How UK Companies Can Prepare for the EU Pay Transparency Directive
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How UK Companies Can Prepare for the EU Pay Transparency Directive
With the trend of pay transparency sweeping across the globe, the European Union is making waves on the announcement of their big directive. But since the UK is no longer part of the EU... does it really matter?
Short answer: Yes.
Even if this legislation is not yet mandated in the UK, it's wise for businesses to start preparing now. Especially with policy-making harmonization happening worldwide, staying ahead of the curve is crucial.
But don’t panic, our expert compensation team is here to break down the key information you need to know now!
In this article we are answering some common questions:
- Will UK companies be affected by the EU Pay Transparency Directive? Even with Brexit?
- How is the EU Pay Transparency Directive different than the already existing Gender Pay Gap Reporting? What is the EU Pay Transparency Directive?
- When should companies in the UK begin to prepare?
- What are some actions that companies the UK should to take to prepare?
Will UK companies be affected by the EU Pay Transparency Directive?
You may be thinking, "lucky for us we know how to do the Gender Pay Gap Reporting and don’t have to worry about transparency like our neighbours."
Sorry to break it to you, but that’s not the case and here’s why:
- If you have employees in the EU? You will be impacted.
- If you want to remain competitive and attract top talent? You should go for transparency on job descriptions.
- If you want to reduce your Gender Pay Gap once and for all? You should go for full transparency.
And finally, if you know how global trends and pressure work, you know that soon these regulations will come into play in some form in the UK…
Now that we’ve got that covered, let’s dive into what this really means.
How the EU Pay Transparency Directive is different than the Gender Pay Gap Reporting?
This is a big one. Let’s start with the “easier” question: What is the EU Pay Transparency Directive?
What is the EU Pay Transparency Directive?
We go into detail in this article here for you, but to give the simplified response:
- Pay secrecy is BANNED! Transparency is non-optional for both seekers and workers.
- Gender-neutral everything - from pay structures to classification & evaluation systems.
- Burden of proof is on you as the employer (if an employee feels that there was discrimination).
- Right to information for workers.
- Mandatory pay gap reporting for companies of over 100 employees & assessments for over a 5% non-justified gender pay gap.
- Sanctions for not complying with the directives that may include large fines (based on the state).
Differences between the EU Pay Transparency Directive and the Gender Pay Gap Reporting in the UK
Now the EU Pay Transparency Directive and Gender Pay Gap Reporting DO have similar goals of addressing and reducing pay disparities, but there are some key differences between them like the depth of requirements, companies impacted, and frequency.
#1 The depth of requirements
TLDR: More action, more requirements, and more inclusivity.
The Gender Pay Gap Reporting focuses on reporting the difference in average pay between men and women, the EU Pay Transparency Directive requires companies to provide more detailed information about their pay structures and more transparency.
- This includes what was listed above like transparency for job seekers and workers, right to information, burden of proof etc.
Figures tip: even if it isn’t required, we think that salaries should be transparent. Learn why using the term “competitive salary” is actually hurting your hiring process!
In addition to that, the EU Pay Transparency Directive applies to all employees, regardless of gender, whereas Gender Pay Gap Reporting only focuses on gender.
- This means that the EU Pay Transparency Directive may help to address pay disparities that affect other underrepresented groups, such as people with disabilities or individuals from ethnic minority backgrounds.
#2 Companies impacted
TLDR: More companies (of smaller sizes) will fall under this directive, not just 250+.
Gender Pay Gap Reporting requires UK companies with 250 or more employees to report their gender pay gap data on an annual basis.
In comparison, this sounds easy-peasy compared to the requirements for the new directive…
As of April 2023, some of the main highlights of the EU Pay Transparency Directive:
- Article 6: Employers with 50 or more employers must make easily accessible to employees what the criteria are for pay, pay levels and opportunities for advancement. These criteria must be objective and gender neutral.
- Article 8: Reporting obligation for employers on several indicators, in particular their Gender Pay Gap. This reporting obligation is to be introduced in stages, depending on the size of the company. For example, for companies with 100 employees or more, the reporting obligation would arise for the first time five years after the directive is transposed into national law and every three years thereafter.
- Article 9: Employers subject to the reporting requirements of Article 8 would be obliged, in cooperation with their employee representatives, to conduct a joint wage and salary evaluation if all of the following conditions are met: Non-justified pay gender pay gap of 5% or more (+ must be remedied within 6 months after the submission of the report in Article 8).
#3 Frequency of reporting
TLDR: It’s not just annually, and it’s not so fun to plan when.
Gender Pay Gap Reporting applies only to the specific company type listed above on an annual basis.
As seen above, for the EU Pay Transparency Directive… it’s not so easy. Reporting frequency based on company size and number of years of the directive, and remedies for pay gaps on a 6 month basis.
- As the directive is evolving and will be up to each country to implement, we recommend that companies prepare for more frequent reporting and have a dedicated person on their team to ensure that they are up to date with the deadlines.
Warning: if you have employees in the UK and EU, these different reporting requirements will be a nightmare. The best way to prepare is by having your data updated in real-time and easily accessible to your team, Figures can help with that! Learn how by reaching out to our team.
When should companies in the UK begin to prepare?
Yesterday.
Now.
Tomorrow.
The day after tomorrow...
Let’s look into some positives and negatives:
- Good news for workers and employees: the push for pay transparency & measures to reduce pay gaps are here and here to stay.
- Bad news for companies who don’t have their compensation strategy structured: you’re going to open pandoras box.
- Good news for companies looking to prepare: it’s not too late to get your compensation strategy fair & ready.
- EXTRA Good news: Figures is here to guide you through that process
What are some actions that companies the UK should to take to prepare for transparency?
You may have your Gender Pay Gap down pat, but what about transparency? Here’s what you can do to prepare:
#1 Dive into your current compensation approach.
This includes:
- Looking at pay inequity (PSST you can do that on the Figures app, reach out to our team to try it yourself)
- Checking for gender pay gaps.
- Reflecting on the way your team makes compensation decisions like making sure you have a compensation philosophy
Unless you have had structure from Day 1 and stuck with it, typically this step can feel overwhelming but don’t let that discourage you.
What are some things that can help?
- Getting the support of your leadership.
- Taking it step by step, diving the work and setting reasonable expectations given your resources.
- Reminding yourself that it’s a journey.
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#2 Create salary bands
Typically creating effective salary bands is a time-consuming process, but it is worth it for the benefits it brings, including increased employee retention and engagement, pay equity, and the ability to maintain competitive salaries.
But soon the days of painful excel spreadsheets are over, Figures is working on a Salary Bands feature that will make the process easier and less painful.
#3 Internal training and communication
Behind the scenes you can do everything right, but unless your team feels comfortable talking about it, it's not impactful.
- Provide your hiring team, recruiters, and managers with training to feel comfortable discussing compensation.
- Rework your internal communication processes. Learn how to communicate compensation decisions to employees.
Conclusion
While the Gender Pay Gap Reporting has been in place in the UK for a few years, the EU Pay Transparency Directive is a new legislation that takes a broader and more detailed approach to address pay disparities.
Companies should prepare for this new legislation by conducting a gender pay gap analysis, reviewing and updating their pay structures, implementing pay transparency policies, and training their managers on pay transparency.
Don’t wait until the last minute - use Figures to get ready now!
What else is in the EU Pay Transparency Series?
- Does transparency really end the gender pay gap?
- Pay Transparency Movement: EU v. US
- Should you use “competitive salary” in your job descriptions?
- The power of pay transparency
- What is a compensation philosophy and how to set it up
- (COMING SOON) Ask Figures: how can I best prepare for the pay transparency directive?
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