Pay Transparency, Pay Equity and Pay Gap Reporting - are you ready?

One of the key HR trends for 2024 and beyond is increased pay transparency, being driven by regulatory changes across the US, Canada, the EU, Australia and a number of other jurisdictions.

New measures in the EU will require employers with employees in an EU member state to undertake gender pay gap reporting across the EU for the first time and to adopt other pay transparency measures. Although EU member states have until June 2026 to implement the EU Pay Transparency Directive, employers should be starting preparations now, given the wide-ranging nature of the Directive, its cross-over with the Corporate Sustainability Reporting Directive and its impact on a series of key strategic areas for HR.

What is the EU Pay Transparency Directive (the “Directive”)?
 

The Directive is intended to bolster existing laws on equal pay and help reduce the gender pay gap across Europe.

Key measures include:

• Job seekers will have the right to receive information about the pay band for their role prior to interview
• Candidates cannot be asked about pay history
• Existing workers will have the right to information on their individual pay level and the average pay levels, broken down by sex, for categories of workers performing the same work as them or work of equal value to theirs.
• Pay secrecy will be banned
• Employers must ensure that female and male workers are paid equally for the same work or work of equal value. Pay structures should use objective and gender-neutral criteria agreed with workers’ representatives.
• Employers with at least 100 workers must report on the company's gender pay gap by categories of workers who perform like work or work of equal value (employers must report on variable pay elements and benefits in kind as well as basic pay).
• Where reporting reveals a gender pay gap of at least 5% which cannot be justified by objective, gender-neutral factors, employers will have to carry out a pay assessment in co-operation with worker representatives and remediate any unequal pay.

While the Directive is not applicable in relation to UK workers following Brexit, it is relevant for employers in the UK which have workers in an EU member state. In addition, UK employers may wish to align with the EU requirements as a matter of best practice. Finally, the Labour Party has indicated that it would introduce pay transparency laws in the UK in the event that it wins the next election and this is certainly a growing global trend.

What can employers be doing now?
 

This depends on the employer’s current maturity in this area.

• Job architecture: A consistent job architecture or job evaluation scheme across EU operations is essential as both the pay gap reporting by categories of worker and the publication of pay bands during recruitment are reliant on a sound job architecture.
• Pay gap reporting: Ensure you have appropriate processes, systems and governance in place to gather all the data required to undertake gender pay gap reporting. Begin to understand the drivers of pay within your organisation, using the “Adjusted Pay Gap” and a regression analysis
• Pay Equity audit: If you are concerned that you may have a pay gap of 5%+ for a category of worker, consider undertaking a “dummy run” of your gender pay gap report before you are required to do so by the Directive. This can be done under “legal privilege”, meaning that the results would not be disclosable, allowing you to remedy any equal pay issues prior to the introduction of the Directive and to start to reduce any pay gaps identified (which can take time).
• Reward strategy and pay bands: Consider the impact of the Directive on your Reward strategy – is the organisation ready for greater transparency on pay and progression?
• Recruitment / Talent Acquisition strategy and processes: How will the requirement to publish pay bands on job vacancies and the salary history ban impact your talent acquisition strategy and processes?

To hear a client’s perspective on undertaking their first adjusted pay gap analysis and how they are preparing for the EU Pay Transparency Directive, please contact us here.

For access to our recent webinar setting out the lessons we can learn from the US and the UK, as we prepare for the Directive (as employers in a number of US states are being required to publish pay bands in job adverts in the same way as under the Directive) contact us here.

What is the “Adjusted Pay Gap”? 

How can we help?

Our team of experienced pay transparency professionals are well-equipped to help you navigate the intricacies of the Directive. Our specialists can assist in various areas, including:

• Reviewing and/or implementing job architectures to facilitate the reporting and pay banding required by the Directive;
• Developing comprehensive pay transparency policies that comply with the Directive's requirements.
  
• Conducting gender pay gap analysis to identify pay discrepancies and develop strategies to address them.
• Reviewing existing pay structures and providing recommendations to ensure they are transparent and equitable.
• Conducting training sessions for HR professionals and line managers to ensure they are fully equipped to implement and comply with the Directive.