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What is the EU pay transparency directive?
The European Union (EU) pay transparency directive, came into force since 6th June 2023. It introduced measures to promote pay transparency and address gender pay gaps in EU countries. The first reports are due to be published in 2027, covering the 2026 calendar year.
Issued by the European Council of the European Union, the directive aims to uphold ‘the principle of equal pay for equal work or work of equal value’ between men and women.
It mandates specific reporting requirements for the gender pay gap, with annual reporting for employers with 250 or more employees and reporting every three years for smaller organisations with 150-249 employees.
For pay gaps over 5% that cannot be justified by objective criteria, joint pay assessments will be needed.
30 March 2023:
Directive adopted by European Parliament
6 June 2023:
EU Pay Transparency Directive becomes effective.
From 7 June 2027:
Organisations with 250+ employees (in 2026 calendar year) must report their gender pay gap annually.
Organisations with 150-249 employees (in 2026 calendar year) must report their gender pay gap every 3 years.
From 7 June 2031:
Organisations with 100-149 employees (2030 calendar year) must report their gender pay gap every 3 years.
Why is the EU implementing the pay transparency directive?
The EU is implementing the pay transparency directive with the goals of addressing gender pay gaps, promoting workplace equality and ensuring equal pay for equal work.
The directive prohibits pay secrecy and requires businesses to document and report pay structures to uncover disparities and promote fair practices.
The implementation of this directive aligns with broader EU efforts to advance gender equality, eliminate discrimination and foster inclusivity. By actively working towards reducing gender pay disparities across the EU, the directive aims to create more fair and inclusive work environments.
The gender pay gap across the European Union (EU)
- Women earn 13% less than men on average
- Widest gaps: Latvia (22%), Estonia (21%)
- Narrowest gaps: Luxembourg (0.7%), Romania (2.4%)
- Pay discrimination impacts women in management, professional and skilled trades
- Gender pay gap extends to benefits and pensions, resulting in a 30% pension gap
Key Stakeholders and their Interests in pay distribution, transparency and equity
Various stakeholders, both internal and external to the companies, have a keen interest in how organisations distribute pay. These stakeholders include:
- Employees - For transparency and equitable compensation.
- Unions - To ensure fair treatment and wages for their members.
- Work councils - Take part in decision-making processes for pay.
- Stakeholders - To ensure no reputational risk based on pay disparity.
- Journalists - Report on pay transparency and pay disparities to a wider audience.
By actively considering the interests of stakeholders in pay distribution, transparency and equity, organisations can create a harmonious and inclusive work environment, attract and keep top talent and build a positive public image.
Implications of pay disparity
- Can demotivate employees and impact engagement.
- Lack of transparency can hinder recruitment and deter top talent.
- Insufficient transparency limits employees' ability to negotiate fair compensation.
- Can contribute to higher employee turnover.
- Negative publicity can damage brand perception.
Addressing these issues is important to foster a fair and inclusive work environment as well as to attract top talent and portray a positive brand image.
What businesses need to do to prepare for the EU pay transparency directive?
Businesses should start planning and organising early rather than waiting. Early commitment to pay transparency can be a competitive advantage.
Key areas to consider when preparing include:
Understand compliance requirements
- Familiarise yourself with legal obligations and directive requirements.
- Stay informed about national implementation and penalties for non-compliance.
Implement pay transparency
- Optimise HR and payroll models for transparent pay practices.
- Use technology for streamlined reporting and enhanced transparency.
Address gender pay gap and set up equal pay
- Analyse pay gaps and conduct equal pay reviews.
- Implement fair pay strategies to reduce gender disparities.
Transform HR and payroll operating models
- Ensure HR and payroll systems meet directive requirements.
- Invest in the right infrastructure and technology.
Streamlines processes
- Integrate systems and data for exact reporting
The EU pay transparency directive is a significant step towards gender pay equality in Europe. Despite challenges, it will uncover pay discrepancies and pressure employers to close the gap.
Whilst this is an EU directive, there may be a need in the future for multi-national companies to implement this new requirement for all the jurisditions they operate in. The EU directive has the potential to act as a differentatior in the global talent market for all job seekers.
Employers must understand and follow the directive to drive change, promote pay equity and reduce the gender pay gap. Seek professional legal advice for comprehensive understanding and compliance.
