The EU Pay Transparency Directive signals a significant shift in the employment landscape, ushering in a new era of pay equity and transparency. While the technical aspects of pay gap reporting are crucial, HR leaders must also recognise the significantly expanded role of worker representatives, particularly Works Councils, in this evolving landscape. This article provides an overview of the key changes and strategic implications for HR, emphasising the importance of proactive engagement and collaboration with Works Councils.
Through this article we have referred to Works Councils but the Directive uses the term "worker representative" so there may be other forms of representation depending on local legislation.
Understanding the Directive's impact on Works Councils
The Directive empowers the Works Council with enhanced mechanisms to mandate equal compensation and equitable treatment within the organisation. Here's a closer look at the key articles shaping this new dynamic:
Article 4: Shaping objective and gender-neutral pay criteria
According to Article 4 of the Pay Transparency Directive, employers are required to establish pay structures that facilitate an evaluation of whether employees are in similar situations regarding the value of their work, using objective, gender-neutral criteria. These objective and gender-neutral criteria should be agreed upon with the Works Council.
Contingent upon the existing rights of a Works Council within a jurisdiction, this could signify an expansion of the council's authority, necessitating employer preparedness. It will go beyond simply informing Works Councils about existing systems; it requires active involvement in shaping job evaluation frameworks, grading structures, and the very definition of "work of equal value." HR leaders must be prepared to engage in meaningful dialogue and consider the perspectives of Works Councils when designing and implementing these critical systems. If the Works Council is not involved in a timely and proper manner, it may lead to the invalidity of decisions made, potentially leading to disruption within the workplace.
Article 7: Right to receive pay information
According to Article 7 of the Directive, the Works Council is authorised to request, on behalf of employees, written information regarding their individual pay levels and the average pay levels, categorised by gender, for groups of employees engaged in the same or equivalent work. Aside from the potential legal expansion of the Works Council's entitlements in various jurisdictions, access to such confidential information fundamentally alters the landscape of operational transparency. Works Councils may potentially be empowered to independently examine pay practices and uncover any possible discrepancies. HR leaders should proactively consider how to implement this obligation. It is important to think in advance about how to share the information, how long to retain it, how to allocate the responsibilities of the works council in this context, etc. If this is not well-considered in advance or clear agreements are not made, an organisation risks the unauthorised dissemination of salary information within the company, which may include personal data.
Article 9: Gender pay gap reporting
As stipulated in Article 9, the employer is obligated to consult with the Works Council regarding the accuracy of the information used in the pay gap calculations. To effectively fulfil this role, it likely means that the Works Council needs to be involved in various ways. This includes understanding the methodologies used, challenging assumptions, and ensuring the accuracy of reported data. Additionally, the Works Council is entitled to ask clarifying questions to gain deeper insights into pay practices, policies, and factors contributing to pay gaps. Engaging in initial discussions with the Works Council on this subject is crucial. It is important to assess the ability of the Works Council to handle these complex issues and consider if training for the council or certain members is needed. Given that this consultation requirement is likely to become an annual obligation, especially for large enterprises, involving the Works Council from the start of a pay transparency project can be strategic. This approach reduces the likelihood of negative feedback from the council after the report is finalised and ready for release, especially with the tight deadlines involved.
Article 10: Joint pay assessment
Perhaps the most significant change introduced by the Directive is the right of Works Councils to request joint pay assessments (Article 10) when a pay gap of 5% or more is identified. These assessments are not merely symbolic exercises; they represent a formal investigation into the root causes of pay disparities (in effect, an equal pay audit) and require employers to actively collaborate with Works Councils to develop and implement solutions.
During a joint pay assessment, HR leaders should be prepared to:
- Openly share relevant data: Provide Works Councils with comprehensive access to pay data, job evaluations, performance review data, and any other information relevant to understanding the pay gap.
- Engage in collaborative analysis: Work together with Works Councils to analyse the data, identify potential contributing factors, and explore potential solutions.
- Develop actionable plans: Collaboratively develop concrete action plans to address any unjustified pay disparities, outlining specific steps, timelines, and responsibilities.
Strategic implications and opportunities for HR
The expanded role of Works Councils presents both challenges and opportunities for HR leaders. Here's how to navigate this new landscape strategically:
- Embrace proactive engagement: Don't wait for mandates or requests; proactively engage with Works Councils from the outset. Establish clear communication channels, foster open dialogue, and involve them in all stages of pay transparency initiatives.
- Invest in education and training: Provide comprehensive training to Works Councils on pay transparency concepts, methodologies, data interpretation, and relevant legal frameworks. This investment will pay dividends in terms of more informed and constructive dialogue.
- Prioritise data protection and privacy: When sharing pay information, exercise extreme caution to protect employee privacy. Anonymisation, aggregation, and secure data-sharing platforms are essential but note that Member States can elect to give Works Council's a right of access to personal data in some circumstances under Article 12(3) of the Directive.
- Foster a culture of transparency: Go beyond mere compliance and cultivate a genuine culture of transparency around pay practices. Communicate openly with employees and their representatives, address concerns promptly, and demonstrate a commitment to fairness.
The EU Pay Transparency Directive represents a pivotal moment in the evolution of workplace equity. By embracing the expanded role of Works Councils, HR leaders can navigate these changes effectively, mitigate risks, and create a more equitable, transparent, and ultimately, more successful organisation.
At Deloitte, we understand that navigating the demands and complexities of Pay Equity and Transparency can be daunting. Our proposition is designed to help you overcome this challenge and achieve your goals. Our aim is to enable you to pay employees equitably and help you demonstrate that you are doing so. With our deep multi-disciplinary expertise in Reward, Legal, and Behaviour Change, we are well-placed to be your trusted partner on this journey. Get in touch to discuss your challenges and needs.
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