US Pay Equity Regulations and the EU Pay Transparency Directive

Complying with pay equity regulations is a constant challenge for employers operating in multiple jurisdictions. In this article we explore the parallels between the EU Pay Transparency Directive, and the diverse state-level regulations and federal laws in the US.?

US compliance: challenges facing employers?

As they endeavor to ensure workplace fairness and equal compensation, American employers face increasingly?complex pay equity legislation . For instance:

• At least six states assess equal pay claims based on “substantially similar” work.?
• At least eleven states use “comparable work” to evaluate equal pay claims.?
• In?21 states , plaintiff employees must prove they were paid less for “equal work.”

Pay transparency laws may also be interpreted differently across the 12 regional circuits. In the case of?Korty v Indiana ?in the Seventh Circuit, prior salary justification was deemed an acceptable defense by the court, but cannot be used to justify a gender pay gap in at least six other circuits.?

Amendments to state-level regulations

Employers may also struggle to stay on top of frequent changes at the state and local levels. Recent amendments to state-level regulations include:

• Colorado Amended Equal Pay Act: The amended legislation updates requirements on pay transparency for job listings and internal promotion opportunities and come into force on January 1st, 2024. The recovery period for back pay for successful pay discrimination claims has also been increased from three years to six years.?
• Hawaii:?On July 3rd, 2023,?SB1057 was signed into law ?by Governor Josh Green. The pay transparency bill means Hawaii is the latest state to require certain employers to include salary information in job listings. Further, the legislation also prohibits pay discrimination based on any protected category under Hawaii law, not just sex. It also prohibits disparate pay for “substantially similar” rather than “equal work.” Again, this law takes effect on January 1, 2024.
• Illinois:?Updated?pay transparency legislation ?is expected imminently.?HB3129 ?amends Illinois’ Equal Pay Act (IEPA), making it unlawful for an employer with 15 or more employees to fail to include pay scale and benefits in any job listings for positions performed either in Illinois, or outside of Illinois where the employee reports to a supervisor, office, or other work site in the state. The bill was sent to Governor Pritzker for signing on June 15th, 2023, and will take effect from January 1st, 2025.?

EU Pay Transparency Directive versus US pay equity regulations

Organizations operating across the EU face similar pressures to comply with the EU Pay Transparency Directive, which was formally adopted by the Council of the European Union on?April 24th, 2023 .?

In effect:

• By 2026, all large employers (250 or more employees) must report on their gender pay gaps.?
• By 2031, all smaller employers (100 or more employees) will have to comply.

Employers with fewer than 100 workers may opt to voluntarily submit pay data, but should note that EU member states can choose to make pay data reporting mandatory for all organizations, regardless of size.??

Changes to pay transparency reporting in the EU?

The EU Pay Transparency Directive introduces five key elements:

• Salary history ban: Employers cannot ask job applicants for information on their salary history and must provide salary information on all job listings prior to the interview.?
• All employees can ask for information on individual and average pay levels, categorized by gender, for workers doing the same work or work of equal value.?Employers must provide access to the criteria used to define salary and pay raises.?
• Where an?unjustified gender pay gap of 5% or more exists, employers must carry out a Joint Pay Assessment with workers’ representatives.?
• The?burden of proof will shift to the employer?to prove that there was no discrimination in equal pay claims.?
• Workers who suffer pay discrimination are entitled to compensation, including full recovery of back pay and related bonuses or payments in kind.?There is no cap on compensation.?

While member states may impose their own additional pay equity regulations, the EU Pay Transparency Directive is the minimum requirement for gender pay gap reporting and applies across all 27 member states.?

Parallels in fair pay practices?

Similarities in US pay equity regulations and the EU Pay Transparency Directive include the following:

Pay data reporting

For EU employers, the Directive provides a degree of consistency in compliance and pay data reporting.?

In the US, federal employment laws affecting fair pay practices include:

• Equal Pay Act of 1963 ; which amends the Fair Labor Standards Act and protects against wage discrimination based on sex
• Title VII of the Civil Rights Act of 1964 ?(Title VII) which prohibits employment discrimination based on race, color, religion, sex and national origin?
• Age Discrimination in Employment Act of 1967 ; enforced by the EEOC?
• Americans with Disabilities Act ?(ADA) of 1990?

In addition, a national?“Salary Transparency Act” ?was introduced in March 2023. If successful, HR1599 would require all employers nationwide to disclose pay ranges in job listings, provide wage ranges to job applicants, and provide that same information to existing employees.

Gender pay gap?

• Both US and EU employers must demonstrate efforts to ensure wage equality. Including sex as a determining factor to establish salary is deemed discrimination and in violation of employment law.
• Intersectionality ?is included in the US at federal level (EEOC Title VII ?“broadly prohibits discriminatory compensation practices against one protected basis, such as sex, or the intersection of two or more protected bases, such as sex and race”).?
• The EU Pay Transparency Directive makes provision for?intersectional discrimination ?and the needs of workers with disabilities.?
• Sanctions are becoming more punitive. Joint Pay Assessments will be triggered if the pay gap exceeds 5% in the EU, with no limit to compensation for recovery of back pay and benefits. The aim of the Directive is to ensure that penalties guarantee a “deterrent effect”.
• While US sanctions vary depending on state-level regulations, the recent?Goldman Sachs settlement ?and pending?Nike pay discrimination lawsuit ?demonstrate both the financial and reputational risks of failing to ensure workplace fairness and wage equality.?

Ensuring workplace fairness: EEOC Title VII and the EU’s AI Act?

While closing the gender pay gap remains a priority for employers, new legislation focused on AI is also emerging in the EU and the US.?

Newly issued?EEOC Title VII ?guidance is designed to eliminate potential AI bias in automated employment decision tools (AEDTs). The guidance applies to decisions on compensation and affects employers using AI tools such as pay equity software. Illinois, Maryland, and New York City?have also taken steps to eliminate bias in automated employment decision tools (AEDTs).?

On June 14th, the European Parliament approved the text of draft legislation for its?Artificial Intelligence Act , which considers AEDTs “high-risk applications.”

Navigate complex pay equity regulations with a trusted partner

Choosing the right pay equity software provider must be a priority to ensure fair pay practices and comply with pay equity regulations.?

Trusaic partners with employers to help them:?

• Navigate and comply with complex state-level regulations across the US, and;
• Prepare for compliance with the EU’s Pay Transparency Directive.?

We are?GDPR compliant ?and can assist any employer in any EU state in meeting its obligations under both the EU Pay Transparency Directive and the Corporate Sustainability Reporting Directive.

We are also fully compliant with the?EEOC Title VII technical guidance ?relating to providers of AEDTs.?

The only way to determine whether your pay practices are truly equitable is to consider intersectionality. Intersectionality is one of the key differentiators for?Trusaic’s PayParity ?pay equity audit software. PayParity can analyze compensation through the intersection of gender, race/ethnicity, age, and disability in a single statistical regression analysis.?

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Conducting a pay equity audit is a key component to ensuring equitable compensation within your organization. Just as important as the analysis is how you communicate findings and progress with various stakeholders. Download?The Pay Equity Communications Planner ?to learn best practices for discussing compensation, both internally and externally.