Demystifying the EU Pay Transparency Directive

Welcome back! In this newsletter, I'll continue my overview of the upcoming EU legislation. In the previous edition , we discussed reporting deadlines. We'll move on to pay transparency requirements: what do you need to do to get ready? It's not hard to comply, but it does require time and money, so it's time to get started.

And if you'd like some help or have questions, join my training course. In two hours, I'll take you through everything you need to know and help you plan a program. Bring all your questions! Sign up here .

One of the most important reasons for the persisting pay gap? It's your salary history!

When you interview for a job, you have no idea what the company pays. It's a bit of a struggle: You'd like to earn as much as possible, and the company likes to pay as little as possible. Companies often ask about your salary history during the interview. When you name an amount, they will base their offer on it. And that means you will not know if the compensation proposal is fair until after you've accepted and have a chat with your new colleagues. And it's hard to reopen the conversation.

But you don't have to answer a question about your salary history. You can ask the company to create an offer based on equal pay for equal work. I recommend that you check if a company puts a salary band in the job ad. It's an indication of (pay) transparency at your future employer.

What is Pay Transparency?

Pay transparency means companies openly share information about pay with employees and job seekers. This can include salary ranges, how pay is decided, and even individual salaries. It helps build trust, closes pay gaps, and makes the workplace fairer.

Pay Transparency for everyone!

The new EU Pay Transparency Directive is a significant step: It requires companies with more than a hundred employees to disclose information about their pay policies and report on the gender pay gap. This information will be public and allows employees to compare their pay with that of their colleagues so they can identify and address any (gender) pay gaps. The directive also prohibits employers from discriminating against employees based on their gender when it comes to pay and benefits.

Before we dive into the details, here are a few clauses that I think are significant:

• The Directive applies to employers in public and private sectors.
• The Directive applies to all workers who have an employment contract or employment relationship as defined by law, collective agreements and/or practice. That includes part-time workers, fixed-term contract workers and persons with a contract of employment or employment relationship with a temporary agency, as well as workers in management positions.
• When they fulfill relevant criteria, domestic workers, on-demand workers, intermittent workers, voucher based-workers, platform workers, workers in sheltered employment, trainees and apprentices fall within the scope of this Directive.
• The concept of pay is broad: it is not only salary, but also complementary or variable components of the pay. It includes any benefits in addition to the ordinary basic or minimum wage or salary, which the worker receives directly or indirectly, whether in cash or in kind. It also includes bonuses, overtime compensation, travel facilities, housing and food allowances, compensation for attending training, payments in the case of dismissal, statutory sick pay, statutory required compensation, and occupational pensions.
• The value of work must be assessed and compared based on objective criteria, including educational, professional and training requirements, skills, effort, responsibility and working conditions, irrespective of differences in working patterns.
• Job titles and job vacancy notices must be gender?neutral and non-discriminatory.

The above list means that companies have work to do: from rephrasing job titles and descriptions to properly assessing total compensation and establishing what constitutes equal work.

Six important topics

The Pay Transparency Directive introduces six important requirements:

1. Pay transparency prior to employment

Employers must include information about the initial wage level or pay scale in the job ad or share it before the interview. They should also give them an idea of earning potential during their career, and be able to explain how pay decisions are being made. You are not allowed to ask future employees about their pay history, what they currently earn or what they would like to earn.

2. Transparency regarding pay level and career progression

Employers must give workers a description of the criteria used to define their pay, pay levels and pay progression, like increases and promotions. Those criteria must be objective and gender neutral. Be careful not to base your pay & reward decision on any of the protected criteria (gender, age, background etc).

3. Right to information

Employees have the right to request information about their individual salary level and the average salary level, broken down by gender. This right applies to all employees irrespective of company size, which means that even if your company is too small for the mandatory reporting, you must still answer employee questions. This information should be provided within two months.

4. Pay gap reporting

Employers with more than a hundred workers must report on the pay gap between female and male workers in their organization. All companies with more than 250 employees start reporting in 2027 on an annual cadence. You must report both the average and the median gender pay gap. (The median is the salary in the middle, where 50% of employees earn more and 50% earn less.)

5. Joint pay assessment

If the pay gap report shows a difference in average pay between female and male workers of at least five percent, and it can’t be justified by objective factors and has not been remedied within six months after the report, the employer is required to carry out a pay assessment in cooperation with workers’ representatives.

6. Remedies and enforcement

Workers have the right to full compensation for the loss and damage sustained. This includes the recovery of back pay and related bonuses or payments in kind, compensation for lost opportunities, moral prejudice, and any harm caused by other relevant factors as well as interest on arrears. The Directive introduces a ‘burden of proof’ on the employer in cases of alleged pay discrimination. Companies can also be fined for repeat infringements.

Why Wait?

When you look at vacancies, you will notice that companies are already starting to be more open about pay: it's becoming more common to see salary bands in ads. About 50% of ads now show them and that number is climbing steadily. It's a first step towards eliminating pay gaps.

Keep in mind that addressing pay disparities is not just a legal requirement; it is also a moral imperative and good business practice. Research has shown that companies with more gender diversity in their workforce are more innovative, make better decisions, and have higher financial returns. Additionally, addressing pay disparities can help improve employee satisfaction, retention, and motivation.

The Directive gives you a deadline to publish pay gap reports. I would encourage you to start reporting as soon as possible, e.g, as part of your ESG reporting. I know several companies who publish their (gender) pay gaps on a regular basis. The direction is clear, so if you are serious about tackling this issue, publishing these reports now signals to your employees that you are aware of the problem, and that you are actively monitoring and remedying it. It will also give you some much needed experience before reporting becomes mandatory. The time is now!

Next time I'll answer reader questions. If you have one you'd like to add, please send me a DM.

Have a great day, Anita

Lightning Round

• Not paying women equally when they perform work of equal value is expensive. And with a settlement of $25M, Oracle is joining a long list of companies who find out the hard way. [Link ]
• Do pay transparency laws help shrink the gender pay gap? New research from Syndio provides the answer [Link ]
• Helping your female colleagues increase their salary by disclosing yours is the fair thing to do according to financial analyst Jamie Jones [Link ]
• Using a pay range from $50.000-$180.000 in a job ad is not in good faith says New York City Commission on Human Rights [Link ]

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