The legislative equal pay landscape

At the beginning of March the legislative equal pay for equal work was submitted by SP, GroenLinks, PvdA and 50PLUS. The implementation will lead to practical challenges for many companies. That is why it is important that you take action now to be well prepared.

What is ahead of you?

Equal pay laws have existed throughout the world in different forms for over 50 years. Nevertheless, the progress made is still insufficient and large pay gaps still exist between men and women. However, employers are not always aware of this. Therefore, a bill has been published on 7 March to expand awareness and to further level pay between men and women. Based on the proposed legislation, as an employer, you should not only provide insight into the pay levels of your employees but you may also be confronted with legal action with huge potential financial and reputational implications.

Important issues included in the proposed legislation

Equal pay for equal work
Burden of proof on the employer
Certification process for companies with more then fifty employees valid for three years
Certificates are kept in a public register
If there is unequal pay, the employer is required to provide an explanation and a plan of action
Significant fees of up to 250,000 euro per violation
Employees are allowed to have insight into the wages of anonymized colleagues who perform work of equal value
The Social Affairs and Employment Inspectorate (SZW) becomes the supervisory authority

How is equal pay for equal work defined?

Based on the proposed legislation, companies will be obligated to report on pay ratios of base salary of women expressed in base salary of men for each employee category. Emulating the Icelandic model, companies will have to go through a certification process and will have to demonstrate that they provide equal pay for equal work. Companies should support their calculation with the following additional information on their employees:

Work experience (in years),
Appointment (hours per week),
Educational attainment,
Job level in accordance with job classification at the company.

What are the challenges that the proposed legislation brings along?

Governments often fall short in clearly defining requirements. More importantly, companies have come across great practical and financial burdens in trying to address those requirements. In Iceland, whose legislation is the basis of the Dutch proposal, companies struggled to meet required deadlines once the law took effect. The Dutch proposed legislation raises, among others, the following questions and challenges:

How well documented and available are the required data to obtain a certificate?

While digitalization is an inevitable trend of the future, many companies still struggle with consistently documenting all the required data for certification. Extracting data from payroll could be time consuming too. Moreover, it is very possible that not all required data is available in the payroll system. A HR system can support this process but at the same time, it can bring along large installation and implementation costs. Furthermore, it would take an investment in time to load all (historical) data into the system. In case of violation, your company will be required to draft an approved action plan to correct its equal pay for equal work status. This implies a well-documented history of the existing status in order to demonstrate what needs change.

How is equal pay for equal work defined and how easy would it be to calculate equal pay for equal work?

On the surface, equal pay for equal work is clearly defined in the proposed legislation. However, companies are moving towards different organization structures, often eliminating pay grades and hierarchies that up until now provide some structure in calculating equal pay for equal work across job classifications. Moreover, it is questionable whether pay grades are the right framework to use in measuring equal pay. Furthermore, the future workforce will desire much more flexibility. As a result, workers may have more temporary assignments at companies, perhaps even working for multiple employers. This introduces further difficulties for companies in correctly identifying not only salary levels but also benefits such as transportation subsidies and pension plans. Therefore, calculating and reporting equal pay for equal work will become even harder. Finally, there seems to be no minimum threshold your company should meet in order to become certified. Other countries with similar certification processes use a qualitative approach to determine whether a company should receive a certificate. As a result, being able to substantiate and properly explain possible differences in pay is essential to obtain certification.

Is the information companies are required to provide the right information to be able to pinpoint equal pay for equal work?

We see companies struggle to maintain their HR data structured and up-to-date, especially in a time where acquisitions and system implementations are following each other rapidly. Furthermore, while the intention of the proposed legislation is well founded, there are multiple other ways to demonstrate if you are paying fairly. Equal pay for equal work is only one metric in the equal pay landscape. The legislation still undermines other concepts such as equal opportunity, representation and pay ratios. Furthermore, in its current form, equal pay for equal work may be limiting.

We are of the opinion that the proposed legislation has many positive outlooks but may also raise further questions for the future workforce. Furthermore, the current hot topic focuses on gender but pay equality will take a broader focus in the future addressing issues such as sexual orientation, ethnicity and religion. Companies will benefit from being proactive and actively participating in shaping such legislation.

What steps are the precursors in the Netherlands currently taking?

Regardless of legislation, it is important to prepare for the future. If the Dutch government passes the proposed legislation, your company will have to demonstrate that equal work is rewarded equally. When there is understanding for equality, incomprehension lurks in the face of inequality. As such, your company can benefit from being proactive and give attention to the following:

Get your data in order

As reputation and legislation become increasingly important, so will transparency. Part of that is having the willingness and, more importantly, the ability to report on important topics. Your company will thus benefit from being proactive in properly documenting data that are relevant to topics such as equal pay. Furthermore, as company data is often personal data, it is important to have your data privacy protocols up-to-date.

Think past gender

The current hot topic in equal pay focuses on gender but it is much broader than this. It would be good to see equal pay in a broader context and involve issues such as sexual orientation, ethnicity and religion.

Create your own vision for equal pay

As there are countless ways of calculating equal pay, you have to determine how you wish to calculate it and which (HR) processes are associated with this. Furthermore, it helps to determine your own strategy of how to reach your vision of equal pay. Thus, instead of being reactive to (proposed) legislation, you can benefit from being proactive and shaping that legislation.

Educate and communicate the vision to your employees

One of the many stakeholders in this topic is undoubtedly the employees. The proposed legislation is largely driven by a desire to correct employees’ perception on how their employer compensates them. Even more crucially, employees may have a misperception about your company when, in fact, you are an ethically sound and legally compliant employer. It is thus crucial for employers to have control of such perception in order to retain, but also to attract talent. According to a 2016 Glassdoor gender pay gap report, in the Netherlands, 63% of employees state they would not work for a company that is known not to pay fairly.

Participate in the dialogue

Based on the Corporate Governance Code and the WOR (Wet op de OndernemingsRaad), the larger companies in the Netherlands are currently being encouraged to enter into an internal dialogue. To date, however, this only relates to the remuneration ratio between the director and the employee. Furthermore, new legislation driven from the new Shareholders’ Rights Directive companies now legally obliges companies to report their remuneration ratios. We recommend to extend this to pay equality and to ensure that a clear picture can be formed of what the acceptable differences are for your company and what is desired both externally and internally.

Equal pay laws align with two of the SDGs

Equal pay laws align with the two of the Sustainable Development Goals (SDGs) set by the UN: gender equality and reduced inequalities. In the Netherlands, companies have begun use selected SDGs to define their strategy. Furthermore, proposed legislation will require listed companies to be transparent in how they measure non-financial goals that determine executive remuneration. PwC can help your company measure equal pay for work, align with target SDGs and comply with proposed legislation regarding equal pay and executive remuneration.

How we can help you further

PwC can help with numerous activities around equal pay, from a broader HR perspective, such as:

Audits to measure equal pay (e.g. pay gaps, pay ratios), and assistance with respect to its reporting.
Designing and reviewing policies around diversity, performance and remuneration.
Analysing legal risk and advising on internal policies to mitigate these pay gap related risks going forward.
(Re)designing job frameworks, job grading and salary schemes.
(Re)designing performance and talent management frameworks.
Reviewing and optimising internal processes, communications and implementation support.
Training and coaching teams.