To close the wage gap between women and men, the EU has adopted the new Pay Transparency Directive. Among other things, the directive will ensure greater transparency around pay, and will be enforced through supervision and penalties for non-compliance. Find out how your HR department can prepare for this.
What is the Pay Transparency Directive and how do you get ready?
The Pay Transparency Directive is a new set of rules that aims to address the wage gap between women and men by increasing insight and transparency around wages. The directive has some similarities with the Corporate Sustainabiity Reporting Directive (CSRD), but focuses on pay differences instead of sustainability. The new rules, which were adopted already in 2023, will not enter into force until June 2026, but for HR departments, it’s a good idea to start preparing now.
How can HR ensure that the company is ready?
To ensure internal buy-in, we recommend that you start by informing management and making sure that they understand the content of the directive. You should then review your current salary policies and conduct an analysis of your own practices in relation to the new requirements. (Here an HR system that supports custom reports will be very helpful. Instead of collecting data from various isolated systems and compiling manual reports, you can easily identify deviations and trends.) This analysis forms the basis for a prioritised action plan that ensures that your company is ready in time.
Who is affected by the directive - and how?
Companies with more than 250 employees will be required to report annually on the gender pay gap in the organisation. For smaller organisations (initially those with more than 150 employees, later those with 100), the reporting obligation will apply every three years.
If the report reveals a pay gap of more than 5% that cannot be justified by objective, gender-neutral criteria, companies are required by law to implement measures in the form of a joint pay assessment in cooperation with employee representatives.
Here, an HCM system with master data on employees will also be helpful. This gives you a powerful analytics tool that can identify gaps and potential challenges.
Background for EUs Pay Transparency Directive
The background for the directive is based on the fact that women in European countries earn about 13% less than men, and the development has largely been stagnant for the past 10 years. The EU has been working for almost 20 years to close the gap, but the lack of transparency around wages has made it difficult to detect (and address) cases of pay discrimination.
Pay transparency was therefore included as a key priority in the EU's gender equality strategy for 2020-2025, and the result is the new directive which aims to:
- Empower workers to enforce their right to equal pay through a set of binding pay transparency measures (pre- and post-employment).
- Strengthen the transparency of the wage systems.
- Increase the general public's understanding of relevant legal concepts.
- Strengthen the enforcement of rights and obligations related to equal pay between men and women.
What does the directive cover?
Here are the most important points in the Pay Transparency Directive:
- Employers will be required to inform job applicants about starting salaries or salary ranges for advertised positions, either in the job posting or before the interview.
- Employers will be prohibited from asking candidates about their current or previous salary in their existing or past employment.
- Employees will have the right to receive information from their employer about the average salary level broken down by gender, for categories of employees performing the same work or work of equal value.
- Employees will have the right to access the criteria used to set wages and career progression, and these criteria must be objective and gender-neutral.
- Previously, it was up to employees to prove that wage discrimination had occurred, but the directive reverses this. Now, it is up to the employer to prove that they have not violated the directive’s rules to avoid fines.
- Employees who have been subjected to wage discrimination based on gender will be entitled to compensation, including full back pay and related bonuses or benefits in kind.
Status of the Equal Pay Directive in Scandinavia
In Scandinavia, many of the provisions of the directive are already part of the national laws. This includes employees' right to information, and there are also sanctions in place when rights and principles regarding equal pay are not upheld. The status of the implementation of the directive in Scandinavian countries is as follows:
- Denmark: The Danish Parliament has not yet taken steps to implement the directive. In Denmark, reporting on wage differences between women and men is largely automated through the state statistical institute Danmarks Statistik, which prepares wage reports for employers subject to the requirement to report on gender pay gaps.
- Sweden: The directive is under review. In Sweden, all employers are required to map wage differences between women and men to promote equality in the workplace. However, the current rules lack provisions for individuals' rights to access information about salary levels. The same applies to Denmark.
- Norway: The directive is also under consideration. Although Norway is not an EU member, the directive is relevant through the EEA agreement, and all similar directives have previously been implemented in national law. It is therefore expected that the directive will also be implemented in Norway. The regulations in Norway are already largely in line with the requirements of the directive and, in some areas, stricter than the directive.
Learn more about the Pay Transparency Sdirective on EUs EUR-Lex wbsite. (Here you will find a summary.)
(Disclaimer: This page is for information purposes only and is not intended as legal advice.)
