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EU adopts Pay Transparency Directive to boost workplace gender pay equality

Global Employer Services | Reward & Mobility Alert

On 30 March the European Parliament adopted the Pay Transparency Directive. This Directive aims to ensure that women and men in the European Union are paid equally for equal work or work of equal value by focusing on transparency and enforcement.

The right to gender pay equality has been a founding principle of the European Union since the Treaty of Rome in 1957, but accelerating the gender pay gap closure remains a major challenge as across the European Union it still stands at around 13%.

How will the Directive bolster equal pay protection?

The Directive applies to employers in the public and private sector and it applies to applicants for employment as well as all workers who have an employment contract or employment relationship as defined by law, practice or case law.

1. Transparency measures

The Directive aims to increase transparency on pay to make it easier for workers to have access to pay data enabling them to assess whether they are being paid fairly compared to their peers and expose possible pay gaps. Pay transparency will have to be already assured during the hiring process as employers must provide information about the initial pay level or its range in the job vacancy or before the job interview. Moreover, employers will no longer be allowed to ask job applicants about their pay history. Second, workers will have the right to request information from their employer on their average pay levels, broken down by sex, for categories of workers performing equal or equal value work. Third, employers with at least 250 workers will have to annually publish information on the pay gap between female and male workers. For companies with 149 to 249 workers it will be required only every 3 years. The threshold for this obligation will be lowered over time. If the disclosure requirement shows that there is a gender pay gap of at least 5% and the employer cannot justify that gap on basis of objective, gender-neutral factors, employers will have to carry out a joint pay assessment in cooperation with workers’ representatives.

2. Enforcement measures

The Directive also introduces a number of enforcement measures to ensure better access to justice for victims of pay discrimination. First, the member states must enable workers who have suffered gender-based pay discrimination to claim compensation for the lower pay that they received based on their gender. This compensation includes full recovery of back pay and related bonuses or payments in kind.

Second, the burden of proof will be on the employer to prove that there is no pay discrimination, especially if the employer would have not complied with its transparency requirements. Third, it is up to the member states to establish proportionate and dissuasive penalties for employers that infringe the equal pay rules, including fines. Finally, it has to be facilitated that equality bodies and workers’ representatives may act on behalf of workers in proceedings and can take the lead in collective actions on equal pay.

The proposal will now have to be approved by the Council. The Directive will enter into force 20 days after publication in the Official Journal and member states will then need to transpose the new elements of the Directive into national law within a 3 year period.

What to do?

Employers will need to act on these changes as some might have substantial impact on current practices and processes and will need sufficient time for planning and implementation.

To comply with the EU Pay Transparency Directive, we recommend taking the following actions:

Look at your job design and job evaluation system

Employers should be able to objectively compare jobs of equal value and run the data in preparation for pay transparency requests. A robust job architecture and evaluation will be fundamental when looking at the EU pay Directive

  • Remove any bias from job titles and descriptions
  • Provide a fair and robust process for evaluating changed jobs and quality check this on a regular basis
  • Make periodic checks to ensure adequate rationales are being kept
  • Monitor the outcome of ongoing evaluations for new and changed jobs by gender, investigating and justifying any differences
Look at your recruiting process

Employers should start thinking about how to amend their recruitment processes to ensure:

  • Offers can no longer be made based on (closely) matching the rewards package of previous employer(s).
  • The proper amount & correct information is provided.
  • Amending template contracts, policies and procedures and updating training for hiring managers to ensure full compliance.
Look at your base and variable pay systems

Employers with pay gaps of +5% should consider undertaking pay assessments now and start improving their figures so that they have an aligned and positive message to provide to candidates, staff and society once disclosures measures are in place.

  • Define individual potential pay gaps (outliers) and investigate the qualitative explanations for pay variations
  • Decide on changes in (i) the performance review cycle, (ii) salary bandings or (iii) job evaluations
  • Assess the impact for the employee and your organization in the short and mid-term
Look at your documentation and communication

Employers should start thinking about robust documentation of pay decisions and how to disclose and report out on fair pay matters and the right level of information towards:

  • Your employees and union representatives in an efficient (digitally-enabled) way, avoiding lots of individual questions (and potential court cases).
  • The government when more details are asked on pay policies, practices & procedures, ensuring full compliance.

The relevant stakeholders & broader society on your fair pay strategy and broader diversity, equity and inclusion initiatives.

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