On March 30, 2023, the majority of the European Union (EU) Parliament voted to adopt the directive on pay transparency (the Directive), by a vote of 427-79 (with 76 abstentions).
What does the directive require?
The directive has two key elements: pay transparency measures, and better access to justice for victims of pay discrimination. Some of the requirements apply to all organizations while others are required based on employee count.
Pay transparency measures
- Pay transparency for job seekers: The directive states that employers will have to post a pay range in job postings or provide the pay range before the job interview. In addition, employers will not be able to ask candidates about their pay history (akin to the salary history bans we see across the U.S.).
- Right to information for employees: Employees will now be able to request specific pay information from their employer, including their individual pay level and the average pay levels (broken down by sex for categories of workers doing the same work or work of equal value). This is a big difference from pay transparency laws in the U.S., where employees don’t specifically have this right.
- Reporting on gender pay gaps: Employers with at least 100 employees will have to publicly publish information on their pay gap between male and female workers. However, this requirement will roll out slowly. In the first stage, employers with 250 or more employees will report every year; employers with between 150 and 249 employees will report every three years; and employers with 100 to 149 employees will also report every three years (but this group will begin reporting five years after the transposition of the directive).
- Joint pay assessment: If an employer has a gender pay gap of at least 5% and if they cannot justify the gap on the basis of objective, gender-neutral factors, they will then have to carry out a pay assessment in conjunction with workers’ representatives.
Better access to justice for victims of pay discrimination
- Compensation for workers: Workers who have suffered gender pay discrimination can receive compensation, including full recovery of back pay and related bonuses or payments in kind.
- Burden of proof on the employer: If an employer doesn’t comply with its pay transparency obligations, they must prove that there was no discrimination in relation to pay. This takes the burden off the employee to prove that they were discriminated against by the employer.
- Sanctions will include fines: It will be up to each member state to establish specific penalties for violating the directive, including fining the employer.
- Equality bodies and workers’ representatives may act in legal or administrative proceedings on behalf of workers.
What’s next?
The directive will become law 20 days after publication in the Official Journal, and member states will then need to transpose the elements of the directive into national law within three years.
We expect other legislators around the world to be paying attention to this new directive and believe this will come to be considered the new “standard” for pay transparency and equity. This means that even if your organization is not based in the EU, your national or local governments could begin to adopt similar types of legislation.
Payscale’s pay transparency solution
At Payscale, we believe in helping our customers approach pay transparency with confidence. We help organizations establish and follow a fair pay pathway to confidently approach pay transparency by:
- Understanding their competitive landscape and determining a strong data strategy
- Evaluating current employee pay against the market to ensure competitive and fair compensation across the organization
- Implementing standardized and scalable practices with job architectures and salary ranges
- Providing an added layer of confidence to pay transparency practices by offering technology and resources focused on pay equity analysis, job description management, compensation planning, and effective communications about pay
Learn more about how Payscale can help your organization achieve pay transparency.
