The European Union (EU) is expected to vote this month on a directive that promotes pay transparency in the workplace.

Proposed by the European Commission in March 2021, the directive aims to “strengthen the application of the principle of equal pay for equal work or work of equal value between men and women through pay transparency and enforcement mechanisms.” 

The proposal is currently making its way through branches of the EU government – it has already been approved by the European Council and is now pending negotiations with the European Parliament.

Despite the value of equal pay for equal work having long been embedded in EU law, the EU gender pay gap remains around 14%. The draft law recognizes that a lack of pay transparency is a major barrier to closing the gap.  

“Equal work deserves equal pay,” said President of the European Commission, Ursula von der Leyen, in a press release. “And for equal pay, you need transparency. Women must know whether their employers treat them fairly. And when this is not the case, they must have the power to fight back and get what they deserve.”

Given the prevalence of pay equity appearing in legislation on a global scale, the proposed EU directive is expected to be signed into law. Below we have outlined the details of the directive and why pay transparency should be a priority for employers everywhere.

Who would the directive impact?

If adopted, the proposed law would affect all public and private employers in the member states of the EU. There are specific gender pay gap reporting requirements that would apply to employers with at least 250 employees.

The directive applies to all workers, including part-time workers, fixed-term contract workers, or people with a contract of employment or employment relationship with a temporary agency. Domestic workers, on-demand workers, intermittent workers, voucher based-workers, platform workers, trainees, and apprentices are also covered by the proposal provided that they meet certain criteria. 

What would the directive require?

In essence, the proposal would impose obligations on employers in order to ensure pay transparency and provide greater recourse for people who have experienced pay discrimination. 

If adopted, the directive would: 

  • Require employers to provide information about initial pay levels or ranges in job vacancy notices or before job interviews
  • Prohibit employers from asking prospective workers about their pay history
  • Grant workers the right to request information from their employer on their individual pay level and on the average pay levels, broken down by gender, for categories of workers doing the same work or work of equal value
  • Mandate employers with at least 250 employees to annually publish information on the pay gap between female and male workers in their organization
  • Require employers to conduct a comprehensive pay equity audit when there is a pay gap of at least 5% that cannot be justified on objective gender-neutral factors

The directive would also provide greater support and protection for victims of pay discrimination by:

  • Providing compensation (including full recovery of back pay, related bonuses, or payments in kind) to workers who suffered gender pay discrimination
  • Placing burden of proof in cases of wage discrimination on employers instead of workers
  • Imposing fines on employers for infringements, as established by each member state
  • Empowering equality bodies and workers’ representatives to act in legal or administrative proceedings on behalf of workers, as well as lead on collective claims on equal pay

When would the directive take effect?

Once the directive is formally enacted, member states will have two years to adopt it into their laws. The European Commission will evaluate the directive after eight years.

Why does pay transparency matter?

Simply put, a lack of pay transparency perpetuates inequities, intentional or not. Employers that want to play a role in closing gender and racial wage gaps must prioritize pay transparency in their organizations.

Without pay transparency, employers won’t know where issues exist or how to fix them. Further, when employees don’t know how their pay compares to that of their counterparts, they are left in the dark as to whether they are compensated in accordance with the right of equal pay for equal work.  

As we navigate the impacts of COVID-19, it’s more important than ever to give employers and workers the tools to address pay discrimination at work. Women are disproportionately affected by the pandemic, being overrepresented in lower-paid sectors and occupations, and therefore more susceptible to poverty. 

It’s crucial from both a moral and economic standpoint to tackle biases that reinforce gender inequities and hinder women’s financial situations. 

Pay transparency is key to creating a just society for all. This principle is gaining traction across the world: Canada and Ireland are just two countries that made legislative strides in the last year to close the gender wage gap. 

Measures such as enhanced pay data reporting, public posting of pay ranges in job listings, and salary history bans are also increasingly passing in U.S.legislation, as recently seen in California, Colorado, Connecticut, and New York City.

The onus is on employers to regularly review payrolls, job positions, and the skills and demographics of the people filling those roles. Getting ahead of issues that may arise is always better than waiting for them to become public problems. A proactive approach positions your organization as a leader in this realm – and attracts investors and talent. 

To gauge how your organization is doing when it comes to diversity, equity, and inclusion (DEI), it’s best to start with a proactive pay equity audit using a software solution, like PayParity. This holistic analysis provides a clear picture of disparities at the source and arms you with the tools for resolving them. 

To learn more about how to achieve pay equity, read about four ways for incorporating it into your organization.

Read: 4 Ways to Incorporate Pay Equity

Organizations that conduct a pay equity audit must communicate their progress and achievement along the way. To help you faciliate discussions around compensation, we created the Pay Equity Communications Planner.