EU Pay Transparency Directive Explained

If you work in HR and recruitment you should be more than familiar with EU’s Pay Transparency Directive took effect this year, 2024. If you don’t but need to hire staff, this article is for you.

This EU Pay Transparency initiative emerged from recognizing the significant barrier that lack of pay transparency posed to achieving equitable remuneration across the European Union. Initiated in March 2021, the Directive seeks to address this issue comprehensively. Fast forward to December 15, 2022, the European Parliament finalized an agreement on the measures for pay transparency. Consequently, it will soon be mandatory for employers to ensure a higher degree of transparency and information sharing, even before a candidate applies for a job.

This Directive isn’t an isolated effort; it’s part of a broader strategy aimed at narrowing the gender pay gap and enhancing work-life balance, alongside the Work-Life Balance Directive and the Directive for Better Gender Balance on the boards of companies listed in the EU. For instance, Malta has already put the Work-Life Balance Directive into action for parents and caregivers as of August 2, 2022.

On December 15, 2022, Helena Dalli, the Commissioner for Equality, highlighted the EU Pay Transparency Directive’s significance: “Ensuring equal pay is crucial for women’s economic, financial independence, and justice, especially during times of crisis. Pay transparency is a matter of fairness and has economic benefits, as it encourages more women to enter and stay in the workforce. Ending pay discrimination requires transparency.”

EU Pay Transparency Directive Measures. What are they?

  • Transparency Before Employment: Job seekers will be privy to information regarding salary ranges within job ads or before the initial interview. Furthermore, inquiries into applicants’ previous salaries will be prohibited.
  • Employee’s Right to Information: Employees can request details about their pay level and the average pay levels by gender for similar roles or work of equal value. This applies to all employees, regardless of company size.
  • Gender Pay Gap Reporting: Companies with 100 or more employees will need to disclose any pay gaps between male and female employees. Initially, companies with 250 or more employees will report annually, followed by those with 150-249 employees reporting every three years. Five years post-Directive, companies with 100-149 employees will also report triennially.
  • Joint Pay Assessment: Should reports uncover a gender pay gap of 5% or more that cannot be justified by objective, gender-neutral factors, employers must conduct a pay assessment in collaboration with worker representatives.

Member states are now tasked with incorporating these new requirements of the Pay Transparency Directive into their national laws within three years.

The principle of equal pay for equal work or work of equal value between women and men has been a cornerstone of the European Union since the Treaty of Rome in 1957. Despite a 2014 Recommendation to strengthen equal pay through transparency, its implementation and enforcement have been lacking. In response, the European Commission adopted a Gender Equality Action Plan for 2021-2025 following a 2019 Council directive to devise concrete pay transparency measures.

EU Pay Transparency. Next Steps for Hiring Companies

Businesses are encouraged to proactively adapt to this EU Pay Transparency Directive, making necessary adjustments to ensure fair treatment for all employees. The Directive also sets forth mechanisms for redress and penalties for non-compliance, including fines and compensation for discrimination victims. Employers failing to meet transparency requirements must prove the absence of pay discrimination.

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Further details on the EU Pay Transparency Directive are available on the European Commission’s website.

EU Pay Transparency FAQs

What is the EU Pay Transparency Directive?

The EU Pay Transparency Directive is a legislative measure aimed at enhancing transparency around pay to address and reduce the gender pay gap across the European Union. It mandates employers to provide clear information about pay levels and criteria, both before employment and throughout an employee’s tenure.

When will the Pay Transparency Directive take effect?

The Directive is set to come into force in 2024, following its proposal in March 2021 and the European Parliament’s agreement on its measures on December 15, 2022.

Why was the Pay Transparency Directive introduced?

It was introduced to combat the lack of pay transparency, which has been identified as a major obstacle to achieving equal pay for equal work or work of equal value across the EU, thereby contributing to the ongoing issue of the gender pay gap.

How does the Directive aim to improve pay transparency?

The Directive aims to improve pay transparency by requiring employers to disclose salary ranges in job advertisements, prohibiting salary history inquiries, enabling employees to request information on pay levels, and obligating larger employers to report on gender pay gaps.

Who is affected by the Pay Transparency Directive?

All employers and employees within the European Union are affected by the Directive. It applies to job seekers, current employees, and employers, including private and public sectors.

What are some key measures of the Directive?

Key measures include transparency about salary ranges before employment, the right for employees to request pay level information, mandatory gender pay gap reporting for larger employers, and joint pay assessment in cases of significant pay discrepancies.

How will the gender pay gap reporting work?

Employers with 100 or more employees will need to publish reports on any pay discrepancies between male and female workers. The frequency of reporting varies based on the size of the company, with larger companies reporting more frequently.

What happens if a company does not comply with the Directive?

Companies that fail to comply with the Directive’s requirements may face penalties, including fines. Additionally, in cases of non-compliance with transparency obligations, the burden of proof shifts to the employer to demonstrate that there has been no pay discrimination.

Are there any protections for employees under the Directive?

Yes, the Directive introduces protections for employees, including the right to compensation for discrimination victims and safeguards for those seeking to enforce their rights under the Directive.

Where can I find more information about the EU Pay Transparency Directive?

Further information can be found on the European Commission’s website, which provides detailed documentation and updates on the implementation and enforcement of the Directive.

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