The EU Pay Transparency Directive was introduced to strengthen the principle of equal pay for equal work. There has been little progress in this area over the years, so it was decided that legislation was required to initiate much-needed change.  

As well as this, we’ve seen more pressure from other groups to approach the topic seriously and implement new policies that will bring transparency and equal pay to the forefront. 

Changes in the USA 

Recently, we’ve seen a number of US states bring in transparency laws—most notably, New York and California. This has caused some pressure on the EU to follow suit. 

ESG Responsibility 

Investors want to ensure that organisations are socially responsible, sustainable, and that there’s good governance in place. Businesses are looking to become more competitive and stay in line with pay trends across the world. 

Employees Want It 

Employees—Generation Z in particular—are seeking transparency. Many are even deciding not to apply for jobs if there are no advertised salary ranges. We already know that well-communicated pay equity is almost 13 times more important for retaining employees than high levels of pay. So, if organisations want to continue their attraction and retention journey, pay transparency is crucial. 

Summary of New Requirements

There are four main areas consisting of several new regulations that organisations will need to comply with.

1. Gender Pay Gap Reporting Requirements

All employers with at least 100 employees will be required by law to publish information on the pay gap between male and female workers. However, it’s important to note that organisations with less than 100 employees can still do so, voluntarily.

This table shows how often your organisation will need to report the gender pay gap numbers.

Where a gender pay gap of 5% or above exists, then organisations will be required to work with their employee representatives or works council to conduct a deeper analysis and to develop an action plan.

2. Recruitment Requirements

The directive is also going to change the way we hire new employees. This comes with many benefits for applicants. But organisations are also likely to see an increase in the number of people applying, as well as an improvement in the relevance of applicants.

Offering transparency means that those generations that are reluctant to apply for a role with no advertised salary ranges will now have a better understanding of expectations and requirements. As a result, organisations can expect a larger, more relevant talent pool.

  • Job applicants will have the right to receive information on the role’s pay range before the interview.
  • Pay ranges must be included in all job adverts, including benefits and bonus information.
  • During interviews, employers cannot ask for information regarding a candidate’s salary history.

3. Pay Information & Processes

The EU Pay Transparency Directive is not just about providing numbers. Transparency goes beyond this, offering context and a greater understanding of the pay decisions made within organisations.

  • Organisations cannot implement any confidentiality clauses or prohibit their employees from disclosing their salary information.
  • Organisations must share information on how pay is set, managed and how it progresses in the organisation.
  • Any differences in pay must be related to objective criteria such as performance or market premiums.
  • Organisations must have a gender-neutral job evaluation process or a system in place.
  • Employees have a right to request information annually about average pay (male vs. female) for employees in the same role or grade/level.

4. Rights & Implications

In light of these new regulations, employees will have certain rights to ensure their employer complies and treats them fairly.

  • Compensation – Available to employees who have suffered gender pay discrimination. This includes back pay and related bonuses.
  • Burden of proof – Will now fall to the employer to prove there was no discrimination if they do not comply with obligations.
  • Representation – Equality bodies and worker representatives may act in legal proceedings on behalf of employees.
  • Sanctions – Member states will determine fines and penalties for employers.

Will This Affect the UK?

While these changes do not directly impact UK-based organisations, many with offices across the EU have already decided that they’re not going to be treating their UK employees any differently to those in Europe.

Choosing not to adopt transparency for UK employees could cause bigger challenges when they begin to compare their experiences with colleagues in the EU.

Also, following the UK General Election in July, there is a chance that the government will decide to adopt some of the same rules so as to not fall behind the EU. 

Transparency brings a world of benefits to organisations and employees, so getting ahead of the deadline will also get you ahead of competitors.