obligations than the UK, but also includes requirements for salary transparency at the recruitment stage, remedial action where there is a pay gap and compulsory pay audits where a gender pay gap report shows an average pay gap of at least 5%.

Pay transparency has also been progressing in many other areas of the world. This includes in the US, where several States have introduced laws requiring employers to publish a pay range for vacancies and prohibiting employers asking about pay history. Some US States have also recently enacted legislation requiring employers to publish information on their gender pay gap.

Against this background, the gender pay gap remains a hot topic in the UK. The new UK government has pledged to take action, with the Chancellor of the Exchequer Rachel Reeves stating that it is intended to “close the gender pay gap once and for all” and the deputy Prime Minister Angela Raynor pledging to “go further and faster in closing the gender pay gap”. Included in the government’s manifesto commitments are plans to require employers to implement action plans to close gender pay gaps, to include outsourced workers in pay gap and pay ratio reporting, and to prevent the outsourcing of services “defeating” equal pay obligations. In addition, with a Draft Equality (Race and Disability) Bill, it is proposed to mirror the existing legislation relating to equal pay and gender pay reporting to introduce mandatory ethnicity and disability pay gap reporting for employers with 250 employees or more and to enshrine in law the full right to equal pay for ethnic minorities and disabled people.

What should I do next?

New legal requirements in the UK around equal pay and pay reporting will not happen overnight, but employers should not wait to take steps until the law forces them to do so. 

Employers with 250 employees or more should be taking action now to ensure that they have the infrastructure in place to be able to report on:

• the gender, ethnicity and disability pay gap figures for relevant employees, calculated using both the mean and median average hourly pay
• the proportion of men, women, ethnic minorities and disabled people in each of four pay bands, based on the employer's overall pay range
• information on the employer's gender, ethnicity, and disability bonus gaps
• the proportion of employees who received a bonus in the same 12-month period calculated based on gender, ethnicity and disability

Regardless of workforce numbers, all employers committed to achieving effective diversity and inclusion within workplaces should be taking steps to properly understand their pay practices and identify any pay differentials, including establishing the causes of any significant pay differences, assessing justification and establishing a plan to address any differences that cannot be justified on non-discriminatory grounds. Allowing enough time to plan and implement plans and then revise, assess and embed actions through workforce engagement will be key to minimising risk.

Whether the UK government will ultimately legislate to mirror the higher requirements of the EU Directive remains to be seen. In the meantime however, the global landscape continues to move towards greater equality and transparency, including an increasing expectation amongst job applicants and workforces that pay information will be made available. Further, businesses with operations in the EU and beyond looking for consistency of approach to pay reporting and transparency may seek to “level-up” obligations across all operations, resulting in wider changes to UK practices. 

Further reading

For further information on the points of divergence between the EU Directive and the existing UK equality and gender pay gap reporting legislation, see our briefing Wage transparency: EU developments impacting UK employers?

As the UK transitions after the election, see our interactive tracker which sets out the UK government’s employment policy commitments including its "New Deal for Working People". Our tracker provides a horizon scanning feature to help employers keep ahead of the curve, and reviews each policy proposal describing practical implications for employers and progress to date.

Our global briefings - EU Pay Transparency Directive now adopted: What does this mean for employers?; and Pay transparency: where to begin? A deeper dive and practical pointers– consider the EU Directive in more detail, including some of the practical issues beginning to emerge, as well as addressing some frequently asked questions.

How we can help

Our team of specialist lawyers has been at the forefront of equal pay and pay transparency developments for many years and have the experience and track record to help organisations navigate through this complex and reputationally-sensitive area. The advice and practical support of our specialist team can help with comprehensive risk assessments, practical action plans, supporting narratives for pay gap reports and assistance with shaping wider diversity and inclusion strategies.