pay transparency

Pay discrimination based on gender has been banned in the EU since 1957. Nevertheless, the pay gap between men and women in the EU is still at 13%. To solve this issue, the EU Commission submitted a proposal for pay transparency – aimed to close the gender pay gap.

As mentioned, the EU has worked for a long time to reduce the gender pay gap. However, the pace of change is not impressive. From 2010 to today, the wage gap for EU member states has narrowed by only 2,8 percentage points, from 15,8% to 13%. In Latvia, you’ll find the most significant pay difference between women and men, where the pay gap is 22.3%. Luxembourg is ranked best, with a pay gap of 0.7%. As you can see, the levels vary drastically between different EU countries. Which the EU Commission aims to change with its new proposal.

Background 

In March 2021 the EU Commission proposed the new directive that will require EU members and employers in each country to ensure equal pay for equal work between women and men. The directive will apply to all employers, in both private and public sectors. The directive focuses on two key areas: ensuring pay transparency for workers and employers and ensuring better access to justice for those affected by pay discrimination.

The proposal was approved by the Council in December 2021 and in April 2022 the European Parliament decided to enter into negotiations with EU governments.

The Parliament took the Commission’s proposal one step further and demand that EU companies with at least 50 employees (instead of 250) are to be required to disclose information that makes it easier for those working for the same employer to compare salaries and expose existing gender pay gaps within the organization.
 
The Parliament also lowered the threshold for when an employer needs to conduct a pay assessment to 2,5% gender pay gap rather than the 5% as was outlined in the original directive.

All member states will have 2 years to transpose the directive into national law and communicate the updates to the Commission. The time span of 2 years also applies to employers that must adapt their working methods to the new law. 

What the Pay Transparency Directive entails & what you can do to prepare

We have summarized the six most important parts of the directive and what you as an employer can do to do prepare and stay ahead of the new legislation.

 1. Pay transparency for job seekers

Employers must provide information about the initial pay level or its range to the prospective worker. They either must state it in the job vacancy notice or ahead of the job interview, but in a way the applicant doesn’t have to ask for it. In addition, the employer may not ask about the prospective worker's previous salary history. The aim is to make sure all employees have fair and equal opportunities to negotiate their pay. This does not limit the negotiations to be outside the given salary range.

What can you do to prepare?
  • Make sure that you are comfortable with your current salary structure, it is going to be on display
  • Ensure that your salary ranges are up to date and correct for all roles - If you miss them – Get to work and start producing them.
  • Get ready to answer salary-related questions internally, chances are that some employees might feel underpaid compared with the ranges that you publish in job-adverts
  • Inform managers across the organization that you will shortly start to provide information on salary ranges for all jobs
  • Make sure that all hiring managers understand that they can no longer ask about a candidate’s pay history.

2. Right to information for employees

As an employee, you will have the right to request information about your individual pay level and the average pay levels for workers doing the same work or work of equal value, broken down by gender. The employee can request the information by themselves or through their representative. It is also stated that the employer is obliged to, annually, inform all employees of their right to request the information.

What can you do to prepare?
  • Ensure that you have up to date to salary records that are correct.
  • Ensure that your salary ranges are up to date and correct for all roles - If you miss them – Get to work and start producing them.
  • If you secure equal pay prior to the legislation, you know that it can stand the test of any employee asking.
  • Ensure you know which roles are to be considered equal and equivalent to each other.
  • Calculate average salaries for each gender in all roles.
  • You should prepare to have an efficient system that can deliver pay gap figures across all territories for both equal and equivalent roles where you have operations in the EU.

3. Reporting on the gender pay gap

Employers with at least 50 employees (as suggested by the EU Parliament) must publish an external and an internal report on pay differences between men and women within the organization.

The external report shall include the organization's aggregated gender pay gap and the internal report shall include pay differences for equal and equivalent positions.

The purpose of the external report is to give an overall picture of the gender pay gap in the organizations, and for that reason, all pay will be included in the calculations (pay supplements, bonuses, etc.) This will give the opportunity to compare between companies and drive incitements to prevent salary differences.

What can you do to prepare?
  • Internal report: You should prepare to have an efficient system that can deliver pay gap figures across all territories for both equal and equivalent roles where you have operations in the EU.
  • External report: Calculate the median and average pay difference between women and men and the distribution within the salary quartiles.
  • Review whether there are pay differences that you can solve before they become public figures.
  • Make sure you can justify any pay differences and prepare to be compared to other organizations and that employees will start to ask questions about their pay compared with their peers.

4. Joint pay assessment

If the report reveals a gender pay gap of at least 2,5% (as suggested by the EU Parliament), a pay assessment must be carried out with the help of the worker's representatives - in cases where the employer cannot justify the wage gap with objective and gender-neutral factors. This requirement aims at creating actions to reduce the differences. The actions also need to be followed up and evaluated to make sure the actions drive the intended result.

What can you do to prepare?
  • Before the legislation commences, you should create an in-depth understanding of how many of your grades and roles that have a pay gap greater than 2,5% between women and men.
  • Conduct your own in-depth analysis of all these grades and roles to ensure that you can explain any salary differences using unbiased explanations or increase salaries for any individuals that you cannot explain.
  • If you ensure that you can explain all un-just pay gaps you will mitigate the risk of workers’ representatives forcing to conduct joint pay assessments.

5. Compensation for workers and burden of proof

Workers who suffered gender pay discrimination should be compensated, including full recovery of back pay and related bonuses or payments in kind. Now the employer will, by default, be responsible for proving that there was no discrimination in relation to pay.

What can you do to prepare?
  • Since the legislation will be focused on protecting the individual’s rights including being compensated for discrimination, it will become increasingly important for all employers to be able to explain any type of pay differences between males and females in equal and equivalent positions.
  • To mitigate any future risk, we recommend that employers as soon as possible start to conduct in-depth pay audits into all equal & equivalent positions across its different territories.
  • Although the legislator has not yet determined what type of pay elements and back-pay might come into effect with the new legislation all employers will face this risk for the first time in many countries within the Union.
  • Burdon of proof will weigh in heavily on the employer

6. Collective claims on equal pay

Equality bodies and workers’ representatives may represent workers in legal or administrative proceedings, as well as lead on collective claims on equal pay.

What can you do to prepare?
  • If you have everything in order before the new legislation comes into effect, you will stand a much better chance to avoid collective claims that are led by workers’ representatives.
  • We encourage all employers to get ahead of the legislation and start engaging in conversations with their workers’ representatives.
  • Be fully transparent in what you do around pay transparency issues, what your gender pay gap looks like, which grades and roles you see being at risk at what you are doing to ensure pay equity across your organization.
  • If you share your data prior to being forced to do so based on legislation, there is a good chance that your ambitions will render a higher trust from equality bodies and workers’ representatives, thus, mitigating the risk of large-scale collective claims.

Conclusion from Pihr

We at Pihr believe that the new EU Pay Transparency Directive is a true game changer! It’s an important step in the right direction towards gender equality and Europe finally stands a chance to close the gender pay gap once and for all. The new directive is a strong signal that the EU will no longer accept gender-based pay discrimination and we think the new measurements will be a great help for employers to achieve equal pay between women and men.

The new legislation will most probably come into effect in 2024 across all member states. For organizations with more than 50 employees (EU parliament suggestion), changing the current pay structure usually comes with a lot of work and we believe that organizations should start preparing for these immense changes as soon as possible. Reach out to us if you want to discuss the legislation and possible preparations at info@pihr.com.

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