In Australia, pay secrecy is often found to be a sensitive topic. You may have found yourself bound to an employment contract where you aren’t allowed to disclose your salary – these are pay secrecy clauses.
Pay secrecy clauses are particularly common in industries that offer bonuses or discretionary incentives. Some businesses use these clauses to differentiate pay amongst employees.
But are they legal in Australia?
The short answer here is no.
A recent bill was passed which seeks to ban pay secrecy clauses, meaning that employees will no longer be prohibited from disclosing details around their remuneration. In other words, employees have the right to openly discuss their pay.
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, in light of this recent ban, it’s important for businesses to steer away from pay secrecy territory altogether. In this article, we’ll go through the details of pay secrecy and what you can do as an employer to avoid penalties under the Fair Work Act.
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, the key takeaway here is that pay secrecy clauses will now be banned in Australia. This is consistent with the position in the United States of America and the United Kingdom. The US and UK did this in an attempt to decrease discrimination and disempowerment of employees.
What Are The Reforms?
As we mentioned above, the law was recently reformed to officially ban any pay secrecy clauses in employment contracts. So, there should be no restriction or prohibition on an employer’s disclosure of their pay or salary.
As an employer, it’s your obligation to ensure that no such restriction exists in your contracts (even through confidentiality clauses you might have!).
The Fair Work Legislation Amendment (Secure Jobs, Better Pay) Bill 2022 was passed on 2 December 2022. On 6 December, it received royal assent and is now the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022.
I’m An Employer – What Do I Do Now?
Following these changes, it’s best to have a legal professional review your employment contracts for you to ensure they do not include any pay secrecy clauses.
It’s also wise to consider whether you need to make any changes to your staff’s remuneration generally. For instance, you may wish to look closer into any issues with gender pay inequality in your workplace.
What Are The Disadvantages Of Pay Secrecy Clauses?
So, we know pay secrecy is officially banned in Australia, but it’s also important to understand why this decision came around. Pay secrecy causes a few issues with gender pay inequality and workplace discrimination generally – let’s go through the disadvantages of pay secrecy clauses below.
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.
Let’s look further into pay secrecy’s impact on the gender pay gap:
- In the public sector, where pay is transparent, the gender pay gap sits at 12.2%.
- In the private sector, where there is no requirement for pay transparency, there is a gender pay gap of 21.3%.
- So, there’s a 9.1% difference between the gender pay gaps in the public and private sector. It would be reasonable to state that pay secrecy clauses contribute significantly to these figures.
Understandably, there is a drive to remove pay secrecy and replace it with pay transparency, eradicating inequalities.
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.
Pay secrecy is a controversial topic. However, now that the law has come to a clear decision to ban it entirely, it’s important that business owners and employers understand what to do next.
If you have concerns or questions around pay secrecy, it’s a good idea to look into Fair Work. Otherwise, if you have any questions about other legal issues that your business might be experiencing, do not hesitate to contact us!
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