The EU Pay Transparency Directive (which comes into force from 2024) aims to bolster equal pay protection across the EU with important new measures which employers, including UK employers, should be aware of.

What is it? 

In 2021, a proposal was made by the European Commission for a new EU Directive (the “EU Pay Transparency Directive”) which aims to strengthen the application of the principal of “equal pay for equal work” across EU member states. More recently, the European Parliament has backed these binding pay-transparency measures, with Members of European Parliament (MEPs) demanding that the draft Directive is strengthened even further before implementation. 

While implementation is not likely to occur until 2024, it is something that employers should be aware of, and begin planning for, as it includes the following changes:

• Greater transparency for job seekers – job applicants will have the right to receive information about the initial pay level for the role they are applying for or its range, based on objective, gender-neutral criteria. Such information must be indicated in a published job vacancy notice or otherwise provided to the applicant prior to the job interview, without the applicant having to request it. Employers should start thinking about how to amend their recruitment processes to ensure the correct information is provided.
• Candidates cannot be asked about pay history – in order to ensure that pay inequalities are not “baked in” at the hiring stage, employers will not be able to ask candidates what they are paid in their current role (or previous roles). Employers should consider amending policies and procedures and updating training for hiring managers to ensure that this does not occur.
• The right to request pay information –  workers will be entitled (on an annual basis) to request information from their employer regarding their individual pay level and the average pay levels, broken down by sex, for categories of workers doing the same work as them or work of equal value to theirs. Employers should prepare to be able to categorise their staff in this manner and to run the data, in preparation for such requests.
• Reduced threshold for disclosure obligations – employers with at least 50 employees must report publicly some statistical data on the company’s gender pay gap. Many companies will already be reporting their gender pay gap but this requirement is more stringent than the current UK rules (which require employers with 250+ employees in the UK to report their gender pay gap).
• Requirement for a pay assessment –  where reporting reveals a gender pay gap of at least 2.5% and the employer cannot justify such difference in average pay level by objective gender-neutral factors, employers will have to carry out a pay assessment in cooperation with workers' representatives. Employers may want to take steps now to understand their gender pay gap and start to work towards improving this, if they are not doing so already. For companies with pay gaps of 2.5%+, they should consider undertaking pay assessments now and starting to improve their figures so that they have a positive message to provide to candidates and staff.
• Prohibit pay secrecy –  MEPs have also proposed the prohibition of pay secrecy, via measures forbidding contractual terms that restrict workers from disclosing information about their pay, or from seeking information about the same or other categories of workers’ pay. Such provisions are already banned in the UK.
• Shift of burden of proof and limitation period –  MEPs have re-affirmed the European Commission’s proposal to shift the burden of proof in equal pay claims. In cases where a worker feels that the principle of equal pay has not been applied and takes the case to court, national legislation should oblige the employer to prove that there has been no discrimination. It will also increase the limitation period that a worker has to bring a claim for infringement of any of the equal pay obligations to three years. The current time limit in the UK is six months from the end of employment.
• Career progression – employers will have to make accessible to its workers a description of the criteria used to determine pay levels and career progression for workers. These criteria must be gender neutral.

Why does it matter for UK employers, following Brexit? 

Although the EU Pay Transparency Directive will not apply in the UK following Brexit, it is still likely to be relevant for UK employers with operations across Europe and employers may  wish to retain consistency across their UK and European operations. While there are already equal pay measures within UK legislation and gender pay gap reporting obligations for employers with 250+ employees, the proposed new Directive goes further and employers will have to do even more in order to align with EU standards and societal expectations.

Given claims that progress on equal pay has slowed and the fact that the UK gender pay gap remains one of the highest in Europe, it is possible that the UK Government will start to face increased pressure to bring UK legislation in line with the EU, to ensure further progress is made. At which point, it might look to the measures introduced by the Directive. Employers who have already implemented these measures voluntarily will therefore not only achieve consistency but also be ready, if and when the UK follows suit.

If you would like to discuss equal pay audits and advice, please contact your usual member of our team or Kathryn Dooks.