Time to get ready for the EU Pay Transparency Directive!

On 10 May 2023 the EU adopted the Pay Transparency Directive 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 (the “Directive”). Member States have until 7 June 2026 to transpose the Directive into their national laws. However, companies should not wait until 2026 but start preparing from now as the Directive will have an important impact on recruitment policies, compensation & benefit policies, performance management systems, etc.

Pay transparency measures are not new in the EU as the right to equal pay is one of the founding principles of the EU which is embedded in both EU and national law. However, obligations vary across Member States^[1] and despite the existing legal frameworks there is still a sizeable gender pay gap. The EU now wants to close the gender pay gap by defining key concepts, introducing binding pay transparency measures and strengthening remedies and enforcement mechanisms.

It is important to note that the Directive provides for minimum standards so Member States may decide to opt for stricter frameworks (e.g., by lowering the thresholds for pay gap reporting obligations). It applies to employers in both the public and the private sectors and to all workers who have an employment contract or employment relationship.

Binding pay transparency measures

The Directive provides for a right to information for each individual worker both during the recruitment and the employment. It further introduces a gender pay gap reporting obligation for employers with at least 100 employees (or fewer if so provided by national law) and in certain circumstances the obligation to conduct a joint pay assessment.

• Right to information during recruitment

Job applicants will be entitled to receive information regarding their initial pay or its range and employers will no longer be allowed to ask applicants about their pay history. Recruitment procedures must be non-discriminatory and job vacancy notices and job titles gender-neutral.

• Right to information during employment

Workers will be entitled to:

• have easy access to the criteria that are used to determine workers’ pay, pay levels and pay progression, which must be objective and gender-neutral;
• to request and receive information in writing on their individual pay level and the average pay levels, broken down by sex, for categories of workers performing the same work or work of equal value;
• disclose their pay to others for the purpose of enforcing the principle of equal pay – contractual terms restricting such disclosure will be prohibited.

A ‘category of workers’ refers to workers performing the same work or work of equal value. ‘Work of equal value’ is defined as work that is determined to be of equal value in accordance with non-discriminatory and objective gender-neutral criteria, which must be agreed with the workers’ representatives (if applicable) and including skills, effort, responsibility, working conditions and if applicable other relevant factors for the job. The Directive also explicitly states that soft skills must not be undervalued.

• Reporting obligation

Employers with at least 100 employees will have to report on:

• the gender pay gap;
• the gender pay gap in complementary or variable components;
• the median gender pay gap;
• the median gender pay gap in complementary or variable components;
• the proportion of female and male workers receiving complementary or variable components;
• the proportion of female and male workers in each quartile pay band;
• the gender pay gap between workers by categories of workers broken down by ordinary basic wage or salary and complementary or variable components.

All of the above information will need to be provided on an annual (250+ employees) or triannual basis (100–249 employees^[2]) to the national monitoring body that will publish it except for the last gender pay gap between workers of categories of workers (which will not be published). However, the latter information will need to be provided to the workers and the workers’ representative as well as to the labour inspectorate and the equality body upon request.

• Joint pay assessment

In addition, employers will need to conduct a joint pay assessment together with the workers’ representatives if:

• The pay report shows a pay gap of at least 5% in any category of workers;
• The employer has not justified such a difference based on objective and gender-neutral criteria;
• The employer has not remedied the difference within 6 months of the submission of the pay report.

 Strengthening remedies and enforcement mechanisms

The Directive further includes various measures to strengthen enforcement mechanisms such as the provision of litigation power to national equality bodies, the right to full compensation, shift of the burden of proof, the protection against less favourable treatment, penalties which must be real, effective, proportionate and dissuasive, …

Start preparing now!

Clearly, all of the above measures will have an important impact and will potentially result in costly legal claims. Employers are therefore recommended to already start reviewing their recruitment processes, job classifications and job titles, compensation & benefit policies, employment contracts, and work rules in view of the new obligations which are to be transformed in national law by June 2026. Employers to whom the reporting obligation will apply should in addition start calculating pay gaps and take action to  remedy unjustified pay gaps before 2026.

Sophie Maes

Attorney- Partner Claeys & Engels

^[1] For an overview of the existing gender pay reporting requirements in the EU and around the world, see our Ius Laboris Gender pay reporting requirements map at https://iuslaboris.com/insights/gender-pay-gap-map/.

^[2] The obligation will only apply from 7 June 2031 (regarding 2030) for employers with 100 to 149 workers and from 7 June 2027 (regarding 2026) for employers with at least 150 employees, unless, of course, a Member State decides to apply the obligation before the implementation deadline.