This quick guide will highlight key considerations to help you navigate the road to pay transparency.

Over the past few years, more and more countries have been introducing legislation to improve pay transparency. In March 2023, the EU Parliament approved the adoption of the Pay Transparency Directive.

The primary driver behind this adoption was that despite existing laws, the gender pay gap remains an issue across the EU. This new set of standards aims to improve workplace inequality and ensure equal pay for equal work through two key methods: transparency and enforcement.

Employers will have to gather information about pay levels within their organization. Where a gender pay gap exists, employers must take remedial action. If they fail to do so, they may face fines or be forced to compensate the affected employees.

The new Directive has the potential to be a huge step forward when it comes to closing the gender pay gap in the EU. Naturally though, employers (and employees) have a few questions on how they can prepare themselves and ensure compliance. This quick guide will highlight key considerations to help you navigate the path ahead.

Key Terms and Definitions 

• Pay: This includes all salary such as base pay, bonuses, overtime, sick pay, occupational pensions, and other benefits.
• Equal Pay: The principle of equal pay for male and female workers for equal work or work of equal value.
• Work of equal value: Work that demands the same levels of skill, effort, responsibility, and has similar working conditions. A different job title is not enough to warrant a different pay level.
• Pay Transparency: The principle of making wages more visible and accessible to employees, prospective employees, and authorities to ensure equitable compensation is awarded irrespective of gender or other discriminatory factors.
• Gender Pay Gap: The average difference in pay between men and women across an organization or within the labor market, often expressed as a percentage of earnings.
• Non-adjusted vs. Adjusted Gender Pay Gap: The non-adjusted gender pay gap looks at the median annual earnings of men and women. ****The adjusted gender pay gap compares men and women in the same industry and at the same level. While the adjusted gender pay gap paints a more positive picture, with a lesser pay gap between men and women, many argue that it is flawed, as it fails to take into account the gender biases that can result in men being promoted to more senior positions, or women to be under-represented in specific industries.
• Pay Report: A detailed breakdown of employee compensation, segmented by gender, to identify and address disparities.

When will the Pay Transparency Directive come into effect?

Although the Directive came into force in 2023, the deadline for EU member states to implement it is June 2026. The implementation will mean that these countries will incorporate the requirements of the Directive into their own national laws. Some countries have already begun introducing these, while others are currently undertaking studies to assess the impact and plan implementation.

Will my organization be affected?

All employers will be affected by this directive (and new local legislative changes), regardless of the number of employees they have. This means that, among other obligations mentioned, all employers:

• Must disclose the initial pay level or its range in job postings or before the first job interview.
• Upon request, must inform an employee of their pay level and the average pay level, broken down by gender.

However, only employers with 100 or more employees will have further obligations in the form of the reporting. These reporting obligations are as follows:

• Starting in 2027, organizations with 250 or more employees will be required to publish and report pay figures annually and address any discrepancies starting from 2027 (more on this below).
• Organizations of 150-249 employees will have to report every three years starting from 2027.
• Those with 100-149 employees will also have to report every three years, but they will not have to do so as soon—their obligation will not begin until 2031.

If your organization has fewer than 100 employees, the reporting obligations will not affect you. However, one thing to be aware of is that some countries may decide to introduce laws for these smaller organizations, so be sure to check how your country implements these.

My organization will be affected - what do I need to do? 

In essence, you must provide clear, accessible information about pay levels. This information can either be published yourself or submitted to the relevant body (which will vary from country to country). But publishing the information is actually the last step. The first and most important thing is to ensure you are doing what you can to eliminate any gender pay gap in your organization. This will not only ensure you are complying with the Directive but can also boost your employee morale, your attractiveness as an employer, and the overall effectiveness of your team.

It won't be surprising to learn that this will require a multi-pronged approach. Here are some important steps you can take:

During the recruitment process:

1. Candidates need to be informed about the starting salary or salary range either in the job advert or before the interview. This offers transparency to candidates and gives existing employees in a similar role insight into the market value of their position. This part of the Directive has caused some concern amongst organizations, who see posting salaries in job ads as giving away commercially sensitive information. This aspect of the Directive may be implemented differently from country to country.
2. You are no longer allowed to ask candidates about their previous salary. Different countries have had differing rules around this previously. This will now be standardized.

During employment:

1. Regularly review and analyze your pay practices to identify any discrepancies related to gender or other forms of discrimination.
2. Develop clear policies around pay and ensure that these are documented. These should outline how salaries are determined, including factors like education, skills, length of service/experience, and performance metrics.
3. Prepare the annual pay reports detailing any pay gaps, and make sure to have concrete proposals to address any disparities found.
4. Ensure that employees have the right to request and receive information about pay levels and criteria used to determine pay. On request, you must provide employees with information around pay ranges for employees with the same work or of equal value.

Where the pay gap is greater than 5% for any category of workers doing the same work (or work of equal value), and this gap cannot be objectively justified, the employer will have six months to remedy this. If this doesn't take place, the organization will have to conduct a review and revise pay structures in collaboration with employee representatives.

What you can do now

If your organization will be affected, you should:

• Set up a task force from your legal, data, and HR departments.
• Conduct an audit of all pay levels in the company.
• Group data together to create salary bands for different seniority levels within the company
• Craft your communication plan with a clear outline of the criteria you used to define pay levels.
• Remedy any pay discrepancies.
• Set up a plan for continuously reporting and improving your salary bands.

Other things to keep in mind

• Data Protection: Employers must balance transparency with the right to privacy, ensuring that individual employees' pay details are protected according to data protection laws.
• Compliance support: Governments may provide tools, guidance, and support to help businesses comply with the Directive, especially in its initial stages. Keep up to date with the legislative changes in your country, and make use of any support offered.

Additional Resources

• The Pay Directive from The Official Journal of the European Union
• Equal pay for work of equal value: where do we stand in 2023?
• Gender Inequality and Performance-based Pay
• Equal Pay for Unequal Work: Limiting Sabotage in Teams
• (Un)equal Pay for Equal Work