There are several perspectives on fairness at work. In pay terms, and from an organisation’s perspective, we identify three types:

• The fairness of pay outcomes– how employers allocate the pay budget (distributive justice).
• The fairness of the process used in making pay decisions (procedural justice).
• The quality of the treatment you get when your employer carries out its pay decisions (interactional justice).

All these can help create trust. This is because they signal to people that the employer respects and values its staff. If workers do not think their employer’s pay or benefits are fair, then they might decide to quit.

We explore other perspectives of fairness in our report The changing contours of fairness.

HR teams have an important role in defining what ‘fair’ means for their employer. In turn, this helps guide management’s reward decision making. For example, how much to contribute to a workplace pension. Sharing this definition with employees also shows:

• what they can expect from the organisation; and
• what it expects from them in return.

When disclosing pay data, publishing a narrative can help show the fairness of this information.

Unfair treatment of female workers resulted in the Equal Pay Act of 1970. This outlaws any less favourable treatment between men and women when it comes to pay and conditions of employment. It is now part of the Equality Act 2010 that applies in England, Scotland, and Wales.

The law gives a woman the right to the same pay as a man (and vice versa) when carrying out:

• Like work ─ two employees who are doing the same or similar roles, or
• Work rated as equivalent by analytical job evaluation study ─ an analytical job evaluation scheme gives the same rating to totally different jobs, or
• Work of equal value ─ when there are two very different jobs. But an employee claims that these need a similar level of skill and ability.

The right to make a claim under equal pay legislation applies to employees and to anyone with a contract to carry out any work personally.

Also, the Equality Act 2010 introduced legislation relating to pay secrecy clauses in employment contracts. These are now unenforceable. If an employee suffers any detriment from discussing their pay, this will be unlawful. It’s also unlawful to prevent or restrict workers from discussing their pay. However, this is just within an organisation. Outside the workplace, employers can still require employees to keep their pay confidential.

Unless an exception applies, any employer found guilty of pay discrimination must carry out an equal pay audit. The employer must publish the audit on its website and must leave it there for three years. If an employer fails to comply, a tribunal can impose a financial penalty.

The Equality and Human Rights Commission has published a range of guidance on all aspects of the Equality Act 2010, including a Code of practice on equal pay. Whilst not legally binding, it gives guidance on good practice and failure to follow it may be considered by tribunals or courts.

As well as gender, the law requires employers not to pay an employee less, or give them terms and conditions that put them at a disadvantage, because of their disability, race, religion, sexual orientation or another protected characteristic.

It’s essential to fairness to establish and understand levels of what we regard as high and low pay.

To protect the most vulnerable, the law requires employers to give workers a minimum rate of pay. In the UK:

• the National Minimum Wage applies to all workers aged 16 and over; and 
• the National Living Wage applies to those aged 23 or over.

In addition, almost 14,000 organisations have signed up to the voluntary 'real' Living Wage. This has been driven by considerations of fairness and employee financial wellbeing.

While UK law doesn’t cap the amount of money employers can give, large employers must disclose the amounts they pay their senior executives. In the banking sector, the legislation limiting the size of bonuses in relation to salary is being replaced.

In our report The view from below, we explored what employees thought about their CEO’s pay. Remuneration committees are now under pressure to address excessive executive pay.

Pay reporting aims to encourage employers to reward people fairly. By law, all large UK employers must disclose certain earnings data by gender. Large, listed firms must also disclose data comparing CEO remuneration with the pay of the rest of their workforce. In addition, there are also voluntary pay disclosure initiatives.

While it's optional for private and voluntary sector employers to issue a statement explaining the reasons behind their gender pay gaps, large, listed businesses must publish a narrative explaining their CEO pay ratios. These narratives can highlight the processes used to try to make sure pay decisions are fair, such as:

• Job evaluation to determine pay rates.
• Panels to review salary increase decisions made by line managers.
• Data to review pay outcomes. For example, analysing results by both gender and ethnicity to identify unexpected patterns.

HR information systems and data analytic capabilities can be costly. However, people professionals can make the case for investment based on the benefits it will bring. For instance, current and potential employees will be able to see that contributions are rewarded fairly. Investors will be able to identify that the right behaviours are being rewarded appropriately, while regulators will be able to check that remuneration is encouraging the right kinds of performance.

You can have a gender pay gap and still pay men and women fairly. The gender pay gap is calculated by taking all employees in an organisation and comparing the average pay between men and women. By contrast, equal pay looks at the difference in men and women’s pay for the same or similar work.

In the UK, the Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 requires all private and voluntary sector employers with 250 or more employees to report their gender pay gap, based on data collected on 5 April each year – the ‘snapshot’ date. 

The report must contain particular data and have a signed statement from a director, or equivalent, confirming its accuracy. Within a year of the snapshot date, this data must be published on:

• the organisation’s website and (if applicable) in its annual report; and
• the government’s gender pay gap reporting website.

Similar reporting requirements apply to public authorities. Though their snapshot date is 31 March. Again, they must report within 12 months of the snapshot date.

Not filing a report breaches the Equality Act 2010. This could prompt enforcement action by the Equality and Human Rights Commission.

Although not obligatory, the government expects most employers to include a narrative report alongside their figures to give relevant context to the data.

Our Gender pay gap reporting guide explains how to measure, report, communicate, and deal with a gender pay gap. We also published Lessons from reporting the gender pay gap.

Read the CIPD’s gender pay gap report.

The Companies (Miscellaneous Reporting) Regulations 2018 requires all publicly listed firms with more than 250 UK employees to publish the ratio between the total remuneration of their CEOs and:

• the full-time equivalent remuneration of their UK employees on the 25th, 
• 50th (median); and 
• 75th percentile. 

In other words, the company ranks its UK employees from highest to lowest paid. Identifies the 25th, 50th and 75th highest remuneration. And then compares this with the remuneration of its CEO.
Firms must also publish a supporting narrative to explain:

• The reasons for any year-to-year falls or increases in the ratios.
• Whether or not they believe the median ratio is consistent with the organisation’s wider policies on employee pay, reward, and progression.
• Which of the three permitted options it has used to calculate the ratio, and why it chose that option.

The firm must publish the data and the accompanying narrative in the company’s annual report, as part of the directors’ remuneration report.

The Department of Business, Energy and Industrial Strategy (BEIS) has published guidance on the regulations.

In addition, all listed firms (not just those with more than 250 people) must explain in their annual reports:

• How future share price increases could affect executive pay.
• Any discretion the remuneration committee has exercised in respect of share price appreciation or depreciation during the relevant performance periods.

The Financial Reporting Council’s Guidance on the Strategic Report covers everything that should be included in annual reports. For more on the pay reporting requirements and guidance, see our Corporate governance factsheet.

The UK Government launched a consultation on ethnicity pay reporting which closed in January 2019 – read our response.

In July 2020, the UK Government set up the Commission on Race and Ethnic Disparities to review inequality. Its March 2021 report recommended: all employers that choose to publish their ethnicity pay figures should also publish a diagnosis and action plan to lay out the reasons for and the strategy to improve any disparities. Reported ethnicity pay data should also be disaggregated by different ethnicities to provide the best information possible to facilitate change. Account should also be taken of small sample sizes in particular regions and smaller organisations.

To help organisations do this, the Department for Business, Energy and Industrial Strategy has produced guidance. This guidance reflects CIPD  guidance. We have used our guidance when disclosing CIPD pay data by ethnicity.

Read the CIPD's ethnicity pay report.

Contacts

Acas – Equal pay

Acas – Gender pay gap reporting

GOV.UK – Corporate governance: new reporting regulations

GOV.UK – Gender pay gap reporting

Books and reports

Armstrong, M. (2019) Armstrong's handbook of reward management practice: improving performance through reward. 6th ed. London: Kogan Page.

Choudary, K. and Sidney, C. (2023) Ethnicity Pay Gap Reporting: An investor briefing and toolkit. ShareAction.

House of Commons Library. (2022) The gender pay gap. Briefing paper.

Incomes Data Services (2017) Equal pay. Employment law handbook. London: Thomson Reuters.

Low Pay Commission. (2019) The National Living Wage: beyond2020. The Commission.

Perkins, S.J. and Jones, S.E. (2020) Reward management: alternatives, consequences and contexts. 4th ed. London: CIPD Kogan Page.

Rubenstein, M. (2020) Discrimination: a guide to the relevant case law. 33rd ed. London: Michael Rubenstein Publishing.

The Commission on Race and Ethnic Disaparities. (2021) The report of the Commission on Race and Ethnic Disparities. 31 March.

Visit the CIPD and Kogan Page Bookshop to see all our priced publications currently in print.

Journal articles

Brown, J. (2021) Experts lament ‘unnecessary delay’ as gender pay reporting extended by six months. People Management (online). 24 February.

Cotton, C. (2023) Private sector firms lag behind on pay transparency CIPD Voice. 8 December.

Margolis, D. and Parekh, R. (2019) What can businesses do to ensure equal pay? People Management (online). 26 March.

Owen, J. (2020) Gender pay gap falls to record low, ONS figures show. People Management (online). 5 November.

Owen, J. (2020) Quarter of large firms now calculating ethnicity pay gap, research suggests. People Management (online). 10 September.

Thomas, R. (2020) How to conduct an equal pay analysis. People Management (online). 25 February.

Willmott, B. (2020) Why ethnicity pay gap reporting has to be introduced. Blog. 24 June.

CIPD members can use our online journals to find articles from over 300 journal titles relevant to HR.

Members and People Management subscribers can see articles on the People Management website.