What Does the EU Pay Transparency Directive Mean for You?

Did you know that the concept of men and women being paid the same for work of equal value is one of the founding principles of the European Union? And that, 66 years after it was enshrined in the Treaty of Rome, women in the EU still earn an average of 13 percent less than men?

The gender pay gap remains a major issue in the global business landscape. While some EU member states such as Luxembourg have reduced the gap to almost zero, it remains very high in a number of other EU countries, including Germany and France. As a result, the EU has now taken further action to move towards gender equality in the form of the Pay Transparency Directive. This blog explains what it contains, what it intends to achieve, and what it means for you.

The directive in detail

The EU Pay Transparency Directive has been approved by the European Parliament, and means that larger businesses (in both public and private sectors) will be required to report on their equal pay situation on a regular basis.

For businesses with at least 250 employees, reporting will take place every year; for those with between 100 and 250 employees, this will take place once every three years. 

Other key factors of the directive include:

• Employee transparency: the information in the reports will be publicly available so that employees can compare their pay with their colleagues. Benefits and pay discrimination according to gender, or in job titles and vacancies, will be prohibited

• Full employee coverage: every type of employee can be covered by the directive. This will always include full-time, part-time, fixed-term, temporary workers, agency workers and management. Additionally, if certain criteria are fulfilled, it could also include on-demand workers, trainees, apprentices and other types of employment status

• All types of compensation: the new directive covers pay and any benefits received directly and indirectly

• Objective assessment: the value of work will be assessed according to requirements, skills, responsibilities, effort and conditions, with no differentiation in working patterns

What it means in practice

The consequences of the directive mean there are a number of duties that employers are expected to adopt, in addition to the reporting obligations. This includes the recruitment process, where employers must now include basic information around wages and pay scales in job advertisements. Job applicants must have access to this pay information before they come in for an interview. Furthermore, employers are not allowed to ask candidates about their current or previous levels of earnings.

On the back of reporting, employers will have to take remedial action if it is confirmed that their gender pay gap is too high. If a report reveals a gap of more than five percent and can’t be justified by reasonable factors and circumstances, this should be addressed within six months. If it isn’t, then employers will have to conduct pay assessments in consultation with employee representatives to move toward pay equity.

Additionally, employees will have the right to claim for any financial loss resulting from discrimination. This means they are entitled to full recovery of back pay, any bonuses or benefits they have missed out on, and compensation for any opportunities they have lost or harm they have suffered as a result. The burden of proof will be on employers to demonstrate that they have not been discriminatory in terms of pay, and repeat offenders will be fined.

How to close the gender pay gap in your organization

Addressing the gender pay gap is a fair and laudable endeavor, but isn’t actually as simple as it sounds. 

In particular, the fact that the new rules laid out in the EU Pay Transparency Directive encompass all pay and benefits poses a challenge from a practical perspective, because information around individual benefits packages isn’t easy to track. For example, certain employees may receive parental benefits like childcare vouchers, which often aren’t incorporated into wider pay systems that are built on outdated technology stacks.

This is an issue that needs to be addressed, and the trend towards upgrading pay technology post-pandemic is certainly helping in this area. Despite this, it’s vital that organizations continue to invest in the most up-to-date and integrated pay technology. That way, they can bring all pay and benefits data together in one place, easily assess and report on their gender pay performance, and make changes where required to meet reporting requirements and stay compliant.

Don’t let yesterday’s technology stifle the future of your business. Explore the CloudPay solution for global payroll today, and learn how it can help you keep your pay fair and compliant, today and tomorrow.