EU Pay Transparency: 1000 days to go

In this blog series, we discuss transparency in the (in)equality of pay between men and women and the different topics which are important for companies to prepare for.

In this first blog, we explain the current legislation and the European Pay Transparency Directive. This directive is aimed at promoting equal pay for men and women who perform equal work or work of equal value and shapes future legislation and regulations in the Netherlands. Since 2019, a bill has been on hold to solve the current challenges in legislation in the Netherlands. 

Current laws and regulations

The Dutch landscape of transparency on equal pay currently exists of  a transparency obligation for companies with at least 100 employees and the right to equal treatment.  

Current transparency obligation

Companies employing at least 100 people are required annually to discuss the reward data and the development of pay ratios compared to the previous year during the consultation meeting with the works council. This is laid down in Article 23(2) of the Works Councils Act (hereinafter referred to as 'the WCA').  

Previously, works councils ( could already request information about reward data on the basis of Article 31d of the WCA, and since January 2019 it has been a mandatory subject of consultation. This emphasizes the importance of opening  this topic up  for discussion. This should have removed any barriers for works councils  to put this subject on the agenda  . 

Current right to equal treatment 

Since 1997, following Article 7:646(1) of the Dutch Civil Code, an employer may not discriminate between men and women regarding terms of employment, including reward. 

Articles 7 to 9 of the Equal Treatment of Men and Women Act contain a further elaboration of the equal treatment of men and women regarding pay. These articles describe the so-called 'reference person method' (in Dutch 'maatmanmethode') to determine whether an employer complies with the equal pay principle. For example, if an employee goes to the Netherlands Institute for Human Rights (hereinafter referred to as 'the Institute'), this method will be used to assess whether there has been made a so called prohibited distinction.  

The reference person method consists of three steps:

1. Appointing a 'reference person' | The employee who claims to have been disadvantaged is to designate a colleague of the opposite sex, who works or has worked within the same company. This designated colleague earns more  for ‘work of equal value or, in the absence thereof, for ‘work of almost equal value'. Such a colleague of the opposite sex is called a 'reference person'. Once a reference person has been found, the second step is taken. 
2. Does the reference person earn more? | In addition to salary, employees have other terms of employment, such as pension, a company car, and holiday rights. This can make it difficult to compare employees with each other. For example, an employee may have a lower salary than her colleague because, unlike that colleague, she has a company car. On balance, there may then be equal pay. If an employee attributes a pay gap to discrimination, the principle is that 'package comparison' is not permitted. If it turns out that the ''reference person' (step 1) is paid more than the employee in question (step 2), then step 3 is taken: determining whether the pay difference is due to the application of equal or unequal standards?
3. Equal standards | Pay for work of (almost) equal value for men and women must be calculated based on equal standards. If there is a difference in pay, it is up to the employer to prove that this difference results from the equal application of the same sound pay criteria. If a pay system is unclear, the employer must prove that it is not discriminatory. If the employer fails to provide this evidence, it constitutes prohibited discrimination based on sex.

It is usually difficult for employees to properly substantiate a "suspicion". They must proactively look for the ''reference person' colleague who is also willing to give up (her or) his salary and all other terms of employment. It is up to the employee to present facts that may suggest unequal pay based on sex. Only if the employee succeeds in doing so, it is up to the employer to prove that   there has been no violation of the equal treatment legislation.  

The legislative proposal and the European Pay Transparency Directive

Current legislation has too few instruments to combat unequal pay. That is why a change is needed. The focus is too much on the employee, making unequal pay a problem of the individual, rather than a problem of the company or society as a whole.  

The legislative proposal for the Equal Pay of Women and Men Act of 7 March 2019 contains the following five key instruments:

1. Certification | A certification system should be introduced, making it compulsory to provide figures on the salaries of employees every three years.   
2. Burden of proof increased | Companies with at least 250 employees must obtain a certificate showing that they pay women and men equally. If they fail to obtain the certificate, wage discrimination is presumed. This makes it easier for individual employees to prove that there is wage discrimination so that they can start proceedings against the employer. The employer is given the opportunity to improve the situation. If no action is taken, the Netherlands Labour Authority can impose an administrative fine of the fifth category (maximum € 103,000), with the possibility of an increase in the fine in the event of recidivism. 
3. Obligation to provide information | Companies with at least 50 employees will be obliged to provide information about the pay gap between women and men in comparable positions to the works council and in the management report.   
4. Duty of inspection | Employers must provide pay data of similar positions to employees upon request. 
5. Complaints procedure | In the event of inexplicable wage differences, employees can file a complaint with the employer and, if necessary, with the Institute. 

The Netherlands Labour Authority will be the supervisory authority and the Minister of Social Affairs and Employment will have the statutory task of informing parliament every two years about developments in the Pay gap in the Netherlands.

What does the European Pay Transparency Directive say?

The European Pay Transparency Directive has followed the recommendations of the European Commission from 2014 and this should "help to better and more effectively implement the principle of equal pay in order to combat pay discrimination and contribute to closing the persistent gender pay gap". 

The aim of this proposal is to promote equal pay for men and women engaged in equal work or work of equal value. The European Pay Transparency Directive includes measures to improve pay transparency and strengthen the enforcement of these rules.

It lays down minimum requirements to strengthen the application of the principle of equal pay and the prohibition of discrimination on grounds of sex: 

1. Application Policy | Employers should proactively state the starting scale or starting level of compensation associated with the position before an interview. The employer may provide this information, for example, in the job advertisement or in the invitation to the job interview. The employer may not ask applicants for the remuneration to which they were entitled in their previous employment relationships.
2. Pay Transparency | Employers must be transparent throughout the employment relationship and give their employees access to a description of the gender-neutral criteria used to determine workers' pay and career progression. Employees have a right to information that makes it possible to see pay differences.
3. Reporting | Employers who employ at least 250 employees will be required to publish annual information on the pay gap between male and female employees in their company. In addition to the base salary, this relates to possible differences in variable wage components, such as bonuses.

Employers should be able to justify pay gaps on the basis of objective and gender-neutral factors.  

If the pay report shows that there is a pay gap of at least 5% in a category of employees performing the same work or work of equal value and this difference cannot be justified, the employer must carry out a pay evaluation in cooperation with the employee representative body and take corrective measures.

What does this mean for you?

The future changes in the legislation on equal pay may mean that the company will have to introduce or revise a number of HR vision, HR policy documents and HR (data) processes.  

The initiative proposal for the Equal Pay of Women and Men Act introduces five core instruments; 

• Certification 
• Burden of proof increased
• Obligation to provide information
• Duty of inspection 
• Complaints procedure 

The European Pay Transparency Directive adds:

• Application Policy
• Pay transparency with possible explanation through gender-neutral and objective factors
• Reporting 

In preparation for the above, the following steps are advisable;