European Union: Proposed directive on pay transparency

Employer Action Code: Monitor

The draft directive would represent a significant step for employers and employees toward ensuring equal pay. Every employer regardless of size would need to be confident that their pay structures and processes are delivering equal pay for the same work and work of equal value in each European Union member state. To address what the European Commission views as inadequate implementation of the 2006 Directive of Equal Pay, it is proposing extensive measures that would require employers to be transparent on pay structures, pay processes and pay gaps by category of workers, and require the removal of any unjustified gaps of 5% or more. Employees would also have extensive rights to information on pay, to raise questions on pay gaps and to seek redress.

Key details

Measures for increasing pay transparency include:

• Employers would be obligated to provide the initial level of pay or range of pay in job advertisements or before a job interview and would be prohibited from inquiring about pay history from job candidates.
• Employees would be entitled to request information on their individual pay level as well as on average pay ranges broken down by gender for employees doing the same work or work of equal value.
• Employers with 250 or more employees would have to disclose information publicly on gender pay gaps in their organization. Internally, they would be required to provide information on gender pay gaps for categories of workers performing the same work or work of equal value. Findings of pay gaps of 5% or more which cannot be justified on gender-neutral grounds would result in a mandatory joint pay assessment in cooperation with existing workers’ representatives (or — if none exist — with at least one employee as designated by the employer) and the relevant national authorities.

Measures for redressing pay discrimination include:

• Employees found to have been subject to pay discrimination would be eligible for compensation, including recovery of back pay and related bonuses and payments in kind.
• Employers would be subject to the burden of proof that there was no pay discrimination based on gender.
• Workers’ representatives and equality bodies would be empowered to pursue legal or administrative action for claims on behalf of employees and lead collective claims.
• EU member states would be expected to establish penalties and fines for violations of equal pay rules.

Employer implications

The directive would build and expand on existing equal pay laws of the member states to create a more coherent framework. Member states would have two years to transpose the directive into national law if it is approved by the European Parliament and Council. As a result, compliance may not be required until 2024 or later, providing employers with time to take action to become confident that their pay systems are ready for greater transparency around equal pay. In our experience, it can take three to five years for an employer operating in multiple markets to gain this confidence. In addition, some specific challenges exist in the current drafting, for example, the definition of “pay” encompasses basic wages, other guaranteed payments, variable rewards and benefits-in-kind, provided directly and indirectly to staff.

Public consultation on the commission’s adoption of the directive is open April 15, 2021, to August 27, 2021.

Contacts

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Daniel Puckey

Director - Rewards 

email Email

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Eva Jesmiatka

Europe Pay Equity Lead

email Email phone + 44 20 7170 2039

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Elif Er

Director, Work, Rewards & Careers

email Email phone +34 608 33 54 15

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