Compensation Management, HR Administration

HR Beginner’s Guide for the EU Pay Transparency Directive

The EU Pay Transparency Directive is a legislative measure to ensure equal pay for equal work or work of equal value between men and women.

This directive is part of the European Union’s commitment to gender equality and reducing the gender pay gap.

Employers will need to evaluate, publicly report, and correct their gender pay gap.

What Does Equal Pay for Equal Work Mean?

Equal pay for equal work means employees performing similar tasks receive comparable compensation, regardless of gender.

Pay structures need to be designed to objectively assess the value of work based on predefined gender-neutral criteria, such as:

Skills
Effort
Responsibility
Working conditions

Employers must share what tools and methodologies they use to evaluate and classify jobs.

When Will the EU Pay Transparency Directive Be Implemented

The table below outlines the key dates of the EU Pay Transparency Directive:

Milestone	Explanation	Date
Proposal Date	The European Commission proposed the Directive.”Directive” is a legislative act that sets out a goal that all EU countries must achieve. However, it is up to the individual countries to decide how to enact laws to reach these goals.	March 4, 2021
Political Agreement	The European Parliament and the Council of the European Union, one of the EU’s main decision-making bodies, reached a political agreement. A political agreement is a preliminary consensus reached between relevant parties on the main points of a proposed legislation or policy.	December 15, 2022
Formal Adoption	The Directive was formally adopted. Formal adoption occurs when the relevant legislative body, such as the European Parliament or the Council, officially approves and adopts a proposed legislation or policy.	May 10, 2023
Entry into Force	The directive entered into force, i.e., became legally binding for the EU member states.	June 6, 2023
Deadline for Transposition	EU member states have until the deadline to transpose or incorporate the directive into national law.	June 7, 2026
First Reporting Date for Large Companies	Initial public disclosure of pay discrepancies for companies with 150 or more employees	June 7, 2027

Although the EU Pay Transparency Directive won’t become part of national laws until June 7, 2026, HR departments of large companies should start preparations now.

The first public report on pay disparities, due by June 7, 2027, will require data from 2026.

This timeline gives organisations just two compensation cycles to make adjustments.

Starting early allows for a gradual correction of pay gaps.

By proactively assessing and refining how employees are categorised—based not only on job similarity but also on the value of their work—companies can effectively address any discrepancies.

This approach provides ample time to implement changes and ensures that pay structures show minimal or no disparities when they are reported publicly.

Additionally, addressing these issues promptly tends to be more cost-effective, helping avoid last-minute fixes and facilitating a smoother transition in HR practices.

Let’s understand what the Pay Transparency Directive involves.

What Are the Key Components of the EU Pay Transparency Directive

The main elements of the directive can be clubbed into four main parts:

Pay transparency measures
Reporting obligations
Enforcement mechanisms
Legal action

Let’s look at each of them in detail.

Pay Transparency Measures

Pay Transparency Before Employment

Before a candidate even steps into an interview, companies are required to inform job applicants about the starting salary or its range.

This information should be available in the job posting, or provided before the interview.

Importantly, employers cannot ask about your salary history, helping to break the cycle of pay discrimination.

Gender-Neutral Job Listings and Recruitment

Every part of the job advertisement and the recruitment process must be gender-neutral. This includes the job titles and the way the recruitment is conducted, all designed to support equal pay for equal work.

Transparency of Pay Settings and Progression

Companies must make it easy for employees to understand how their pay, bonuses, and other benefits are determined, including the criteria for pay levels and pay progression.

Smaller companies, those with fewer than 50 employees, might be exempt from some of these rules depending on the state.

Right to Information on Pay

Employees have the right to know not just their own pay, but also how it stacks up against others doing the same or similar work, broken down by gender.

Employers are required to provide this information within two months of the request.

They must also annually remind employees of their right to this information.

Also, employees are allowed to share their pay information with their peers, and employers can’t contractually restrict this.

Accessibility of Information

All the information provided must be accessible to everyone, including those with disabilities.

Employers must ensure that the format and delivery of the information take into account the specific needs of individuals with disabilities.

Reporting obligations

The EU Pay Transparency Directive requires businesses to take a clear, systematic approach to reporting on gender pay differences.

What to Report

Businesses must provide detailed reports covering several aspects of pay disparity:

Overall gender pay gap
Gender pay gap in variable pay like bonuses or commissions
Median gender pay gap, which shows the middle point in the range of wages
Median gender pay gap in variable components
The distribution of male and female workers receiving variable pay
The breakdown of male and female workers across different pay quartiles
Detailed gender pay gap analysis by worker categories, including basic and variable pay

Reporting Frequency and Company Size

The EU pay transparency directive sets specific reporting intervals based on company size:

Company Size (Number of Workers)	Reporting Frequency	Reporting Start Date
250 or more	Annual	June 7, 2027
150 – 249	Every 3 years	June 7, 2027
100 – 149	Every 3 years	June 7, 2031
Fewer than 100 (Optional)	Voluntary, aren’t required to report by default. Individual Member States may impose mandatory reporting requirements.	N/A

Verification and Access to Information

The accuracy of the reported information must be confirmed by company management after consultation with workers’ representatives.

These representatives should also have access to the methodologies used in pay reporting.

Public Disclosure and Official Use

Companies may opt to publish their gender pay gap reports on their websites or through other public channels.

Additionally, Member States can compile this information from administrative data sources like tax or social security records and make it publicly available.

Right to Information and Clarification

The following have the right to request additional details or clarifications about the data reported:

Workers
Workers’ representatives
Labour inspectors
Equality bodies

Employers must respond to these inquiries promptly with well-substantiated explanations.

Addressing Unjustified Pay Differences

If pay discrepancies are found and they cannot be justified by objective, gender-neutral criteria, employers are required to rectify these in collaboration with workers’ representatives and relevant authorities.

Enforcement Mechanisms

If there is an unjustified gender pay gap of 5% or more, then companies must correct the pay gap within six months.

If the unjustified gender pay gap is not corrected within six months, they need to create a Joint Pay Assessment.

What Does a Joint Pay Assessment Involve?

The assessment involves a series of detailed evaluations and steps:

Analysing Worker Distribution: Review the ratio of female to male employees in each worker category.
Comparing Pay Levels: Gather data on average pay for both female and male workers, including base salary and variable components.
Identifying Pay Differences: Pinpoint any pay disparities between genders within each category.
Understanding Reasons for Pay Differences: Jointly determine with workers’ representatives whether there are objective, gender-neutral reasons for any disparities.
Evaluating Pay Improvements Post-Leaves: Check if employees who returned from parental or carer leaves received pay improvements, focusing on gender distribution.
Planning Corrective Actions: Propose measures to address any unjustified pay differences.
Reviewing Past Measures: Assess the effectiveness of previously implemented measures from earlier assessments.

3. Communication and Accessibility of Assessment Results

Once completed, the joint pay assessment should be:

Made available to all workers and their representatives.
Communicated to the monitoring body specified under the directive.
Available upon request to the labour inspectorate and equality bodies.

4. Implementing Remedial Measures

After the assessment:

Employers are expected to rectify unjustified pay differences within a reasonable timeframe.
This should be done in close collaboration with workers’ representatives and may include the involvement of labour inspectors or equality bodies.
Part of the remedial actions may involve analysing or establishing gender-neutral job evaluation and classification systems.

Legal Implications of Pay Inequality

Besides closing gender pay gaps, the EU pay transparency directive provides legal measures to rectify past inequalities, ensuring compensation and back pay for affected employees, and imposing financial penalties on companies that fail to comply with the rules.

Legal Action:

Employees experiencing pay discrimination based on gender have the right to seek compensation in court, and the burden of proof lies with the employer.

Compensation

Workers can seek full compensation for damages from unequal pay, without any upper limit.

This includes back pay, bonuses, compensation for non-material damage, lost opportunities, and interest on delayed payments.

The aim is to restore the workers to the position they would have been in without discrimination.

Financial Penalties:

The EU Pay Transparency Directive requires Member States to set stringent penalties for violations of equal pay rules.

These penalties must be effective, proportionate, and strong enough to deter further infringements.

Penalties include fines and are adjusted based on aggravating or mitigating factors, with stricter penalties for repeated offences.

How to prepare for the EU Pay Transparency Directive

Disclaimer

The following recommendations are based on best practices and general principles for preparing for the implementation of the EU Pay Transparency Directive.

Please note that the exact requirements and obligations may vary once national laws are enacted.

Therefore, organisations should seek legal advice to ensure compliance with applicable legislation.

Pay Gap Analysis

Conduct a thorough audit of existing pay practices to identify discrepancies and areas of risk in terms of gender pay equality.

This should include a detailed analysis of all compensation components such as base pay, bonuses, and other benefits.

Policy Revision

Review and revise current pay policies and practices to ensure they align with the requirements of the directive.

Update or draft new policies that explicitly address pay transparency and equal pay, including procedures for regular pay reviews and adjustments.

Standardising practices across different EU countries

For multinational organisations, standardising pay practices across different EU countries can be challenging due to varying legal requirements and cultural norms.

Develop standardised processes and procedures that are adaptable to different jurisdictions while ensuring consistency and compliance.