Pay Transparency Requirements Proposed in the EU

Like the United States and its Equal Pay Act of 1963, the European Union (EU) has had equal pay laws on the books for decades. As recently noted in a press release by the European Commission (one of the branches of the EU government): “The right to equal pay for the same work or work of equal value between female and male workers has been a founding principle of the European Union since the 1957 Treaty of Rome.” But also like the United States, the gender pay gap continues to exist years later, despite these laws. The same press release pointed to a gender pay gap of 14.1% in the EU according to Eurostat, the statistical office of the EU. 

Now, a sea-change to the EU equal pay laws is under consideration. The European Commission, which is made up of representatives from 27 countries, proposed a new directive on pay transparency. If adopted, it would impose an array of new obligations on employers with 250 or more employees, including: 

• Requiring public reporting of the gender pay gap
• Mandating internal reporting on pay differences among female and male workers in the same category
• Creating the right for employees to request pay information concerning other workers performing work of similar value
• Prohibiting employers from asking about pay history
• Requiring employers to disclose salary ranges to job applicants, even prior to an interview
• Completely shifting the burden of proof to employers. Specifically, according to the same press release, the proposed directive “sets out that in case of gender pay discrimination where the employer did not comply with its pay transparency obligations, the worker will not even have to bring evidence of discrimination. It will be up to the employer to prove that there is no discrimination”
• Compelling a pay equity audit (called a “joint pay assessment”) in cases where the gender gap in the same category of workers is more than 5% and not justifiable based on objective, gender-neutral factors

Perhaps the most burdensome of the proposed requirements is the required equal pay audit. These audits are comprehensive. The directive specifies that they must include the following:

• An analysis of the proportion of female and male workers in each category of workers
• Detailed information on average female and male workers’ pay levels
• Identification of any differences in pay levels between female and male workers in each category of workers
• The gender-neutral justifications for pay differences  between female and male workers performing the same work/work of equal value
• Measures to address the gender pay gap if pay differences are not justified based on objective, gender-neutral criteria
• A report on the effectiveness of any measures taken as a result of previous pay equity audits  

As is clear from the above requirements, large employers in the EU would have to fundamentally change their equal pay compliance strategies as a result of the new directive. Employers should take steps now to ensure they are in the best possible position if and when the directive’s requirements kick in. 

For employers across the pond, the European Commission’s proposal to require pay transparency obligations are part of a larger theme taking shape. Local governments across the United States are implementing more stringent equal pay requirements, salary history bans, and like the EU, pay transparency reporting for employers. The time to achieve pay equity is now and the best way to prepare is to take a proactive approach. All signs point to performing a pay equity analysis now. 

Overall, a proactive pay equity analysis is the best place to start to understand what an organization is doing right, and where it can improve. Such an analysis can provide details on an individual, department by department, or company-wide level where pay equity and DEI issues exist and how to proactively address them. If your organization is new to pay equity, read the Global pay equity strategy guide to get started on your journey to authentic change in the workplace.

Additionally, EU employers should keep an eye on the directive as it works its way through the EU government. Since its publication, the proposal has received both praise and criticism. Currently, the European Commission is soliciting feedback on the proposed directive. The law firm Baker McKenzie estimates that this proposal if adopted, would be implemented sometime in 2024.