Everything you need to know about the new EU Pay Transparency directive
There’s no denying the buzz around pay transparency in 2024. In recent years, we’ve seen a huge push for transparency across Europe and North America, coming from employees, employers and local and national governments alike.
And the EU is no exception: a new directive that was adopted by the EU Council in 2023 will require companies across Europe to offer greater transparency to both employees and jobseekers, with a view to ending the gender pay gap once and for all.
In this article, we’ll take you through the who, what, where, when and why of this directive — including what you can do to prepare now.
What is the EU Pay transparency directive?
The EU pay transparency directive is a set of measures to increase pay transparency proposed by the EU in 2023. Its aim is to combat pay discrimination and reduce gender pay gaps across Europe.
An important semantic point: a ‘directive’ is simply a legislative act that sets out goals that EU countries must achieve. However, it’s up to individual countries to devise the laws that will help them reach these goals. That means that each country might interpret and adopt the rules slightly differently.
The pay transparency directive came into force in June 2023, after it was published in the Official Journal of the EU (OJEU). EU countries have three years from that date to ‘transpose’ the rules into national law.
Key terms to understand
Before we jump into talking about the directive in detail, there are a few key terms you’ll need to understand. Some of these have specific meanings as they relate to the directive, so it’s a good idea to have a look through this list if you’re not sure about anything.
Here we go:
- Equal pay: This is when workers are paid the same for doing the same work or work of ‘equal value’ (see below) regardless of their gender, race or other protected characteristics.
- Work of equal value: This is when two employees do not do the same job, but their work is similar in terms of skills, effort and responsibility. Under the directive, these employees will have to be paid equally, even if their job titles are different.
- Gender pay gap: This is the relative difference in global compensation between men and women. It can be calculated for mean or median pay.
- Non-adjusted gender pay gap: This compares the salaries of all men with the salaries of all women, regardless of their role, seniority or location. A large non-adjusted gender pay gap can be indicative of societal issues that aren’t necessarily related to salary discrimination. One example is the ‘glass ceiling’ effect, which contributes to the lower representation of women in higher-paying roles.
- Adjusted gender pay gap: This compares the salaries for men and women doing the same role in the same location. On average, there should be no gap between these salaries. If there is, it could be an indicator that salary discrimination is at play.
- Pay transparency: This is the practice of giving workers access to pay information, including the average pay for employees of a certain level in a certain location. In some contexts, it can also refer to companies being transparent about the processes they use to make pay decisions.
- Pay discrimination: This is when employers discriminate against employees by paying them less than others based on their gender, race or other protected characteristics.
- Workers: Defined by the directive, this doesn’t just refer to employees, but also gig workers and agency workers.
- Pay: This covers more than just basic salary, and might include elements such as bonuses, overtime pay, sick pay and occupational pensions.
Now, what is this salary transparency directive all about?
The EU pay transparency directive was originally put forth by the European Commission in 2021, with the goal of reducing gender pay gaps in Europe. Since then, it’s been officially adopted by EU Parliament, Council and Commission — meaning it’s GO TIME for companies to educate themselves and begin preparations.
So, what’s the directive all about? We can break down the contents into two key buckets:
- Pay transparency for workers, employers and jobseekers
- Better access to justice for victims of pay discrimination
Let’s take those one by one.
1. Pay transparency
The directive introduces several new rules regarding pay transparency that EU employers will have to abide by. Specifically, they include:
- Pay transparency for jobseekers: Employers will have to provide information about starting salaries to job applicants before the interview stage, usually by including this information in the job description. They also won’t be allowed to ask candidates about their job history.
- Right to information for all workers: Workers will be able to request information about average pay levels, broken down by sex, for employees doing the same work or work of ‘equal value’.
- Gender pay gap reporting: Companies with 250+ employees will have to report on their gender pay gap every year, and those with between 150–250 will have to report every three years. The directive also provides that the threshold will be lowered to 100 workers within three years of coming into force — so even small companies will have to get used to digging into their gender pay gap.
- Joint pay assessment and corrective action: If a company is found to have a gender pay gap of 5% or more, they’ll have to come up with an action plan to resolve it or conduct a joint pay assessment (JPA) with workers’ representatives.
- Scrutiny on pay levels and structures: Companies will need to be more transparent about how they make pay decisions, and they’ll need to be able to show that the criteria they use are objective and gender-neutral.
2. Access to justice
The directive also includes several provisions for the treatment of victims of pay discrimination:
- Compensation for workers: Workers who have been the victim of pay discrimination will have access to compensation, which could include full back pay including bonuses or payments in kind.
- Burden of proof shifts to the employer: Employers will have to prove that they have not violated the rules, rather than requiring employees to provide evidence of discrimination.
- Sanctions for discriminatory employers: There will be sanctions for employers found to have discriminated against employees, which could include fines. These will be determined by each member state.
- Provisions for intersectional discrimination: The directive also includes provisions for protecting employees from intersectional discrimination. This is the combination of multiple forms of discrimination, including discrimination on the basis of gender, ethnicity, sexuality, disability, etc.
Where will the new EU Pay transparency directive take effect?
All 27 of the EU’s member states will be required to adopt the rules set out in the directive. Although many jurisdictions already have their own mechanisms for pay transparency in place, they’ll need to check that they meet the new requirements.
What about companies in the UK?
Most UK companies won’t be directly affected by the directive. However, pay transparency is still an important topic that employers in the UK should pay attention to. If you’re interested, we recently published an article on the state of pay transparency in the UK — check it out here.
There’s also an important caveat that employers outside the EU should be aware of: Any company with 100 or more workers based in EU member states will need to comply with the legislation in the country where those workers are based. That means that UK companies could still be impacted by the directive, even though the UK is no longer part of the EU.
How will the EU pay transparency directive impact employers?
Employers in the EU will need to rethink their internal pay practices to ensure they’re in line with the new rules. For some companies, that might mean reevaluating the way they determine job levels for the purposes of setting pay. Under the new rules, the criteria for these must be gender-neutral and objective.
Employers will also need to prepare to meet their reporting requirements every year (or every three years for companies with between 100 and 250 employees). This can represent a significant administrative burden — so it’s important to start preparing now. Member states are expected to put in place tools or guidance to help employers in their country to meet these requirements.
What about employees and workers?
The directive will give workers across the EU much more access to information, both before and during employment. This has the potential to completely change the way that workers search for work and negotiate salaries.
Workers will also have the right to more protections from pay discrimination. The shift of the burden of proof from the worker to the employer is a particularly important factor that will make it easier for employees to seek compensation if they have been treated unfairly.
When will the EU pay transparency directive come into play?
EU member states have until June 2024 to transpose the directive into national law. Although they have to follow the basic guidelines outlined in the directive, they’re free to implement the rules as they see fit. That means there will almost definitely still be differences in how pay transparency is handled in each country.
What do you need to do now to prepare for the directive?
If you haven’t yet started getting ready for the directive to come into play, now’s the time to do it. The best place to begin is by building your compensation philosophy, if you don’t have one already. This is a high-level statement of your overall approach to compensation — and it can be useful in guiding your decisions going forward.
You should also use this time to review your existing compensation structures and the criteria you use to make decisions about pay. Once the directive is in force, there’s likely to be a lot more scrutiny on how companies manage compensation — so it’s much better to get your ducks in a row now than be hit by nasty surprises once 2026 rolls around.
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