EU pay transparency directive guide

EU Pay Transparency Directive
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The European Union (EU) protects the right to equal pay in Article 157 of the EU Treaty, but enforcing this right has been a challenge historically. Due to the lack of pay transparency within and across employers and jurisdictions, pay discrimination is often hidden. That makes it difficult for workers who are unfairly paid to discover gaps or file pay discrimination claims.

In 2020, the European Commission published its Gender Equality Strategy and Action Plan on Gender Equality. The following year, in 2021, it adopted a proposal on binding pay transparency measures. The EU Pay Transparency Directive was subsequently approved in 2023, establishing a clear framework for EU member states to apply the principle of equal pay for equal work or work of equal value.

The Pay Transparency Directive addresses a clear, ongoing gap. According to Eurostat, the gender pay gap across the whole of the EU was 12.7% in 2023.

The directive aims to combat pay discrimination and close the gender pay gap by:

  • defining key concepts;
  • introducing individual rights to pay transparency;
  • introducing reporting obligations;
  • providing for joint pay assessments;
  • and strengthening enforcement mechanisms.

Provisions include an obligation to remedy pay gaps of 5% or more, and increased pay transparency for job candidates and employees. In cases of pay discrimination, the burden of proof shifts to the employer.

Intersectional discrimination is also defined in EU legislation for the first time.

EU member states have three years from June 7, 2023 to transpose the directive into law. Likely implementation dates are 2026, however, some countries may enact legislation earlier.

All 27 member states will need to adopt the directive. They include 14 with existing pay reporting and transparency policies, and 13 without existing applicable regulations that will need to adopt them. For example, France has previously codified gender pay calculation and disclosure into law.

The EU has adopted the Pay Transparency Directive to align EU member states to a common set of standards and improve the impact of existing regulations.

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EU directive reporting requirements

Gender pay gaps must be reported annually or triennially (based on employer size), beginning as soon as legislation is incorporated by the member states. Employers are required to publicly report on pay gap information, encompassing both base pay and "any other form of compensation."

What to Report?

Applicable employers will be required to calculate the following:

  • Mean gender pay gap
  • Median gender pay gap
  • Mean gender pay gap in complementary or variable components of pay (e.g., bonuses)
  • Median gender gap in complementary or variable pay components.
  • Proportion of female and male workers receiving complementary or variable pay components.
  • Proportion of female and male workers in each quartile pay band.
  • Pay gaps between categories of workers (i.e., workers performing the same work, or work of equal value) broken down by base salary and complementary or variable components of pay.

Each member state will decide which organizations are required to comply. Applicable employers will be determined by the number of workers.

When to Report?

Reporting deadlines depend on organization size.

  • First reports for employers with 150+ employees are due June 6, 2027.
  • Employers with 250+ employees will need to report annually thereafter.
  • Employers with 150-249 employees must report every three years.
  • Reports for organizations with 100-149 employees are due June 5, 2031, with subsequent reports to be submitted every three years.

Reporting Applicability

Where Are Gender Pay Gap Reports Published?

Regulatory Filing: Information will be reported to a designated body for monitoring pay inequities and transparency effectiveness.

External Posting: While employers are not directly responsible for posting on their website under the Pay Transparency Directive, the employer may publish data on its website or make it publicly available in another manner; individual EU member states may require certain data to be made publicly available.

Internal Employee Disclosure: Workers, workers' representatives, and labor inspectorate and the national equality body have the right to access and seek clarification on pay equity methodologies. Employers must respond to requests within a reasonable timeframe.

What Is a Joint Pay Assessment?

When certain conditions are met, employers may be faced with a second and stricter limb of the Pay Transparency Directive's pay gap reporting obligation, called a Joint Pay Assessment (JPA). This is a detailed pay equity audit which is done in cooperation with workers' representatives.

The JPA includes seven criteria that examine the differences in pay discovered, reasons for the differences, and remedial measures. The JPA will need to be published to workers, and made available to equality bodies and labour inspectorates.

A (JPA) is carried out in cooperation with workers' representatives if:

  • A gender pay gap of 5% or more cannot be explained based on objective gender-neutral factors.
  • The employer has not taken action to close the gap within six months.

Triggering a JPA will prove time consuming and risky for employers. It will be beneficial for employers to conduct an initial assessment before the Directive requires it in 2026. 

Employers that only begin calculating their pay gap for the first time after the Directive is implemented risk being faced with immediate liabilities and little time to remedy these.

EU directive pay transparency requirements

The EU Directive creates a legal requirement for greater pay explainability and opportunity transparency as well as open discussions about pay.

Pay Transparency Before Employment

Employers are required to provide information on the initial pay level or salary range to job applicants (either in the job posting or before the job interview). Applicants are also entitled to a non-discriminatory recruitment process, as well as gender-neutral vacancies and job titles upon hiring.

A salary history ban will also be in place.

Pay Transparency During Employment

Workers have the right to request individual and average pay level information categorized by gender for workers performing the same work or work of equal value. Employers must ensure the gender-neutral criteria used to define their pay, pay levels, and pay progression is easily accessible.

Pay secrecy confidentiality clauses are also prohibited.

Employment equity standards

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."

"Work of equal value" is work that is determined to be of equal value in accordance with non-discriminatory and objective gender-neutral criteria, such as skills, effort, responsibility and working conditions (without undervaluing relevant soft skills). Category of workers means a group of workers performing the same work; or work of equal value grouped in a non-arbitrary manner based on non-discriminatory and objective gender-neutral criteria.

"Worker" includes independent contractors, agency workers, job applicants, part-time and full-time employees. It also extends to "domestic workers, on-demand workers, intermittent workers, voucher based-workers, platform workers, workers in sheltered employment, trainees and apprentices," provided they meet the relevant criteria.

The Risks of Non-Compliance

Employers that fail to comply with the EU Pay Transparency Directive are at risk of incurring various financial penalties and sanctions.

Worker compensation: Workers who experience pay discrimination are entitled to uncapped compensation which may include full recovery of back pay including bonuses or payments in kind.

Burden of proof shifts to employer: The employer, not the worker, will have to prove the absence of pay discrimination.

Sanctions: There will be sanctions for employers found to have discriminated against employees, which could include fines. Member states will determine the level of sanctions for failure to comply.

Penalties: Under the EU Directive, member states must create penalties that consider aggravating or mitigating factors, which may include intersectional discrimination. The directive makes clear that member states must "ensure that penalties guarantee a real deterrent effect."

EU member states may introduce additional rules that are more favorable to the claimant.

As the EU pay gap stands at almost 13%, most employers are at risk of a Joint Pay Assessment and punitive sanctions. Companies reporting pay gaps of more than 5% may also be exposed to higher risks of pay discrimination claims, due to the shift in the burden of proof.

To avoid this, employers should take steps to prepare well before the transposition deadline.

What Is the Role of Workers' Representatives? 

Another requirement of the EU Directive is the role of workers' representatives. Countries where representatives are not already in place will have to implement systems for putting them in place.

Worker representatives will have the right to request additional clarification and details on pay gap data, including explanations for differences in pay, and the system chosen for categorizing workers.

Representatives also have a major role to play in Joint Pay Assessments and may act on behalf of workers in legal or administrative matters.

Corporate Sustainability Reporting Directive (CSRD)

EU Member States are required to incorporate CSRD Reporting Standards within their national legislation by June 16, 2024. Reporting deadlines begin in 2024, depending on business size and category.  

50,000 organizations are expected to be impacted. 10,000 of those are non-EU organizations.

CSRD: What to Report: 

  • Basic salary and remuneration (including other compensation and benefits).
  • Ratio of total salary and remuneration for women vs men.
  • Ratio broken down to employee category, including level and function. 
  • Explanation of methodology used in calculations. 

Annual Sustainability Reports must be audited by an independent, accredited auditor. Pay data reporting is in addition to EU Directive requirements.

Can Trusaic Assist with EU Directive Compliance?

1. Comply - Use Trusaic's GPDR solution to complete required reporting by compliance deadlines:

Applicability Determination: Perform an accurate assessment of your applicability, according to jurisdictional specific definitions and regulatory frameworks so you can understand your reporting obligations across the globe.

Deadline Management: Prepare ahead of time with project timelines, timely notifications, and reminders, to keep you on track to meeting jurisdictional deadlines.

Expert Legal Guidance and Support: Benefit from the expertise of our trusted pay equity attorneys, so you understand your compliance requirements across a diverse global regulatory landscape. Receive world-class customer support, including assistance throughout the compliance process.

Streamlined Data Extraction: Collect the necessary data for analysis and submission with a simple click of a button; powered by certified data integrations with world's largest HCM, HR and Payroll platforms, including Workday, SAP, UKG and ADP. Provide data through Trusaic's Workplace Equity platform, a SOC 2 Type II and GDPR-compliant tool for data transmission.

Data Quality Assurance: Trusaic performs data validations to ensure your collected data and information aligns with the standards and definitions provided by each jurisdiction.

Compliant Report Outputs: Take away the burden of reporting by effortlessly generating outputs containing necessary compliance information.

Reporting Checklist: Follow step-by-step guidance on where, when and how to report to any jurisdiction's regulatory body, as well as your required internal disclosure and public posting obligations.

2. Correct - Use PayParity and OpportunityParity to understand, explain and resolve pay disparities:

Risk Assessments: Stay aware of any potential exposure to any government audit or litigation. Our cross-functional team of data scientists, statisticians, and government regulatory compliance experts have rigorously worked to reverse-engineer the calculations that will be used by jurisdictions to estimate pay disparities, so you can prepare in advance.

Understand your Pay Gaps: Leverage Trusaic's pay equity software solution to explain your pay gaps so you can understand the root causes and safeguard from equal pay claims and legal action.

Resolve Pay Disparities: Make pay adjustments where applicable so you can eliminate pay disparities and show improvements in your reported pay gaps from one year to the next.

Identify Barriers to Professional Growth: Ensure workforce diversity and equity with hiring, promotion, retention, and opportunity analytics using opportunity equity software solution.

3. Communicate - Use Trusaic's Workplace Equity Solution to communicate narratives and share salary ranges with confidence:

Workplace Equity Narrative: Communicate the sources of your pay gaps, progress objectives, and corrective measures to employees and internal stakeholders with Trusaic's Workplace Equity product suite. Show data-backed progress in your pay gaps over time.

Salary Range Explainability: Use Salary Range Finder to establish and post competitive and equitable pay ranges to confidently comply with pay transparency laws.

Mitigate Risk of Recurrent Pay Disparities: Ensure new hires receive fair pay offers with the use of external labor market data and internal pay equity analytics to reduce unplanned and expensive pay remediations.

How to Prepare to Comply with the EU Directive

Employers operating in EU member states can take several preliminary steps to ensure compliance with the upcoming legislation. Along with partnering with a pay equity analysis software solution provider, employers should:

Determine applicability: For employers operating across multiple jurisdictions, identify all employers with over 100 workers.

Review worker categories: Explore different ways of grouping employees or review existing methods. Carry out a pay gap analysis to determine pay gaps within worker categories.

Conduct a pay equity analysis: Where gaps are greater than 5%, carry out a detailed analysis to establish objective justification for the difference. Where there is no objective justification for pay disparities, implement steps to remove those gaps at the earliest opportunity.

Update compensation policies: Update pay policies to meet all requirements and ensure accessibility and review labor contracts for pay secrecy clauses.

Review hiring processes: If HR teams have clear criteria to follow, the potential for unconscious bias is reduced. Ensure vacancy notices and job titles are gender-neutral. Implement a salary history ban at all stages of recruitment.

Employee representatives: Prepare to enact systems for employee representatives where they are not already in place. Employee representatives will benefit from training on the requirements of the Directive. Employers should consider in-house training to build trust.

Additional measures include benchmarking to evaluate salary ranges, and the creation of clear and detailed career advancement policies.

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