EU Pay Transparency Directive enters into force

23/05/23

The EU Pay Transparency Directive will enter into force on 6 June 2023 This directive sets out pay transparency measures, such as pay information for job seekers, a right to know the pay levels for workers doing the same work or work of equal value, as well as gender pay gap reporting obligations for companies with more than 100 employees (both public and private companies). EU member states will have three years to transpose the directive into national legislation.

On average the gender pay gap is 13 percent in the EU with significant variations across Member States. This gap has only decreased minimally over the last ten years. The gender pay gap is caused by various factors, such as gender stereotypes, the overrepresentation of women in low-paid service jobs and unequal sharing of care responsibilities. In addition, the gender pay gap is partly caused by direct and indirect gender-based pay discrimination (unequal pay). All those elements form complex challenges to achieving good quality jobs and equal pay for equal work or work of equal value and have long-term consequences such as a pension gap and the feminisation of poverty.

Even though gender discrimination is already prohibited, this prohibition has not had the intended effect of preventing gender-based pay discrimination. The fact is that general lack of transparency about pay levels within organisations perpetuates this and if people suspect discrimination, it is difficult to prove. This is where the EU Directive on pay transparency can play an important role.

The directive includes measures to:

improve pay transparency (also prior to employment) and employers with more than 50 workers need to inform their workers with the criteria that are used to determine pay levels and pay progression;,
ensure employers have pay structures to ensure equal pay for equal work or work of equal value, and
enable victims of discrimination to exercise their right to equal pay and claim full compensation (without an upper limit).

In addition to the obligations above that are applicable to all private and public employers in the EU, employers with more than 100 employees also have a reporting obligation on different aspects of gender pay gap.

For employers with more than 250 employees, the first reporting obligation is on 7 June 2027 and then every year thereafter;
For employers with 150 to 249 workers, the first reporting obligation is on 7 June 2027 and then every three years thereafter,
The reporting requirement for employers with more than 100 employees starts on 7 June 2031 and then every three years thereafter.

This reporting obligation relates to gender pay gap in salary as in variable components and relates to all workers. If the pay reporting demonstrates an unjustified and not remedied difference in average pay of more that five percent in any category of workers, a joint pay assessment with workers representatives shall be carried out.

Further, the Member States shall lay down the rules on effective, proportionate and dissuasive penalties applicable to infringements of the rights and obligations relating to the principle of equal pay. For public companies, the Member States shall include measures to ensure that, in the performance of public contracts or concessions, economic operators comply with their obligations relating to the principle of equal pay.

What does this mean for your organisation?

This Directive will have effect on all employers and on the total HR life cycle. We advise you now to review your recruiting process, job descriptions, job evaluation and total reward policies in view of gender neutral performance and pay criteria. This ensures that you have a timely understanding of what steps need to be taken to meet the directive obligations, provide transparency and have insight in the reportable subjects. Not starting on time can entail risks, not only for your attractiveness as an employer, but also financial and legal risks.

We will keep you updated on the legislative process.