Member States and employers to get ready for more pay transparency in the European Union

Sophie Maes
Claeys & Engels, Brussels
Sophie.Maes@claeysengels.be

On 10 May 2023, the European Union (EU) adopted the Pay Transparency Directive 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’ or the ‘Directive’).^[1] Member States have until 7 June 2026 to transpose the Directive into their national laws.

Pay transparency measures are not new in the EU. The right to equal pay for the same work or work of equal value between men and women constitutes one of the fundamental principles in the EU to be found in both EU and national law. However, until now, pay transparency measures at EU level were not binding.^[2] As a result, they vary across the EU and the gender pay gap in the EU was still 13 per cent in 2020 with significant variations across Member States.

Although the gender pay gap is caused by various factors, a lack of transparency in pay systems, a lack of certainty on the concept of work of equal value and procedurals obstacles were identified as some of the key obstacles to closing the gender pay gap.^[3]

The Pay Transparency Directive wants to combat pay discrimination and close the gender pay gap by providing new rights for employees and obligations for employers. This will be completed by (1) defining key concepts; (2) introducing binding pay transparency measures; and (3) strengthening remedies and enforcement mechanisms.

It is important to note is that the Pay Transparency Directive provides for minimum standards which will need to be applied across the EU but Member States may also decide to opt for stricter frameworks (eg, by lowering the thresholds for pay gap reporting obligations).

Scope

The Pay Transparency Directive applies to both the private and public sector.^[4] It applies to job applicants and workers who have an employment contract or an employment relationship as defined by national law, collective agreements or practice, taking into account the case law of the Court of Justice of the European Union (CJEU).^[5]

Hence, the Directive applies to all workers, including part-time workers, workers on a fixed-term contract, workers on a contract with a temporary agency, workers in management positions, domestic workers, on-demand workers, intermittent workers, voucher based-workers, platform workers, workers in sheltered employment, trainees and apprentices, as long as they fulfil the relevant criteria.^[6]

Defining key concepts

The Pay Transparency Directive first clarifies some key equal pay concepts in accordance with the case law of the CJEU to facilitate the application of these concepts for employers and to remove obstacles for victims of discrimination to exercise their rights. For the purpose of the Directive^[7]:

• ‘pay’ means the ordinary basic pay or minimum wage or salary and any other consideration, whether in cash or in kind, which a worker receives directly or indirectly in respect of his or her employment. The latter is referred to as ‘complementary or variable components of pay’ and refers to all elements of pay according to national law or practice such as:
  • without being limited to – bonuses, overtime compensation, travel facilities, housing and food allowances, compensation for attending training, payments in case of dismissal, statutory sick pay, statutory required compensation, occupational pensions;^[8]
• ‘pay level’ means gross annual pay and the corresponding gross hourly pay;
• ‘category of workers’ means workers performing the same work or work of equal value; and
• ‘work of equal value’ means work that is determined to be of equal value in accordance with non-discriminatory and objective gender neutral criteria. Those criteria must be agreed with the workers’ representatives (if applicable) and must include skills, effort, responsibility, working conditions and if appropriate other relevant factors for the specific job or position (without undervaluing relevant soft skills).

Member States must take the necessary measures to ensure that employers have pay structures ensuring equal pay for equal work or work of equal value.^[9]

Interesting to note is that the Pay Transparency Directive refers, for the first time in EU law, to the concept of ‘intersectional discrimination’. The latter refers to discrimination involving an intersection of various axes of discrimination where a worker is a member of several groups protected against discrimination on the basis of sex on the one hand, for example, women with disabilities, women of diverse racial or ethnic origin, including Roma women, and young and elderly women etc, and on the other hand, for example, racial or ethnic origin, religion or belief, disability, age and sexual orientation. Such an approach is referred to in order to understand and to address the gender pay gap and to consider the determination of the relevant level of compensation or penalties without introducing a pay transparency measure on grounds other than sex.^[10]

Binding pay transparency measures

The Directive provides for binding pay transparency measures. It lays down a number of individual rights to information for each worker both during the recruitment process and employment. It further introduces a gender pay gap reporting obligation for employers throughout the EU with at least 100 employees (or less if so provided by national law) and, in certain circumstances, the obligation to conduct a joint pay assessment.

Right to information during the recruitment process^[11]

Job applicants will be entitled to receive information regarding their initial pay or its range, based on objective and gender neutral criteria. Where applicable, applicants should also receive information about the relevant provisions of the collective agreement in relation to the position.

The purpose of this information right is to ensure an informed and transparent negotiation on pay, such as in a job vacancy notice prior to the job interview or otherwise prior to the conclusion of the employment contract.

In order to disrupt existing gender pay gaps, employers will no longer be allowed to ask applicants about their pay history and must ensure that job vacancy notices and job titles are gender-neutral and that recruitment processes are led in a non-discriminatory manner.

Right to information during employment

Workers will be entitled to:

• have easy access to the criteria that are used to determine workers’ pay, pay levels and pay progression which must be objective and gender-neutral^[12];
• request and receive information in writing on their individual pay level and the average pay levels, broken down by sex, for categories of workers performing the same work or work of equal value. This information must be provided within a reasonable period of time and within two months at the latest and workers must be informed of this right on an annual basis^[13]; and
• disclose their pay to others for the purpose of enforcing the principle of equal pay and contractual terms to this effect will be prohibited.^[14]

Reporting obligation^[15]

Employers with at least 100 workers will have to report on:

• the gender pay gap;
• the gender pay gap in complementary or variable components;
• the median gender pay gap;
• the median gender pay gap in complementary or variable components;
• the proportion of female and male workers receiving complementary and variable components;
• the proportion of female and male workers in each quartile pay band; and
• the gender pay gap between workers by categories of workers broken down by ordinary basic wage or salary and complementary or variable components.

Employers with 250 or more workers will need to report on an annual basis and employers with workers between 100^[16] and 249 workers on a triennial basis. The information will need to be provided to the national monitoring body that will publish it except for the last gender pay gap between workers of categories of workers (which will not be published). However, the latter information will still need to be provided to the workers and the workers’ representatives and, upon request, to the labour inspectorate and the equality body.

The employer’s management will need to confirm the accuracy of the information, after consulting the workers’ representatives who may have access to the methodologies applied by the employer.

The workers, workers representatives, labour inspectorates and equality bodies will have the right to ask for clarification. Employers will need to respond within a reasonable time and remedy the situation if gender pay differences are not justified by objective and gender-neutral criteria.

The reporting obligation applies under the Pay Transparency Directive as of 100 workers, be it that Member States may provide for lower thresholds.

Joint pay assessment^[17]

In addition, employers will need to conduct a joint pay assessment in cooperation with the workers’ representatives if:

• the pay reporting shows a pay gap of at least 5 per cent in any category of workers;
• the employer has not justified such a difference based on objective and gender-neutral criteria; and
• the employer has not remedied the difference within six months of the submission of the pay reporting.

Strengthening remedies and enforcement mechanisms

The Directive further includes various measures to strengthen enforcement mechanisms such as the provision of litigation power to national equality bodies, the right to full compensation, shift of the burden of proof, the protection against less favourable treatment and penalties which must be real, effective, proportionate and dissuasive etc.

Start preparing now!

It goes without saying that all of the above measures will have an important impact and may lead to costly claims. Although we will need to wait to see how the different Member States will transpose the obligations into their national laws, these obligations are minimum standards that will, in any event, apply throughout the EU. Employers in the EU are therefore recommended to start preparing now in order to be ready for 7 June 2026 when Member States should have transposed the obligations from the Pay Transparency Directive into their national laws.