What the push for pay transparency in the Fair Work Act means for employers

In September 2015, the Fair Work Amendment (Gender Pay Gap) Bill 2015 (the Bill) was introduced in the Senate by the Australian Greens. The Bill was recently considered by the Senate Education and Employment Legislation Committee, which will release a report in mid-November 2016.

The Bill proposes to insert a new section in the Fair Work Act 2009 (Cth) (FW Act) that will render any existing terms in a modern award, enterprise agreement or employment contract that prohibits an employee from disclosing their pay or earnings to be of no effect.

The objective of the legislation is to reduce the gender pay gap by allowing employees to discuss and talk about their salary with others. The Bill takes particular aim at the private sector where pay secrecy may lead to pay discrimination between employees.

It also seeks to stop employers from taking action against employees who has discussed their pay by rendering such terms in a modern award, enterprise agreement or employment contract to be of no effect. The Explanatory Memorandum states that it was not uncommon for employment contracts to contain “gag clauses” that require employees to keep their remuneration confidential and allow for disciplinary action to be taken against an employee who discloses it and/or breaches confidentiality.

The response to the Bill has been mixed, with a submission from the Workplace Gender Equality Agency noting that there was no evidence to link the removal of gag clauses with an increase in gender pay equity.

Supporters of pay transparency argue that it may build trust between employers and employees. For example, employees will be aware that they are remunerated fairly and equally regardless of gender, particularly where there is no distinction between the roles and duties of employees. Transparency in pay levels within an organisation may also allow employees to be aware of likely salary increases and be given an indication of how performance and promotion is rewarded.

On an industry level, greater knowledge about remuneration levels may assist women in the negotiation of their pay and conditions. The Explanatory Memorandum in particular noted that women are often in a disadvantaged position when negotiating their salary and conditions.

Equally however, allowing salary levels and pay rates to be general knowledge is fraught with some risk for employers.

For small business employers, where the size of the workforce is small, the sharing of pay rates among employees may cause disharmony. Disharmony could arise between employees where for example, Employee A uses Employee’s B salary (without B knowing) to negotiate a better salary, and Employee B finds out after the fact that Employee A is earning the same or more than they are. Similarly, pay transparency might give rise to workplace resentment when an employee discovers that they are remunerated the same as or similar to, another employee who they believe does not perform at the same level.

So what should employers do?

Remuneration and salary is often considered to be a private issue and employees themselves may not be willing to share their remuneration with their colleagues.

The best position for employers when setting salaries or wages for employees is to have sound and logical reasons (such as performance or underperformance, culture and behaviour) to explain why that salary or pay rate was set for a particular employee. This is particularly relevant when challenged by an employee who may hear rumours or are told what his/her colleague is being paid.

Certainly any decision to make salaries transparent must be carefully considered in terms of the implications for the entire workforce.