The EU Pay Transparency Directive was published in the Official Journal of the EU (OJEU) on 17 May 2023. This means the Directive will be in force by 7 June 2023. Member States will have three years to transpose the Directive into national law, so by 7 June 2026. However, companies should start preparing now for the significant changes the rules will bring.
The key provisions of the Directive are as follows:
- End of pay secrecy: workers will have the right to information on pay of their colleagues in their category of work and candidates must be provided with pay ranges about prospective jobs;
- Gender pay gap reporting: companies with over 100 employees will have to report their gender pay gap, including for specific categories of work;
- Mandatory remedial action: companies will have to perform joint pay assessments if their gender pay gap is 5% or more;
- Enforcement: the Directive is backed by powerful enforcement mechanisms which include fines (potentially based on a company’s turnover) and employee collective actions.
When should companies take action?
Companies will need to take action now to prepare for the significant impact the Directive will have on pay practices and disclosure:
- Companies that already calculate their gender pay gap and/or report, or that are subject to existing pay transparency obligations (either on a voluntary basis or as mandated by local laws) should perform a gap analysis between current practices and the Directive’s requirements so as to start mapping processes and actions towards compliance with the Directive.
- Companies for which the requirements are entirely new should familiarise themselves with the Directive’s requirements and ensure the HR processes in place are able to capture the data required to comply.
- All companies with employees in more than one EU Member State should consider, from a policy perspective, how they will approach compliance – will local law requirements be strictly followed, or will the most onerous obligations be followed in all markets? As the Directive needs to be implemented under national law, it is likely there will be differences in requirements, even between EU Member States.
How can we help?
Pay transparency and gender pay gap reporting is not new; similar, but less comprehensive, requirements already exist in, for example, the UK and the US, and under national law in certain European jurisdictions. Financial institutions are also subject to certain requirements under the EBA Guidelines.
Our global offices have expertise in advising companies of a variety of sizes and sectors on pay transparency issues, and would be happy to discuss how to approach compliance with the new rules. Please do get in touch if you’d like to discuss further.