Transparency about pay must be increased to ensure that men and women receive equal pay for equal work and therefore close the gender pay gap.
That’s the reasoning behind the EU Pay Transparency Directive.
We know a lot of HR and people teams are concerned about the implementation of this new legislation – suddenly there’s a whole new set of regulations to be the company expert on, and your pay transparency ideas need to accelerate into action much more quickly than you thought.
So, we’ve put together this guide on everything you need to know about the EU Pay Transparency Directive to help you get started.
In this guide, we cover FAQs about the legislation as well as an overview of what the text of the EU Pay Transparency Directive actually covers.
💡 Table of contents
Part 1: Frequently asked questions:
- What is the EU Pay Transparency Directive?
- Why the focus on pay transparency?
- What companies does the EU Pay Transparency Directive apply to?
- Does the EU Pay Transparency Directive apply to UK companies?
- Does the EU Pay Transparency Directive apply to contractors or freelancers?
- How does the EU Pay Transparency Directive differ to existing pay transparency legislation across Europe?
- When will the EU Pay Transparency Directive be in force?
- What are the key changes the EU Pay Transparency Directive will mean for employers?
- What needs to be included in gender pay gap reporting under the EU Pay Transparency Directive?
- What is a joint pay assessment?
- How should employers be preparing for the EU Pay Transparency Directive?
- Where do I go to read the full text of the EU Pay Transparency Directive?
Part 2: A full overview of what’s included in the EU Pay Transparency Directive
- Chapter 1: Setting the scene – Articles 1 to 5 of the EU Pay Transparency Directive
- Chapter 2: Pay transparency rulings – Articles 5 to 13 of the EU Pay Transparency Directive
- Chapter 3: Remedies and enforcement – Articles 14 to 26 of the EU Pay Transparency Directive
- Chapter 4: Horizontal provisions – Articles 27 to 37 of the EU Pay Transparency Directive.
Part 1: Frequently asked questions
Firstly, let's tackle the most frequently asked questions about the EU Pay Transparency Directive.
What is the EU Pay Transparency Directive?
The EU Pay Transparency Directive is a set of new rules introduced by the European Council to increase transparency about pay for employees throughout the EU – representing a significant change in employment regulations around pay transparency and pay equality.
“This is probably the most significant change to employment law across the EU in decades, and it looks set to change the landscape for equal pay challenges, putting significant onus on employers to fix existing disparities or face challenges”.
The use of the term ‘directive’ means that this set of rules represents a consistent goal or framework which EU countries must achieve – but it’s up to individual countries to determine and implement their own laws to reach those goals.
That’s as opposed to a ‘regulation’ set by the EU which would mean that the rules are binding legislation and must be rolled out exactly as stated across the impacted member states.
Because of this, the rules within the Directive are fairly top level and represent a minimum requirement, so we may see differences in how EU countries implement them – we’ll share more information on this as we see countries roll out the Directive, so make sure you’re subscribed to our newsletter to keep up-to-date with the latest.
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Why the focus on pay transparency in the EU Pay Transparency Directive?
The core aim of the EU Pay Transparency Directive is to close the gender pay gap in the EU, ensuring that men and women receive equal pay for equal work.
So how does pay transparency fit into that?
Well, without transparency about pay it’s impossible for both employers and employees to be aware when differences in salary are occurring that could be a result of discrimination – especially because a lot of the time it comes as a result of unconscious bias when creating job levels and pay structures. And that means it’s also impossible to challenge and address those differences.
Therefore, increasing pay transparency is necessary to reduce pay discrimination and to close the gender pay gap – which is why it’s the priority of the EU Pay Transparency Directive.
“Pay transparency allows workers to detect and prove possible discrimination based on sex. It also shines light on gender bias in pay systems and job grading that do not value the work of women and men equally ... Since such bias is often unconscious, pay transparency can help raise awareness of the issue among employers and help them identify discriminatory gender-based pay differences.”
What companies does the EU Pay Transparency Directive apply to?
The EU Pay Transparency Directive applies to all public and private sector employers in the European Union.
The gender pay gap reporting requirements within the EU Pay Transparency Directive apply as follows:
- Companies with more than 250 employees will be required to report annually
- Companies with 100-249 employees will be required to report every three years
- Companies with less than 100 employees will not be required to report (though individual EU member states could choose to change this during implementation).
Does the EU Pay Transparency Directive apply to UK companies?
If a company is registered in the UK (or anywhere else non-EU) but has more than 100 employees based in EU member states, they will need to comply with the legislation and reporting requirements for that location.
The EU Pay Transparency Directive rulings also go above and beyond existing pay transparency and gender pay gap reporting legislation in the UK, and so UK employers may find that they need to align with the rulings anyway to remain competitive as the wider talent market trends towards pay transparency.
Does the EU Pay Transparency Directive apply to contractors or freelancers?
No, the EU Pay Transparency Directive does not apply to contractors or freelancers.
The wording used is that the Directive “applies to all workers who have an employment contract or employment relationship as defined by law” which excludes contractors.
How does the EU Pay Transparency Directive differ to existing pay transparency legislation across Europe?
In general, the EU Pay Transparency Directive introduces much stricter rules on pay transparency than currently exists across European countries.
For an explanation of existing pay transparency legislation and gender pay gap reporting in Germany, France, Italy, Spain, the Netherlands, and the UK, head to our article: The EU Pay Transparency Directive and gender pay gap reporting requirements
Or, to understand existing gender pay gap reporting across the world, take a look at this gender pay gap map by the team at Lewis Silkin.
When will the EU Pay Transparency Directive be in force?
The EU Pay Transparency Directive came into force on 6 June 2023 – meaning it has been official EU legislation since that date.
However, individual EU member states now have three years to implement the legislation within their own national laws, by 7 June 2026. Of course, it’s possible some will do this more quickly than that official date.
There will be a staggered rollout of gender pay gap reporting requirements, with the first deadlines as follows:
- Employers with 150 or more employees will need to submit gender pay gap reporting in June 2027, reporting on the calendar year of 2026
- Employers with less than 150 employees will need to submit gender pay gap reporting in June 2031, reporting on the calendar year of 2030.
We'll cover how individual countries implement the EU Pay Transparency Directive into national laws – subscribe to our newsletter to get notified when this happens.
What are the key changes the EU Pay Transparency Directive will mean for employers?
There are four main areas of ruling covered by the EU Pay Transparency Directive which result in changes for employers:
- Stricter gender pay gap reporting. Companies with over 100 employees will be required to submit reports on their gender pay gap, and any company with a gender pay gap of over 5% will be required to conduct a joint pay assessment in cooperation with employee representatives to further analyse the gender pay gap and take action to reduce it. Read more about gender pay gap reporting under the EU Pay Transparency Directive.
- Increased access to pay information for employees. Employees will be entitled to request information on pay levels and the criteria for career and pay progression. Read more about the rulings on worker rights to pay information within the EU Pay Transparency Directive.
- The burden of proof shifts to the employer. In any case regarding pay discrimination, the employer will need to prove that pay discrimination has not taken place – whereas historically the employee would have to prove that pay discrimination has taken place. Read more about enforcing ruling and potential penalties within the EU Pay Transparency Directive.
- Increased access to pay information for job applicants. Employers will be required to include the salary range for all job positions to candidates before interviews. Employers will be banned from asking candidates about their salary history. Read more about the rulings for job applicants within the EU Pay Transparency Directive.
For a more comprehensive overview of what’s included in the EU Pay Transparency Directive, head to Part 2 (after the FAQs).
What needs to be included in gender pay gap reporting under the EU Pay Transparency Directive?
The gender pay gap reporting must include:
- Mean and median gender pay gap for base salary
- Proportion of men and women receiving variable pay
- Mean and median gender pay gap for variable pay
- Proportion of men and women in quartile pay bands i.e. lower pay, lower middle, middle upper, upper
For more information on this, head to: The EU Pay Transparency Directive and gender pay gap reporting requirements
What is a joint pay assessment in the EU Pay Transparency Directive?
Article 10 of the EU Pay Transparency Directive rules that any employer which identifies a gender pay gap of over 5% in any category included in the reporting requirements and:
- cannot justify that gender pay gap through objective, gender neutral explanations
- does not rectify the gap in average pay within six months of submitting the report
… must then conduct a joint pay assessment.
The joint pay assessment is further analysis of the gender pay gap data, including identifying the root causes of gender pay differences and measures to address them.
This assessment must be conducted in cooperation with employee representatives, and must be made available to all employees once complete.
How should employers be preparing for the EU Pay Transparency Directive?
In terms of gender pay gap reporting, companies can make a start by:
- Checking which reporting requirements apply (see above: What companies does the EU Pay Transparency Directive apply to?)
- Gathering the required data (see above: What needs to be included in gender pay gap reporting?) to see what existing differences in pay across gender there are
- Analysing data to understand the reasons behind pay differences based on gender – if there are any gaps above 5% as this is when you’d also need to conduct a joint pay assessment.
- Documenting if there are objective, gender neutral justifications for any gaps above 5% – you’ll need this information for your reporting.
- And for areas where there are no viable justifications, start identifying and addressing gender pay discrimination issues to reduce your gender pay gap to less than 5%
And in terms of increased salary information for employees and applicants, companies should:
- Check existing salary bands across job levels and positions and ensure you’d be comfortable for them to be shared with existing employees and publicly as part of the hiring process – and if you wouldn’t be comfortable, now’s the time to improve your salary band structure.
- Check your hiring process and make adjustments to ensure a) salary ranges can be given to candidates before interview, b) all language is gender neutral, and c) no interviewer will ask a candidate about their salary history.
- Check employment contracts and remove any pay secrecy clauses – this will now be prohibited under the rulings on employee access to information.
Where can I read the full text of the EU Pay Transparency Directive?
To read the EU Pay Transparency Directive in full, go to the EUR-Lex website, where all EU legal publications are housed.
Part 2: A full overview of what's included in the EU Pay Transparency Directive
To get you set up as the company expert, let’s take a look at what the full text of the EU Pay Transparency Directive includes – chapter by chapter.
Chapter 1: setting the scene
Chapter 1 is short and sweet, covering the conditions under which the EU Pay Transparency Directive applies:
- Article 1 explains the purpose of the Directive is to ‘strengthen the application of the principle of equal pay between men and women… through pay transparency.’
- Article 2 sets the scope of the Directive as applying to all employers across public and private sectors, and to all workers with an employment relationship.
- Article 3 defines key concepts used within the Directive, importantly including defining that ‘pay’ refers both to base salary and other cash or non-cash compensation received from an employer for work completed.
- Article 4 establishes the need for EU member states to put in place tools or methodologies for objectively assessing the relative value of work performed within a company in order to be able to determine what ‘equal work or work of equal value’ means – as this is core to the Directive, which aims to ensure that men and women receive equal pay for equal work or work of equal value.
Chapter 2: pay transparency rulings
Chapter 2 contains the rulings on pay transparency for employers – so this is the chapter that’s really worth gaining an understanding of. The articles included are:
- Article 5 covers pay transparency prior to employment, with two key rulings that applicants must receive the salary range of a job position before interview and employers must not ask about an applicant’s salary history during the hiring process.
- Article 6 covers pay and progression transparency for existing employees, ruling that employers must make gender neutral criteria for pay levels and career progression ‘easily accessible’ to employees.
- Article 7 covers employee rights to pay information, ruling that employees have the right to receive information on pay levels for employees doing equal work or work of equal value to them – and that employers must make employees aware of this right annually. It also rules that employees cannot be prevented from discussing salaries.
- Article 8 rules that employers must make any information shared relating to articles 5, 6, 7 accessible for employees with disabilities.
- Article 9 explains the gender pay gap reporting requirements introduced by the Directive, including how often reporting must be conducted and in what format (a ‘user-friendly way on its website or otherwise publicly available). It also highlights that employees have the right to request further information on explanations for gender pay gaps identified.
- Article 10 rules that any employer with a pay gap over 5% must also conduct a ‘joint pay assessment’ with employee representatives including further analysis on the gender pay gaps identified and measures to address differences in pay across men and women. The joint pay assessment must also be made available to all employees.
- Article 11 rules that EU member states must provide ‘technical assistance and training’ to all employers with less than 250 employees to help them comply with reporting requirements.
- Article 12 covers data protection for the reporting, which must be in line with GDPR.
- Article 13 establishes that EU member states should ensure ‘social dialogue’ as they rollout the Directive in national law. Social dialogue is a key concept in EU law which simply means that ‘social partners’ i.e. employers and workers organisations must be consulted.
Chapter 3: Remedies and enforcement
Chapter 3 establishes how EU member states should look to enforce the rulings within the EU Pay Transparency Directive.
There’s a lot of articles in this Chapter and much of the nuance will be better understood once individual countries implement the legislation in their national law, so we won’t dive into every single thing – but let’s take a look at some of the key inclusions:
- Official court procedures will be available to employees to enforce their right to equal pay (Article 14) and employees who have been discriminated against will have a legal right to compensation which must include ‘full recovery of back pay and related bonuses or payments in kind, compensation for lost opportunities and moral prejudice’ (Article 16)
- The ‘burden of proof’ in pay discrimination cases shifts from employee to employer i.e. the employer will have to prove that pay discrimination has not taken place for a case to be dropped (Article 18)
- EU member states must implement ‘effective, proportionate and dissuasive’ penalties for companies who do not comply to the legislation on pay transparency (Article 23)
Chapter 4: horizontal provisions
Chapter 4 outlines further requirements for EU Member states as they rollout the rulings within the EU Pay Transparency Directive.
Again, there’s a lot of legalese in this section and much of it applies only at a country-level, but here are some of the relevant highlights:
- EU member states can choose to introduce legislation which goes above and beyond the Directive in favour of workers – but cannot use it to reduce the level of worker protection in any area (Article 27)
- EU member states must establish a monitoring body responsible for tasks such as raising awareness about pay transparency and the right to equal pay and publishing insights on the data gathered through gender pay gap reporting (Article 29)
- EU member states must bring the rulings into force in national law by 7 June 2026 (Article 34).
😟 Worried about existing pay levels, career progression pathways, or salary band structures ahead of the rollout of the EU Pay Transparency Directive?
Or not sure where to start with gathering data on your gender pay gap?
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