Legislation is bringing pay transparency to the top of the HR business agenda, with a new emphasis on equality and equity. Will open discussions on compensation and rewards ultimately lead to total pay visibility?
Pay is a taboo and profoundly personal subject in many cultures. For example, French, German, and UK employees rarely openly discuss their salaries and benefits. Other European countries, such as Norway, take a comparatively relaxed approach. However, childcare and healthcare provision differences make direct comparisons nearly impossible.
The most obvious consequence is that jobs are often advertised without salaries, and employees and potential employees cannot 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 June 6, 2023, gives member states three years to transpose its provisions into their 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.
Pay transparency legislation may gradually push the conversation from 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 the earlier Equal Pay Act 1970 and the Sex Discrimination Act 1975 and includes specific provisions for treating 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. Delivering a connected audit trail, rather than reports in spreadsheets, may also provide a robust defense against tax authorities’ definitions of contract employment status.
Similarly, compliance with equality legislation will be enhanced if the organization clearly understands 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 regulatory environment aims 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 hand, the tight European labor market has changed employment dynamics, placing many employees in a stronger position to negotiate higher salaries and more benefits. At the same time, perceptions change 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 walk away. Through this lens, adopting pay transparency for all worker categories can be an essential retention and risk management tool for large employers.
Preparing for a more fair and transparent tomorrow
Pay transparency is clearly on both the cultural and legislative agenda. Today’s race for talent is heavily influenced by employees’ desire to work for employers 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 published for every job role. For example, a decade ago, limiting a CEO’s compensation to the multiple 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.
Establishing a centralized management solution as a single source of accurate data is the essential step to gaining pay transparency insight. 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 attractive, fair, equitable employers in a highly competitive labor market.
To learn more about effectively managing your extended workforce – 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 to help you comply with new workforce regulations.
