Lifting the lid on equality: Pay transparency is on the horizon.

November 30, 2023

Legislation is bringing pay transparency to the top of the HR business agenda, with new emphasis on equality and equity. Will open discussions on compensation and rewards ultimately lead to total pay visibility?

Pay is a taboo and deeply personal subject in many cultures. For example, French, German, and UK employees very rarely talk about their salaries and benefits openly. Other European countries, such as Norway, take a comparatively relaxed approach. However, even then, differences in childcare and healthcare provision make direct comparisons near-impossible.

The most obvious consequence is that jobs are often advertised without salaries, and employees and potential employees are unable to compare their pay. Without price signals, the market becomes distorted, leading to unfair treatment of some groups, such as under-compensating contingent workers or women, for the same work.

The EU Pay Transparency Directive (Directive (EU) 2023/970), which came into effect on 6 June 2023, gives member states three years to transpose its provisions into their own law and may change the pay landscape dramatically. By sharing an analysis of salary ranges and averages, including gender comparisons, the intention is that inequalities and inequities will be revealed and removed. Workers will be able to see the compensation terms of both contingent and permanent employees, while employers will be able to compare competitors’ pay offers.

Gradually, pay transparency legislation may push the conversation from tones of hushed secrecy to open discussion. For example, while large companies are already required to report on gender pay equality, the data represents broad-brush performance and remains silent on individual job roles. Similarly, achieving pay equality for all employees might not resolve pay equity issues, such as the relative compensation of a chief executive officer (CEO) compared with non-executive employees.

Meeting new compliance requirements

Where national legislation defines equality of treatment for contingent and permanent staff, ensuring pay transparency is the best way to achieve compliance. For example, the UK Equality Act 2012 consolidates both the earlier Equal Pay Act 1970 and the Sex Discrimination Act 1975, and includes specific provisions for the treatment of contract workers (Section 41). 

To protect against accusations of non-compliance, companies that retain accurate digital records on centralized solutions will be able to analyze their data and produce critical evidence of equal and equitable treatment for each worker category. Being able to deliver a connected audit trail, rather than reports in spreadsheets, may also provide a robust defence against tax authorities’ definitions of contract employment status. 

Similarly, compliance with equality legislation will be enhanced if the organization has a clear understanding of compensation across all employment categories. Companies that rely on spreadsheets in finance or procurement departments to manage contingent workers are exposed to significant risk. The purpose of the regulatory environment is to ensure equal treatment, and using sophisticated HR solutions for one group of employees and ad-hoc processes for the other fails at the first hurdle.

Keeping pace with evolving expectations

On the other side of the coin, the tight European labor market has changed employment dynamics, placing many employees in a stronger position to negotiate for higher salaries and more benefits. At the same time, perceptions are changing as people become more aware of equality and equity issues. Today, many people are taking pay transparency into their own hands by posting their salary data on recruitment sites like Glassdoor, Payscale, and LinkedIn — helping to accelerate the cultural shift from secrecy to openness.

In these situations, the reputational damage from unexpected revelations of inequality could be significant. People who discover that they are paid less for the same work or treated differently may have immediate cause for legal action or simply walk away. Seen through this lens, adopting pay transparency for all worker categories can be an important retention and risk management tool for large employers.

Preparing for a fairer, more transparent tomorrow

Pay transparency is clearly on both the cultural and legislative agenda. Today’s race for talent will be heavily influenced by employees’ desire to work for employers who are committed to equality and equity.

The long-term view may be that we are headed to total pay visibility, with employment terms, conditions and compensation being published for each and every job role. For example, a decade ago the idea of limiting a CEO’s compensation by the multiple of average salary might have sounded unreasonable. Today such conversations are being widely entertained, not least because companies are compelled to declare executive compensation.

Protecting against risk and being ready for change

The only certainty in business is change: new legislation, different risks, new markets, and the continuous arrival of new challenges. The best protection against the unknown future is to secure the present, and for employment professionals, that means ensuring a complete understanding of today’s workforce. 

To gain pay transparency insight, the essential step is to establish a centralized management solution as a single source of accurate data. Based on that firm foundation, employers will be better able to comply with regulations, manage their extended workforce more successfully, and – probably most importantly – ensure they are known as an attractive, fair, equitable employer in a highly competitive labor market.

To learn more about the effective management of your extended workforce – including contingent workers, consultants, outsourced services, independent contractors, temporary workers, and shift-based workers – speak to us today. 

We can share information on best practices and provide guidance that will help you stay compliant with new workforce regulations.