Loyens & Loeff | Pay Transparency Directive adopted by the European Parliament

Today, 30 March 2023, the European Parliament adopted the legislative proposal of the European Commission to strengthen the application of the principle of equal pay for equal work or work of equal value between men and women through pay transparency and enforcement mechanisms (the Pay Transparency Directive). The Pay Transparency Directive has some important consequences for employers as well as employees, which we have described in more detail below.

Background

The right to equal pay between women and men for equal work or work of equal value has been a founding principle of the European Union since the Treaty of Rome. Although the requirement to ensure equal pay is set out in the Recast Directive (Directive 2006/54/EC), which has been complemented in 2014 by a Commission Recommendation on pay transparency, the effective implementation and enforcement of this principle in practice remains a challenge. The lack of pay transparency has been identified as one of the key obstacles to ensure equal pay.

The Pay Transparency Directive aims at ensuring that the right to equal pay is upheld across the EU, by establishing pay transparency standards to empower workers to claim their right to equal pay. These objectives are pursued by introducing, inter alia, reporting obligations for larger employers on pay equality, the right for workers to request information from their employer on their individual pay level and on the average pay levels and mechanisms that improve the enforcement of the principle of equal pay.

The Pay Transparency Directive concerns all employers in the public and private sectors, workers who have an employment contract or employment relationship and job applicants.

Key elements of the Pay Transparency Directive

The Pay Transparency Directive leads to several important obligations for employers, that aim to establish pay transparency within organisations and strengthen enforcement mechanisms for workers. Besides the introduction of definitions that are specifically related to the right of equal pay, which facilitate the application of the key concepts relating to equal pay, including ‘pay’ and ‘work of equal value’, several important obligations can be derived from the Pay Transparency Directive:

Next steps and preparations

Following the adoption of the Pay Transparency Directive by the European Parliament, the Council will have to formally approve the agreement before the text is signed into law and published in the EU Official Journal. The new rules will come into force twenty days after their publication. Member states are obligated to implement the Pay Transparency Directive into their national laws, regulations, and administrative provisions within three years after the Pay Transparency Directive’s entry into force. Employers will therefore need to be prepared to comply with the new requirements once they are implemented at the national level.

Please note that the deadline to first comply with the pay gap reporting obligations for larger employers, depends on the size of the employer. Employers with more than 150 workers need to report the pay gap information within one year after the date of implementation. Employers with 100 to 149 workers need to report the pay gap information within five years after the date of implementation.

In anticipation of the Pay Transparency Directive’s implementation, employers may take several proactive measures to ensure compliance and promote pay equity within their organizations:

• Conduct a thorough pay audit to identify any existing gender pay gaps, the underlying factors contributing to these disparities and the methodologies that are used. This will help employers to address pay inequalities proactively and develop a solid understanding of their current pay practices.
• Review and update pay policies, job evaluation systems, and classification structures to ensure they are gender-neutral and based on objective criteria. It is important to involve the workers’ representatives timely to ensure a fair and transparent evaluation process, but also to comply with any existing applicable rules on the involvement of workers’ representatives.
• Introduce and/or update systems that enable you to easily retrieve information on salary differences, such as the pay gap and have reporting procedures in place to be able comply with the Pay Transparency Directive.
• Establish a clear policy and procedure for addressing pay discrimination complaints and ensure that workers are aware of the steps they can take to raise concerns and seek redress. This may include setting up an internal reporting mechanism for handling pay-related inquiries.

If you have questions about the Pay Transparency Directive and/or its practical implementation, we will of course be happy to help.

Compliments of Loyens & Loeff – a member of the EACCNY.