Pay Secrecy: Can You Tell Employees To Keep Their Salary Secret?

In the UK, you can direct your employees to not disclose their salary. This is known as ‘pay secrecy.’

However, you may not be able to enforce it under UK laws.

Employees are often prohibited from discussing their salary and remuneration through pay secrecy clauses in their employment contract. Pay secrecy clauses are particularly common in industries that offer bonuses or discretionary incentives. Some businesses use these clauses to differentiate pay amongst employees.

So, pay secrecy exists and it is actually quite common. But the law places certain restrictions around how it can be enforced in a contract.

Pay secrecy clauses reduce employee bargaining power and often result in economic disadvantage. Pay secrecy is also known to significantly extend the gender pay gap.

So, if you’re considering incorporating pay secrecy clauses into your employee contracts, it’s important to wrap your head around its legal restrictions.

Read on to learn more.

What Are Pay Secrecy Clauses?

Pay secrecy clauses prohibit your employees from discussing their salary and remuneration. These clauses often direct employees to not discuss their pay with their coworkers.

However, in the UK, these pay secrecy clauses are legally unenforceable. Under the Equality Act 2010, an employer cannot enforce a pay secrecy clause if the employee was discussing their pay for the purpose of finding out whether they were being paid differently to a colleague on the grounds of discrimination.

This was done in an attempt to decrease discrimination and disempowerment of employees.

Unfortunately, this kind of legal progression has not been seen elsewhere. For example, in 2015, Australia’s Gender Pay Gap Bill attempted to ban pay secrecy clauses, but it was unsuccessful.

Pay secrecy clauses act in the same manner as confidentiality clauses. Your employees’ pay is confidential between you and your employee, to the exclusion of all others.

What Are The Disadvantages Of Pay Secrecy Clauses?

Before you introduce pay secrecy clauses into your business, you should be aware of the disadvantages associated with pay secrecy. Incorporating pay secrecy into your employment contracts is ultimately your choice, but it’s important you know the risks involved.

1. Pay Secrecy Can Lead To Workplace Inequality

Pay secrecy can cause both actual and perceived inequality.

Actual inequality can arise when a business uses pay secrecy clauses to unfairly differentiate pay between employees, without the employees knowing.

Perceived inequality can arise when a business incorporates pay secrecy clauses into their employee contracts and, as a result, employees assume that pay inequality exists.

As a business owner, both actual and perceived inequality can be detrimental to your business’ standards and reputation.

Employees reasonably expect to be paid the same as coworkers who engage in the same work as they do. By withholding information through pay secrecy clauses, employees are likely to believe that this is due to unequal pay and unfairness within your business.

Pay secrecy is often associated with extending the gender and racial pay gap, as well as enabling workplace favouritism.

2. Pay Secrecy Can Decrease Motivation

Not only does pay secrecy permit an assumption of inequality, it may also decrease your employees’ motivation.

If your employees are under the impression that pay secrecy is amounting to unequal pay, it can have a direct negative impact on their motivation and job satisfaction levels.

Employee motivation stems from reward for efforts. If the employee is putting in significant effort and getting rewarded with pay that they’re not entirely sure is equal to their coworkers, their efforts may decrease.

Employees tend to compare their efforts and outcomes to those of their coworkers. This encourages and motivates employees to continue their efforts in your business. Pay secrecy creates a direct obstacle in achieving this motivation. When employees are unaware of others’ outcomes, such as pay, they’ll probably be less motivated.

3. Pay Secrecy Negatively Impacts Employee Culture

Most employees want to be recognised and appreciated by the business they work for. The business’ appreciation and respect for employees is often symbolised through pay, incentives and bonuses.

When pay is kept secret, especially incentive pay or bonuses, employees’ perception of the business’ respect and appreciation of them becomes blurred and unclear.

Withholding pay information often leads employees to question the motive behind the pay secrecy clause in their contract. Employees can assume that this is due to unfairness and inequality between employees’ pay. This creates a decrease in their trust and loyalty in the business.

Employee culture is super important in small and medium sized businesses. Pay secrecy can cause significant upset amongst employees and negatively affect your business’ reputation and employee culture.

Are There Any Advantages Of Pay Secrecy? 

Sure there are. However, it’s important to note that not many employers opt for pay secrecy clauses as it involves risks.

Having pay secrecy clauses in your employment contracts promotes unfair treatment of employees and an unhealthy work culture generally. More specifically, it can contribute to gender-based pay gaps.

Nonetheless, some employers may still choose to have them for a few reasons.

Let’s run through some of the key advantages of pay secrecy. 

1. Pay Secrecy Can Create Organisational Control and Less Conflict

Many private companies incorporate pay secrecy clauses into employee contracts to increase organisational control and limit conflict.

Essentially, their argument is that if someone doesn’t know they’re being paid less than their coworker, conflict can’t erupt.

Differences in pay can frequently cause conflict and awkwardness among employees. Pay secrecy bypasses this conflict altogether, as no one knows who’s being paid what.

2. Pay Secrecy Can Help Protect Employees’ Privacy

Pay secrecy clauses can be advantageous in ensuring your employees’ privacy.

How much somebody gets paid is generally considered to be personal and private information. Pay secrecy clauses certainly safeguard this idea.

While this may be an important factor to some, it may not align with the wishes of all your employees. Pay transparency may trump some employees’ value of privacy, so this is something your business will have to weigh up.

3. Pay Secrecy Gives The Employer An Advantage in Salary Negotiation

Pay secrecy strengthens a business’ position in negotiating employees’ salary and working conditions. It gives employers greater bargaining power when discussing an employees salary and work conditions. 

A consequence of this may be as follows:

Person A and person B could do the exact same job, though receive very different pay for their work. Ultimately it would be dependent on the employees’ negotiating skills as to what their salary and work conditions end up being. 

While, from a first glance, this increased bargaining power may seem advantageous to business owners, it’s important to acknowledge pay secrecy can add to the gender pay gap and create inequality.

So, when you’re considering the role of pay secrecy clauses in your organisation, don’t just think about the advantages it brings to you as the employer. This is a sensitive and nuanced issue. You should think about the long-term negative consequences pay secrecy could have on your workplace culture.

So, What Is The Alternative?

Pay transparency.

This is where pay secrecy clauses no longer exist. You could publish pay grades online, make them accessible though the interview process or display them through an accessible employee file.

Pay transparency allows your employees to be aware of how much they are getting paid in comparison to their coworkers and the market value.

Introducing pay transparency can boost the reputation of your business, limit the gender pay gap and provide greater opportunities for employees to enjoy equal bargaining power, appreciation and respect.

Recent Changes In Other Markets

Pay secrecy is generally a sensitive and controversial topic across the globe. In fact, pay secrecy clauses were recently banned in Australia.

As such, other countries are of the view that pay secrecy clauses should not be encouraged due to its ability to treat employees unfairly.

These changes in Australia could potentially lead to changes to how pay secrecy is regulated in the UK as well. So, your safest bet is to try and avoid having pay secrecy clauses in your contracts altogether.

Our lawyers are happy to review and redraft your contracts where required – reach out today for a no-obligations chat.

Conclusion 

Pay secrecy is a controversial topic.

When determining whether pay secrecy is something you should incorporate into your business, it is important to be aware of the risks involved.

Equally, when determining whether to remove pay secrecy from your business, you should be aware of the advantages you may be foregoing.

If you have any questions regarding pay secrecy, do not hesitate to contact us!

For a free, no-obligations chat, reach out to us at [email protected] or on 08081347754.

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