Pay transparency laws are coming. Four things you might need to do
EU member states have until the first quarter of 2026 to comply with the brand-new Pay Transparency Directive – although many may begin implementing this much earlier. With a political agreement reached in December of 2021, these laws are set to be implemented by the end of this quarter.
The rules will provide a huge amount more transparency for employees, as well as emphasise the importance of equal and fair pay.
Although the UK has left the EU, any UK business with European staff and operations will be subject to the new pay transparency directive. It is also possible that, in the near future, the UK may develop its own transparency laws to ensure it does not lag behind the rest of Europe when it comes to pay equality and transparency.
What it means for businesses
Firstly, organisations will be required to provide pay information or a salary range when they advertise a job. Candidates will need to be clear on this information before the first interview.
Next, these rules will forbid employers from asking candidates about their pay history. This includes confirming their current salary in the role they are leaving, as well as in any other previous jobs.
Also, tackling equal pay means that businesses with at least 100 employees will have to publish their gender pay gap information – every three years for organisations with between 100 and 249 employees, but annually for those with 250 or more.
When people are doing the same or similar job and there is a gender pay gap of at least 5 % that cannot be justified based on gender-neutral factors, the organisation will have to carry out a pay assessment in cooperation with the employees’ representatives.
What it means for employees
These new rules will lead to increased transparency for employees and candidates. This means more honest conversations about pay and the ability to understand why a company may manage pay in a certain way.
Not only will candidates be able to avoid the dreaded ‘what’s your current salary’ question, but employees will have the right to request information from their employer based on their own pay level and on the average pay levels within the current market.
This will need to be broken down by gender into categories of people doing similar or the same work.
Generation Z demands pay transparency
An Adobe future workforce study revealed that 85% of Generation Z said they’d be less likely to apply for a job if the company didn’t provide a salary range on the advert.
Gen Z makes up around 20%-30% of the current workforce and this number is going to rise significantly in the next five to 10 years. As a result, the shift in what employees are looking for will significantly affect an organisation’s ability to attract, recruit and retain people.
Honesty, clarity and communication is now a driving force for a lot of candidates and employees, so businesses that aren’t ready for pay transparency could lose out on top talent.
In fact, many Generation Z employees favour transparency over a higher salary. Building a culture of trust is highly important for the future of the workforce. This new EU legislation will force businesses to prioritise this over the next three years.
What businesses need to do
To ensure you’re ready to comply by 2026 and to provide fair and consistent treatment to all employees, there are a number of things businesses will need to do, or have, to prepare.
1. Have a clear pay philosophy
Firstly, having a clear pay philosophy and principles will allow a consistent approach to how you manage pay. This can be applied steadily to all employees and communicated effectively.
It’s also time to think about where you want to place yourself within the external market. Are you looking to pay your employees at the median rate or would you rather fall into one of the upper or lower quartiles? From here you can begin developing a career framework.
2. Source market data
Businesses should be able to answer the question: ‘where do we typically recruit from?’
Participating in a salary survey and or collecting relevant, useful market data will allow businesses to make informed decisions about pay.
In the absence of this data, it can be common for employers to recruit people on higher salaries than they pay their own employees. This is because the market is moving, but they don’t have the data to see it happening.
3. Job architecture and pay progression
Once a business understands the reason why pay should progress within their organisation – whether this be the development of skills or qualifications – it is far easier to create a career framework.
This provides transparency to employees on how they can develop their careers or progress within their roles. Not only that, but they can clearly see how their pay will progress if they stay with the organisation.
Job architecture also allows a business to ensure they have internal equity and clear consideration around equal pay for equal work.
4. Communicate with the team
Defining pay philosophy and frameworks will make it easier to communicate them to employees. This means providing education and training on how pay is managed as well as ensuring managers know how to approach it within their teams and tackle conversations about pay instead of avoiding them.
The sooner businesses start to comply with the new rules, the better chance they have of building a culture of trust through pay transparency.
