Pay is a sensitive topic for many, including the government, with various think tanks calling for greater transparency regarding pay structures and decision-making.
It’s important to note, that typically, pay is mandated by market rates. Beyond that, pay, once established, is set through negotiation between employers and employees based on metrics such as organisational and employee performance. This is in sharp contrast to, for example, roles such as GPs, who have clearly defined pay grades and nationally set pay awards.
However, as Lucy Gordon, a director at legal firm Walker Morris, explains, “From a legal perspective, there is no such thing as fair pay, only equal pay. This means that outside of negotiated pay agreements with a trade union, or national pay awards, pay is determined by the employer. It is up to the employer to decide what factors to take into account, whether this is inflation, RPI, or what their competitors are paying.”
She adds that once a baseline pay structure is in place, the employer simply has to ensure that the rate is equal to or above the national minimum wage, and that the structure does not discriminate.
Increasingly there is more innovation around reward offerings and employees tend to now be looking for the full package, rather than cold, hard cash. Indeed, the pandemic has forced many individuals to reassess priorities in terms of work/life balance, families and location.
There is no such thing as ‘fair’ pay, only equal pay
In an ideal world, Gordon thinks that pay should be more transparent than a one-on-one conversation as to how much employees have contributed over the past 12 months. But she says “pay awards that take into account the volume of hours worked or, for example, revenue generated, can feel unfair to employees who are restricted on hours due to caring commitments or a role which has no direct bearing on revenue creation.” In those circumstances, it could be better to link pay rises to appraisal scores.
The main issue for employers is to ensure that employees receive the national minimum wage (NMW) on average for the hours they work. But NMW law can be complex and a failure to pay it can result in claims for back pay, plus penalties of up to 200% of the underpayment, as well as being included on HMRC’s “named and shamed” list.
The government’s most recent list of employers who breached national minimum wage law, published in June 2023, found more than 200 firms who collectively faced nearly £7m in penalties – on top of which they had to reimburse workers for the lost pay over a decade. Not all breaches were deliberate and as the BBC reported, WH Smith, Marks & Spencer and Argos all said their breaches were unintentional. That aside, the government’s press release on the breaches noted that the penalties amounted to 200% of the monies owed.
While the NMW has been in place since 1999, the government is also taking steps towards enabling greater levels of pay transparency. In March 2022, it launched a pilot where participating employers listed salary details on job adverts and stopped asking candidates for salary history. The goal was to tackle pay inequality. The government’s view is that listing a salary range on a job advert provides a basis for women to negotiate pay.
A year on and Personnel Today reported on a survey by a software company, beqom, that found “almost two-thirds of UK employees would be happy to share pay details publicly if it meant better pay equity.”
Further, the publication highlighted a Glassdoor survey that found salary was the most important factor of a job advert for 68% of jobseekers which indicates that it makes business sense to share salary details at the beginning of the application process if an employer wants to attract talent.
The implications for employers is clear: pay fairly, transparently and within the law or risk being unable to attract and retain talent.