EU commission agrees on pay transparency rules

If you are a global employer, you are likely quite familiar with the pay transparency laws that have quickly been enacted in some of the most populated states in the U.S. While Europe and the UK have required gender pay gap reporting for quite some time, there have not been any rules forcing employers to be quite as forthcoming as the pay transparency laws in the U.S. do. That’s not to say it’s due to a lack of trying, however.

What’s happened so far?

Back in March 2021, the European Commission presented a proposal on pay transparency, which was a political priority of the President of the European Commission, Ursula von der Leyen. Specifically, President von der Leyen focused on the fact that “equal work deserves equal pay. And for equal pay, you need transparency.” She understood the importance of empowering women in particular to know whether their employers are paying them fairly.

The next step in the process for this proposal was to receive approval from the European Parliament and Council of the European Union. If adopted, the EU Member States would have two years to make the Directive into law in their individual countries. Since then, not much had happened—until December 2022.

December 15, 2022: EU Commission takes steps forward

On December 15, 2022, the EU Parliament and EU Commission reached an agreement on how to tackle pay transparency. Under these new rules, EU employers will have to provide more pay transparency and make sure that they are adopting and enforcing equal pay principles between men and women workers.

The Directive has two key elements: pay transparency measures, and better access to justice for victims of pay discrimination. We’ve broken these down for you below:

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?

This agreement is now subject to formal approval by the EU’s co-legislators. Once approved, 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.

Final thoughts

As written, the Directive truly empowers employees to demand equal pay for equal work and to know what their rights are. The Directive will force employers to become more transparent about their pay practices, which will require them to start evaluating their compensation philosophies early and often.

We are now in an age where speaking openly about salaries is no longer taboo, and employers have an opportunity to brand themselves as being on the cutting edge of truly valuing their workers by being transparent about pay. We’ve already seen in the U.S. that when employers are transparent about pay practices, it helps them retain and attract the best talent.

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.

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