The trend for greater pay transparency is growing in the EU, the UK and even in Donald Trump’s USA.
For anyone thinking that compliance deadlines are still a way off or that the big changes won’t affect their businesses, the expert advice for employers is don’t wait for legislation, start now.
The EU Pay Transparency Directive will be implemented in 2026, which might seem like a long way off but it means employers only have one pay cycle left to address significant pay issues before reporting their 2026 data.
Under the directive, all employers with 100 or more employees working in the EU will need to comply. New requirements include, introducing gender pay gap reporting and broadening it where it already exists, advertising salary ranges for job vacancies, and answering employee requests for information about the pay of workers who are doing comparable jobs.
The EU directive may not apply directly to employers who only have workers in the UK, but it is still expected to have an impact.
More than half (51.9 percent) of employers operating in the EU are looking to roll out equal pay arrangements across their whole organisation, which includes operations in non-EU countries, according to a survey by Korn Ferry.
In the UK, the Labour government is moving forward with plans to extend pay gap reporting to include ethnicity and disability and redouble efforts to close the gender pay gap.
These changes will be part of the draft Equality (Race and Disability) Bill, which the government has committed to publishing during this parliament.
There is also a growing shift to greater pay transparency in the USA in spite of America’s vocal retreat from diversity, equality and inclusion (DEI).
“One of the paradoxes I am pondering is the US reported kick back against DEI policies generally, at Meta, Walmart, Elon Musk comments etc, yet pay transparency appears unaffected and is continuing to spread,” says Duncan Brown, independent adviser, principal associate at the Institute of Employment Studies and visiting professor at the University of Greenwich.
Twelve American states have pay transparency requirements including California, Maryland and Nevada, with Illinois and Minnesota joining their ranks as recently as 1 January 2025. Washington DC, which is technically a district not a state, and two major cities in Ohio (Cincinnati and Toledo) also have legal pay transparency requirements.
Three more states – New Jersey, Vermont and Massachusetts – are set to step up their legal requirements later this year.
Employer hesitation
For UK employers, the EU directive is the first change on the horizon with an actual deadline.
Two-thirds of UK organisations “have a moderate familiarity” with key aspects of the EU legislation, but they are not engaged in addressing it, according to Mercer’s latest transparency survey. The research revealed a similar trend for the UK’s Employment Rights Bill and plans for extended pay gap reporting.
Lucy Iremonger, senior diversity and inclusion specialist at Mercer, says UK employers have questions about the EU directive’s practical application and this uncertainty is causing hesitation.
Rachel Gibbs, pay transparency specialist at Merities Consulting, says: “I’m finding that many organisations are waiting for the specific country legislation to be released. The way things are going, they will all be working on the projects at a very late stage. I think it’s due to a lack of senior leadership buy-in and other workload priorities.”
In spite of the uncertainty, Iremonger says timelines to take action are likely to be short amid political shifts across Europe, so “organisations can’t afford to hesitate.”
High stakes
Pay equality is certainly on the radar of UK employees and the stakes are high. Just last month, ADR England published fresh data showing the gender pay gap for total weekly earnings across all jobs is over 30 percent.
David Lorimer, partner at law firm Lewis Silkin, has previously warned employers that while the EU 2026 implementation seems a long way away, realistically, they are going to be reporting on the 2026 numbers.
Speaking at the Benefits Expert Summit in November 2024, he said: “You’ve got probably one annual pay cycle left to understand where the big issues lie and start to try and allocate budget to fix them.”
He emphasised that failure to comply with the EU directive could result in bans from public contracts.
The shift in policy is also expected to drive more scrutiny of equal pay, Lorimer noted, referring to past cases where pay disparity issues emerged alongside transparency efforts, with resulting legal action.
And equal pay claims can be costly. In the UK, in the last two years alone, the reported bills for three major group equal pay cases have been estimated to be up to £30m, £760m and £1.2bn for employers Next, Birmingham City Council and Asda respectively. These are the kind of sums that would make even Jeff Bezos wince.
Don’t wait for legislation
Compliance isn’t the only reason to get ahead of the global trend. Greater pay transparency can help to elevate employee experience, engagement and build a culture of trust, says Eva Jesmiatka, senior director, pay and career equity at WTW.
Research from WTW shows that alongside regulatory requirements, around half of employers are increasing pay transparency because it aligns with their company values and supports their DEI agenda. Employers told researchers that it helps them respond to employee expectations as more people are actively looking for greater pay transparency.
Jesmiatka says: “Organisations who are early movers have reported the positive impacts they have seen in their employee engagement scores and they received less questions than expected from employees.”
There are, of course, pitfalls to avoid too.
For example, don’t limit pay transparency efforts to just the reward team, says Iremonger.
“It is a transformation for all of HR, necessitating a shift in mindset not just around rewarding employees, but also how the company interacts with employees and manages their performance.”
Reward management can be technical, says Jesmiatka, so it’s important to keep communication around it simple. This will ensure it’s accessible to different audiences and avoids information overload.
It’s no surprise that employers are being cautious as these changes represent quite a shift in thinking. In the UK, there has always been a culture of pay setting happening behind closed doors, but I think pay transparency is getting better, says Nebel Crowhurst, chief people officer and chief appreciation officer at Reward Gateway.
The employer is transparent on pay when recruiting, and open and honest about being a median pay range organisation, Crowhurst says.
She says that an employer with a low end pay workforce, perhaps front line retail staff, that puts in a discounting platform for everyday items like groceries all the way through to luxuries like holidays could be providing people with around a 3 percent pay increase.
“While it is not in their pay packet, what you’re doing is giving them a mechanism to be able to make their money go further,” she adds.
Benefits like this are important for understanding the bigger picture and need to be part of transparency conversations.
Manager power
Manager education is key, when dealing with greater transparency, says Jesmiatka. They need to be equipped to talk to direct reports about pay and how it is managed. This includes understanding the underlying frameworks used to manage pay in the organisation and the factors that contribute to pay progression, such as performance and competence.
Iremonger agrees. “Managers will be at the forefront of ensuring that employees understand their pay and the impact of their performance. We know that managers often feel squeezed by the needs of employees and senior leaders, and so without manager buy-in, any HR action won’t have the desired effect.”
Communication strategies which work best should consider line manager experience and comfort levels in discussing pay, explains Gibbs. This way training is relevant and respects their busy schedules.
“It’s also important to remember that line managers are, first and foremost, employees and they will initially focus on what pay transparency means for them. In my experience, you can’t make progress without directly addressing these implicit concerns first.”
Another key consideration is how biases impact people’s assumptions about pay and fairness, adds Gibbs.
“Pay is personal and even when two people earn the same, they may well perceive their pay differently due to many factors beyond their gross income,” she says.
Line up your data ducks
Pay gap reporting beyond gender requires employees to willingly provide their demographic data. Iremonger says that while many UK employers are beginning to collect this information, response rates vary significantly.
“Often this data is most easily gathered in recruitment where it is administratively simple for candidates and employees to provide demographic data. For organisations with high turnover, response rates are therefore often higher.
“However, we also see low demographic response rates driven by a lack of trust in the employer, or transparency around the use for the data.”
Employers can build trust by communicating “more clearly” about how they are using available data to enhance demographic data, she says.
Increased reporting requirements mean companies will need to run additional analytics.
In the UK, this will mostly relate to extra demographic factors, says Jesmiatka
“But for the EU, companies will need to have the ability to calculate pay gaps for total pay (basic pay and complementary pay, including benefits) and run more advanced analytics to define if gaps can be explained with objective reasons.”
Iremonger adds: “Dry runs of future pay gap reporting, and broadening pay equity analysis ensure that clients are tackling issues head on before there is a reporting requirement.”
Many employers hesitate to analyse incomplete data, but leveraging available data is crucial for addressing gaps and supporting diversity, she says.
“By understanding the available employee data, organisations can demonstrate the value of data sharing to their workforce and prioritise DEI initiatives where they are most needed.”
What does success look like?
There are many ways to measure success, says Gibbs.
“In my experience, asking people if they feel fairly paid is least likely to provide any meaningful information. Using KPIs and monitoring progress over time will determine if there has been success. Things I would ask employees include how well they understand their pay and the processes involved (E.G. for obtaining increases). I would also look at offer acceptance rates and time to hire. The key metric should be improvements in gender pay gap reporting although that can be impacted by other things than just pay and associated elements.”
She adds that one of her clients implemented full transparency and went from an unknown organisation to an employer of choice overnight.
“The quality of candidates improved immediately and their hiring processes were significantly shorter. They couldn’t have been happier.”
