What companies must know about the EU Pay Transparency

Pay transparency has become an increasingly important topic that has arrived at the forefront of employers’ practices, with the European Union taking it a step further. 

Despite ongoing efforts, salary inequality still remains a significant issue in most of the European Union countries, with women continuing to face challenges in employment, compensation, and career progression. In 2022, a Eurostat study revealed that women in the European Union earn, on average, 12.7% less per hour than men. This means that women would need to work an extra 1.5 months each year to match men’s earnings. In the tech industry, research shows that even with some progress in pay equity, European tech companies still struggle with gender pay gaps. For example, in Portugal the Global Tech Talent Trends 2024 report states a gender pay gap increase of 36%, mostly seen in management roles, compared with 34.9% last year and 16.2% in 2022. 

The EU recognises that it is imperative for companies operating in Europe to understand and address these inequalities. Therefore, on 24th of April of 2023, the European Council developed and adopted a new directive on this topic, known as the EU Pay Transparency.

What is the EU Pay Transparency?  

The lack of pay transparency has been identified as one of the major obstacles to closing the gender gap. With gender equality in the labour market being a key priority in the EU Gender Equality Strategy 2020-2025, the EU Pay Transparency is a directive that changes how companies communicate pay information to current and prospective employees. In order to achieve this, the EU developed a set of mandatory requirements. 

But what does it entail for companies?

In order to combat pay discrimination and help close the gender gap in the European Union, the EU Pay Transparency outlines specific guidelines that all European companies must follow:

Salary disclosure

• When hiring, it is mandatory for employers to disclose the starting salary or salary range for advertised positions, either in the job posting itself or before the interview process begins.
• When discussing paying history, candidates will be able to ask about the company’s paying history in that specific role. However, employers will not be able to do the same, meaning that they will no longer be able to prohibit employees from disclosing salaries and will be prevented from asking the candidates’ pay history information.
• Once hired, employees have the right to access information about the company’s salary ranges. The average salary levels requested are broken by gender, for categories of employees that do the same work or have a role that is of equal value. Employees are also allowed to learn the criteria determined to pay career progression (which has to be objective and gender-neutral).

Reporting obligations

Under the EU directive, companies have a reporting obligation made to disclose their efforts regarding pay transparency and the gender pay gap. As mentioned above, the EU directive will allow employees and external stakeholders to have access to this information. Therefore, companies must report their gender pay gap based on their number of employees, identified as:

• More than 250: Required to report annually on their gender gap
• Between 100 and 250: Required to report every 3 years
• Less than 100: No reporting obligation

Based on the results provided from the report, the Council further instated that if the initial pay gap is 5% or more but can be justified by objective, gender-neutral criteria and subsequently reduced to below 5%, no further action is needed. In contrast, if the gap remains 5% or greater and it is not justified, additional steps must be taken according to the guidelines.

Companies’ guidelines are as follows: 

A. After publishing the report, companies have a deadline of 6 months to correct the gap.

B. Otherwise, companies must conduct a pay assessment and develop a gender action plan that outlines all the steps the company will take in order to close the gender pay gap. As the company implements the plan and successfully reduces the gap, additional reporting may be required.

Addressing discrimination

The EU directive also highlights the issues that come from gender pay discrimination. 

Employees who experience gender-based pay discrimination are entitled to compensation, which includes back pay and any related bonuses. Additionally, the responsibility to prove compliance with EU rules has shifted, meaning that it is now up to the employers to demonstrate that they are adhering to the regulations, rather than placing this burden of proof on employees. Employers who fail to comply with the directive will face fines imposed by their respective nations, ensuring that there are significant consequences for non-compliance.

Broadening the scope

Looking further, the Directive also includes intersectional discrimination (a concept that “happens when two or multiple grounds operate simultaneously and interact in an inseparable manner, producing distinct and specific forms of discrimination”) and ensures that the needs of workers with disabilities are also taken into account.

How should companies approach the EU Pay Transparency?

To effectively comply with the EU Pay Transparency and foster a more equitable workplace, here are some approaches companies should consider:

1. Communicate pay transparency practices: Companies should clearly communicate their pay transparency practices and establish a two-way communication channel between candidates and employees. This approach ensures that everyone is informed and feels heard.
2. Create an articulated and clear compensation philosophy: Providing a well-defined and articulated compensation philosophy enhances the overall employee experience.
3. Provide accessible and transparent communication: Employees and candidates highly value transparency and accessible communication. Companies that prioritise this foster trust and credibility,  making employees more likely to take their employers seriously.
4. Deploy a pay analysis: To prepare for the new directive, companies should conduct a comprehensive pay analysis and review their current pay practices. This assessment will allow companies to identify areas for improvement and ensure compliance.

In conclusion, the EU Pay Transparency will raise awareness of this issue among employers and help them identify discriminatory gender-based pay differences, even unconsciously, and act on them. 

With the EU directive being launched in 2023, all the European Union countries have until 2026 to apply the directive into their national legislation by setting up their own penalties for noncompliance and companies need to reinforce their pay practices. 

Companies that implement transparent and equitable pay practices can enhance their brand reputation, attract top talent, and foster a more inclusive workplace culture.

At Landing.Jobs we can help you overcome these challenges and provide all the resources your company needs to make a smooth transition. Just get in touch!