The Government’s Equal Pay and Pay Discrimination Consultation proposes a significant extension of pay equality obligations through a new duty requiring organisations involved in contracts with service providers to take ‘all reasonable steps’ to uphold pay equality in their contractual arrangements. The proposal is designed to address concerns that employers can currently avoid equal pay obligations by outsourcing services that were previously delivered in-house, but it could extend significantly beyond this.

One of the most striking aspects of the proposal is the breadth of the definition of ‘outsourcing’. The explanation suggests that the duty could apply to almost any arrangement where services or labour are supplied through an external provider, including complex subcontracting chains and situations where workers have never been employed directly by the commissioning organisation. 

In practice, this could mean that the proposal extends far beyond traditional outsourcing exercises. For example, it could apply where a social care provider contracts with a separate cleaning company to clean its offices. The social care provider and the cleaning company could both potentially be subject to a duty to take all reasonable steps to ensure that the cleaning staff receive equal pay for work of equal value when compared with the social care provider's staff, potentially even if the cleaning service has never been delivered in-house.   

It's important to note that under equal pay laws, work can be of equal value even if the work carried out by the comparator employee is of a completely different nature.  So even if the care provider employed no cleaning staff, they might employ someone in a different role which was of equal value.

This broad definition of ‘outsourcing’ could also potentially affect, for example:

• a school when contracting with an IT service provider;
• a social housing provider when contracting with builders to build houses;
• a charity when contracting for HR or health and safety advice;
• a local authority when contracting with accountants;
• a business contracting for the supply of catering services.

A one-off arrangement for a single specific event (e.g. catering for one event) is unlikely to be caught.

This creates a potentially wide-reaching compliance obligation for organisations that regularly engage third-party service providers.  It isn't clear what ‘reasonable steps’ means, but the consultation indicates that the size, resources and bargaining power of an organisation would be taken into account in looking at what is reasonable and that any requirements would be proportionate.  

One example given is that a medium-sized employer (defined as having around 100 employees) could be required to request pay and demographic data from other employers in the supply chain. Given the complexity of working out whether work is comparable for equal pay purposes, this proposal could impose significant burdens on employers.

The consultation also proposes that responsibility would not rest solely with the direct employer. Instead, principals, service providers and intermediaries within a supply chain could all be subject to the duty, depending on what would be considered reasonable in their particular circumstances.   

Importantly, any breach of the duty would not give individual workers a direct right to bring a tribunal claim. Instead, enforcement would sit with the proposed Equal Pay Regulatory and Enforcement Unit, which could investigate, use regulatory powers or bring claims before an Employment Tribunal. 

These proposals are also separate from, and in addition to, the strengthened ‘two-tier code’ provisions being introduced under the Employment Rights Act 2025. 

Organisations that outsource or contract for services may therefore face an increasingly complex compliance landscape and should consider engaging with the consultation process before proposals are finalised to raise concerns about the scope of and burdens imposed by this proposal. The consultation is due to close on 26 October 2026.

For more information or help with this, contact Doug Mullen.