Greater focus on pay equity and transparency under new Labour government

Analysis conducted by Pinsent Masons on the latest gender pay gap data provided by large UK companies shows that the difference in the pay gap between male and female workers has been reducing in recent years. In 2023-24, around 10,862 employers with 250 or more employees reported their gender pay gap figures. The average hourly median gender pay gap is 11.6%, which represents a 0.4% decrease from the 12% reported in the previous year. This difference represents a further decrease from 12.4% in 2020-21, and 12.2% in 2021-22.

The infrastructure sector reported the biggest pay gap of 21.4%, when compared against the financial services, energy, manufacturing, universities and telecommunications sectors. The gap increased by 0.3% from the previous year. The financial services sector posted a similarly significant gap, of 21%, but this marks a small year-on-year decrease.

Overall, the proportion of women that hold positions in the top ‘quartile’ of employees in terms of hourly pay has increased further to 41.4%, up from 40.54% in 2021/22 and 41.07% in 2022-23. However, women still represent 54.9% of employees in lower quartile jobs, a slight decrease of 0.06% from 2022-23. Although the figures show that positive changes are happening in businesses across the UK, there is still more work to be done towards levelling the playing field, and eliminating the gender pay gap.

The previous UK government published voluntary guidance on ethnicity pay gap reporting and some employers were already voluntarily reporting on their ethnicity and disability pay gaps. It is notable that all of the FTSE 100 and 222 of the FTSE 250 have signed up to the 2024 Parker Review, which asks signatories to make various commitments, including publishing their ethnicity pay gap and action plan within two years of joining the campaign.

There is greater focus on improving equal pay under the new Labour government’s legislative agenda: employers will have more obligations to improve equal pay for different genders, ethnicities, and people with a disability.

Employment and equality law expert Susannah Donaldson of Pinsent Masons said that the new government has pledged to make pay equity and transparency key areas of focus, as reflected by the draft Equality (Race and Disability) Bill announced in the 2024 King’s Speech at the state opening of parliament.

Donaldson said: “The Bill will enshrine in law the full right to equal pay for ethnic minorities and disabled people to make it easier for them to bring equal pay claims by introducing a new statutory framework which mirrors that currently in place for equal pay claims based on sex. It will also introduce mandatory ethnicity and disability pay reporting for employers with 250 or more employees. It is intended that the new legislative regime will mirror that currently in place for gender pay gap reporting”.

However, according to Donaldson, there are obvious practical challenges associated with reporting on these diversity strands, which are far more nuanced concepts than gender.

The Labour government is also expected to introduce proposals included in the party’s election manifesto, including requiring businesses to put in place gender pay gap action plans and introducing civil enforcement of GPG auditing. Labour also suggested during their election campaign that the remit of the Low Pay Commission may be changed so that pay takes into account the cost of living, alongside median wages and economic conditions. This is designed to address the fact that women, who make up on average 54.9% of the lowest paying jobs, are more likely than men to be disproportionately affected by the cost-of-living crisis.

The introduction of mandatory GPG reporting across EU member states will add additional pressure on the UK government and UK businesses to take a more proactive approach to mirror the EU regime and make pay equity and transparency a focal point for law makers and businesses alike.

The EU Pay Transparency Directive came into force in May last year, and member states now have up to three years to implement local pay transparency legislation in line with its requirements with a deadline of June 2026.

“The EU regime is likely to be regarded as the ‘gold standard’ and could become the approach adopted voluntarily by employers outside of the EU, particularly employers with a global footprint that want to take a ‘one business’ approach to these issues in the spirit of transparency in a bid to attract and retain talent,” said Donaldson.

“Many international businesses are already looking at taking a ‘one business’ approach across their global operations. Even if they don’t go to the lengths of reporting on GPG by categories of worker and publishing joint pay assessments as required under the new EU Pay Transparency Directive, it is likely that multinationals will adopt other aspects of the directive voluntarily, such as the salary history ban and the practice of advertising pay ranges. All of this highlights why it is imperative for businesses to put in place a pay equity strategy supported by a multi-disciplinary project team and to keep abreast of the ever changing legal landscape and market trends,” she added.