On 7 June 2023 the Pay Transparency Directive entered into force, aiming to enhance pay transparency and bridge the gender pay gap across European workplaces. Central to the Directive is the principle of ‘equal pay for work of equal value’, advocating for fairness at every stage of an individual’s career journey.
Key requirements of the Directive
Italy's efforts to promote pay transparency and equal pay took a significant step forward in 2006 with the adoption of Legislative Decree 11 April 2006, No. 198 (the Code of Equal Opportunities). As a result, some of the Directive's amendments are already in force within Italian legislation. This proactive approach has undoubtedly contributed to Italy maintaining a gender pay gap below the European average of 12.7 per cent recorded in 2022, according to European Commission statistics.
The requirements under the Directive cover the following key areas.
- Pay transparency upon hiring: employers are required to disclose to job applicants their pay rates prior to the job interview and they are prohibited from inquiring about a candidate’s salary history. No similar obligations are included in the Code of Equal Opportunities.
- Pay transparency for existing employees: workers are entitled to request information on their individual pay and the average pay of categories of workers performing the same work or ‘work of equal value’.
The ‘work of equal value’ shall be identified by using four mandatory gender-neutral factors (skills, effort, responsibility and working conditions).
As no similar obligations are included in the Code of Equal Opportunities, we would expect the Italian legislator to make available training, specific tools and methodologies to support and guide employers in what constitute ‘work of equal value.’
- Gender pay gap disclosures: companies are required to produce periodic gender gap reports (the timing of which will depend on the number of employees), setting out average pay and bonus gaps.
In Italy, companies are already required to publish a biennial report under the Code of Equal Opportunities. The forthcoming transposition of the Directive will entail only a minor adjustment, namely a change from a biennial to an annual reporting frequency for companies with more than 250 employees.
What differs is the content of the report, as the Directive specifically outlines the elements to be included (eg the gender pay gap by category of worker, broken down by ordinary basic salary, bonuses and other variable pay). In what is likely to be a rather tricky exercise, companies will need to group the workers who perform the same work or work of equal value in a non-arbitrary manner.
- Compulsory pay audit: the Directive requires that where the reporting reveals a gender pay gap of at least 5 per cent in any category of workers and the pay gap cannot be objectively justified, employers must carry out a compulsory pay audit (which also involves employees’ representatives) to determine whether differences are justified by objective and gender-neutral factors. No similar obligations are included in the Code of Equal Opportunities.
It remains unclear if an instance of a greater than 5 per cent gap within a specific category of worker would trigger a compulsory pay audit solely within this specific category or across all categories.
- Equal pay claims: the Directive grants victims of discrimination the right to file an equal pay claim to seek uncapped damages. In addition, individuals have the right to demand the cessation of the unlawful discriminatory conduct and the removal of its effects. Similar rights are already provided for in the Code of Equal Opportunities.
Why companies should prepare now
While the Pay Transparency Directive won't be integrated into Italian law until June 2026, early preparation towards compliance is advisable. Addressing issues relating to pay transparency and gender equality requires time and strategic planning.
A cautious approach might involve assessing the company's state of health regarding pay transparency and gender equality in the workplace, comprehensively analysing the company's data, policies, current structure and future goals. If this preliminary assessment reveals potential issues, it enables the company to start revising its policies or considering changes to its pay structure, thus moving toward compliance with the Directive before the new Italian legislation takes effect.
For example, if an issue emerges, new hires could be onboarded in line with transparent and gender-neutral criteria. Similarly, existing employees could undergo pay adjustments if this preliminary assessment uncovers a significant gender pay gap among employees in similar roles. These are complex and time-consuming activities, so identifying the need for changing salary expenditure at an early stage allows for appropriate budget allocation.
The economic implications of non-compliance with the Directive should not be underestimated. The Italian legislation will provide for financial penalties on companies. However, the potential reputational impact should also be considered alongside any immediate financial penalty. It is likely that negative impacts upon a company's reputation if sanctioned for failing to adhere to gender equality principle would likely be viewed negatively by potential customers or other external stakeholders – potentially amplifying existing economic implications.
For these reasons, it is advisable to integrate these principles and practices as soon as possible.
Conclusion
The Pay Transparency Directive represents a significant step in the European Union's efforts to tackle gender inequality in the workplace.
It is crucial for the Italian legislator to engage and provide clarity on ambiguous aspects of the Directive. Although the implementation timeline may appear distant, it is prudent to begin efforts towards adopting its principles in a compliant manner, recognising that effecting any changes requires careful and deliberate action.
