On 30 March 2023, the European parliament approved the text of the EU pay transparency directive. In this article, we highlight some of the key impacts of the directive on employers’ reward strategies. We are also hosting a webinar on this topic on 7 June. If you are interested in joining us, please register here.

What is it?

The EU pay transparency directive (the “directive”) seeks to address the persisting gender pay gap which exists across the European union, despite the long-established principle of equal pay.

The European Commission considers that the key to improving pay equity is through transparency. Consequently, the European Commission proposed the directive in 2021 with the aim of strengthening the principle of equal pay, introducing binding pay transparency measures upon member states and increasing the responsibility of employers to reduce the gender pay gap.   

These measures have now been confirmed and the directive is due to come into force in 2023, once it is officially signed into law. Member states will have three years to transpose the directive into national law. However, given the potential impact on reward strategy, employers would be well advised to begin their preparations now.

What are the approved measures?

These include:

• The approved text confirms greater transparency for job seekers and the right to receive information about initial pay levels prior to interview. 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 therefore start thinking about whether they have an appropriate job architecture in place to enable the employer to provide this detail and how to amend their recruitment processes to ensure the correct information is provided.

• The approved text confirms that 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 therefore consider amending policies and procedures and updating training for hiring managers to ensure that this does not occur.

• The approved text confirms the right for existing workers to request pay information for other workers in the organisation doing the same work or work of equal value. This includes 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 therefore prepare to be able to categorise their staff in this manner and to run the data, in preparation for such requests.

• The approved text confirms that pay secrecy will be banned and there should be no contractual terms that restrict workers from disclosing their pay or seeking pay information about the same or other categories of workers. Such provisions are already banned in the UK.

The approved text confirms that on pay related issues the burden of proof will shift from the worker to the employer where an employer does not comply with the pay transparency obligations set out in the directive (e.g. by refusing to provide information requested by the worker or not reporting on the gender pay gap where required to do so). This means that where a worker feels that the principle of equal pay has not been applied and brings a claim, national legislation should oblige the employer to prove that there has been no discrimination.

• The approved text confirms that employers with at least 100 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). This is different from the initial draft text proposed by the European Commission which sought this requirement to apply to employers with at least 50 employees.

Employers who are concerned about their gender pay gap may wish to review the gap today and take steps to start to improve the gap, before the obligation to report arises.

• The approved text confirms that where reporting reveals a gender pay gap of at least 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 (an equal pay audit) 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 5%+, they should consider undertaking pay assessments now with a view to starting to improve their figures so that they have a positive message to provide to candidates and staff. This is different from the initial draft text proposed by the European Commission which sought this requirement to apply where there was a gender pay gap of 2.5%.

There are also some other elements in the approved text to bring to your attention:

• A worker who has suffered harm as a result of an infringement will have the right to claim compensation and member states will have to put in place effective, proportionate, and dissuasive penalties, such as fines, for employers that infringe the rules.
  
  
• Intersectional discrimination will be considered an aggravating factor and this must be taken into account by member states when setting penalties for infringements of the principle of equal pay.
  
  
• The approved text confirms that non-binary or gender-neutral persons are included within the scope of the rules, where a member state allows for legal recognition of non-binary people.
  
  
• Employers with less than 50 employees will be exempt from the requirement to make accessible to workers the criteria used to determine pay levels and career progression.  

Final thoughts

Employers will need to be ready to comply with the requirements once they are implemented at the national level. One way they can do this is by considering their gender pay gap early and carrying out an equal pay audit. This will provide the opportunity to identify any equal pay risks before the new rules come into force and employers are required to publish gender pay gap information and consult with worker representatives. 

As pointed out in our previous post, while the directive is not applicable in the UK, it is relevant for employers in the UK with EU operations and UK employers who may wish to align with the EU requirements as a “gold standard”. It is also possible that given the overwhelming support the directive received from MEPs and recent reports of nearly 80% of UK employers continuing to pay men more than women despite the start of mandatory gender pay gap reporting in the UK six years ago, this will result in increased pressure on the UK Government to introduce similar measures.

For further details on the directive, you can sign up to attend our upcoming webinar. Otherwise, if you would like to discuss equal pay audits and advice, please contact your usual member of our team or Amy Douthwaite.