EU adopts new rules on pay transparency – What does it mean for global employers?

The EU Council formally adopted directive 2021/0050, known as the directive on pay transparency (‘Directive’), on 24 April , setting a number of reporting obligations for employers, banning pay secrecy agreements, offering redress to the victims of discrimination, strengthening the information rights of job candidates and employees and more. The Directive aims at combatting pay discrimination and at closing the gender pay gap. It goes beyond most of the current rules in the EU Member States.

Reporting requirements 

Employers will be required to publish information on the pay gap between female and male workers in their organisation, depending on their headcount. For instance, employers with at least 250 employees will have to report annually, whereas employers with 150 to 249 employees will have to report every three years. Two years after the transposition deadline, employers with between 100 and 149 employees will also have to report every three years.

This provision is even more stringent than the initial one proposed by the Commission, which set out reporting obligations solely for companies with at least 250 employees.

Moreover, for internal purposes, employers also need to provide information on the pay gap between female and male employees by categories of workers doing the same work or work of equal value.

Where the external pay reporting reveals a gender pay gap of at least five per cent, which the employer cannot justify on objective gender-neutral factors, the employer will have to carry out a joint pay assessment with workers’ representatives.

The Directive includes a broad definition of ‘pay’, which covers not just salary but ‘any other consideration, whether in cash or in kind, which the workers receive directly or indirectly’.

Job seekers  

The Directive sets out information rights for job seekers. The Directive aims to strengthen the right to equal pay by giving workers and candidates alike access to the necessary information on pay enabling them to evaluate whether or not they are subject to discrimination . While the employers in scope of the rules will have to provide information about pay levels in the vacancy notices and candidates are entitled to ask for pay transparency, there will be no obligation for  the candidates  to disclose previous pay history. The Directive also bans pay secrecy agreements (pay secrecy agreements usually prohibit employees from disclosing their pay).

Work of equal value 

It further sets out rules on average pay levels for the same work during employment. While ‘pay’ is clearly defined, ‘work of equal value’ will be judged based on objective criteria (eg, education, professional and training requirements, skills, effort and responsibilities, etc), as well as on the guidelines deriving from case law of the Court of Justice of European Union. Member States will have the flexibility to choose the appropriate tools or guidelines at the national level and may develop these themselves or leave it to the relevant social partners.

Redress 

The Directive also aims to strengthen the rights of employees who are being discriminated against. Under some existing =local laws, i.e. the German one employees are not only entitled to the same pay but also to pay in arrears. Furthermore, the burden of proof is shifted to the employers, which will enhance the likelihood of success for employees in court.

To offer redress, in addition to existing individual cases, the Directive also provides for collective claims on equal pay. Full compensation will be provided for the victims of discrimination and remedies will be implemented that address structural discrimination or bias in organisations. The Directive also provides for non-judicial proceedings (i.e. conciliation or proceedings before an equality body) that can be followed before bringing a case to the court. However, it specifies that these proceedings should only be optional and not an obligation that may hinder access to justice.

Background 

The Directive was initially proposed by the European Commission in March 2021. You can read more about the background of the Directive, the initial approach of social partners/stakeholders, and the existing legal landscape in EU in this blog post.

What does the Directive mean for employers?

The rights and obligations listed above will set out common minimum standards across Member States, where the current landscape is still fragmented. The Directive also sets out similar standards to the existing UK regime, the latter being more rigid.

Even though some Member States (such as Italy, France, Germany and Austria) already have laws that require reporting on gender pay gap, they will still need to strengthen the rights of employees to meet the envisaged minimum standards in the Directive.  

Once the Directive is enforced in the Member States, workers will be able to request access to information directly, whereas under existing national requirements,  they are often relying on information rights that have to be enforced through the works council. While some Member States have a system of sanctions in place, in case of a breach of reporting requirements (eg, in Italy, where administrative fines and the temporary suspension of social security relief, if any, apply), the Directive also gives workers the right to claim full compensation in the case of gender pay discrimination.

Employers are well advised to implement a clear and transparent salary structure now, in order to be prepared when the Directive becomes binding on them, in order to avoid disputes or reputational issues.  Differences in pay should  solely be based on objective criteria, such as educational background, professional experience and years of service, etc.

Next steps 

The Directive will come into force once it is published in the EU’s Official Journal. Member States will then have up to 3 years to implement the Directive, which is a minimum harmonisation one and as such they can impose stricter rules (e.g. set out reporting obligations for companies with less than 100 employees).