How will the EU Pay Transparency Directive change the hiring process?
Complying with the new legislation will require changes to steps of the hiring process which are considered common practice for almost every company – impacting job adverts and interviewing in particular.
There's a lot for companies to understand and prepare for. David Lorimer, Legal Director at Lewis Silkin, has even called the Directive “the most significant change to employment law across the EU in decades”.
In this post, we explain Article 5 of the Directive, which covers new pay transparency rulings for job applicants, including:
- What rulings on pay transparency for job applicants are included in the EU Pay Transparency Directive?
- Why are these rulings important for candidates and companies?
- How does this compare to existing job applicant requirements across Europe and the world?
- How can European companies get prepared: do we need to adjust job descriptions and hiring processes to be compliant?
What rulings on pay transparency for job applicants are included in the EU Pay Transparency Directive?
At its core, the EU Pay Transparency Directive aims to reduce pay discrimination by increasing transparency. That begins during the application process, particularly in terms of salary visibility and salary negotiating power.
So, Article 5 of the EU Pay Transparency Directive covers pay transparency rulings for job applicants ‘prior to employment’.
The key things to note are:
- Employers must disclose the salary level or range for all jobs before interviews take place, either within the job description or via a different channel
- Employers must not ask job applicants about their salary history during the application process
- Employers must ensure all job titles and job descriptions use gender neutral language
- Employers must ensure all recruitment processes are free from discrimination.
In terms of enforcing these rulings on pay transparency for job applicants, the Directive also rules that the burden of proof in pay discrimination cases will now be on the employer – where traditionally it has been on the employee. This means that if a case is brought against your company, it will be up to you to prove that the company has not violated any of the above rules.
Penalties for violations will be determined by individual EU member states, but the Directive deems that they must be ‘effective, proportionate, dissuasive, and will include fines’.
💡 Here’s the wording in full from the EU Pay Transparency Directive on pay transparency for job applicants:
Article 5 – Pay transparency prior to employment:
1. Applicants for employment shall have the right to receive, from the prospective employer, information about:
a) the initial pay or its range, based on objective, gender-neutral criteria, to be attributed for the position concerned; and
b) where applicable, the relevant provisions of the collective agreement applied by the employer in relation to the position.
Such information shall be provided in a manner such as to ensure an informed and transparent negotiation on pay, such as in a published job vacancy notice, prior to the job interview or otherwise.
2. An employer shall not ask applicants about their pay history during their current or previous employment relationships.
3. Employers shall ensure that job vacancy notices and job titles are gender-neutral and that recruitment processes are led in a non-discriminatory manner, in order not to undermine the right to equal pay for equal work or work of equal value (the ‘right to equal pay’).
Why are these rulings important for candidates and companies?
The main principle behind the EU Pay Transparency Directive is that equal work deserves equal pay.
The overall lack of transparency about salary levels we have today makes it very difficult to identify and prove when discrimination means that equal work is not receiving equal pay, and therefore to take action to reduce pay discrimination – which is why the Directive is centred on increasing pay transparency.
The core principle behind the EU Pay Transparency Directive is that work of equal value deserves equal pay – and that starts with the job application process.
Within this, increasing pay transparency during the application process is important because when salary information is not shared the power inevitably lies with the employer when it comes to salary negotiations.
This point stands for salary history too: when an employer asks a candidate their existing pay it adds to their power in the negotiation process. At the same time, asking for salary history can also bring bias, wherein a salary offer is determined based on knowledge of previous salary rather than the skills and ability of the candidate – ultimately if all employees receive equal pay for equal work then previous salaries should not matter.
The Directive refers to this as “an information asymmetry” which “limits the bargaining power of applicants”.
So, for job candidates, these rulings on pay transparency for job applicants means they can:
- Better evaluate whether they are well matched for a role in a financial sense
- Identify when pay transparency is not taking place and when pay discrimination is taking place
- Enforce their right to equal pay through making pay discrimination visible, or opening a case against a (prospective) employer when necessary
- Have the confidence to negotiate their salary – especially for women, being asked about salary history has been shown to reduce confidence to negotiate.
All of which should go a long way to increasing pay equity, and especially towards eliminating the gender pay gap – which we covered in our first article on the EU Pay Transparency Directive.
Plus, on top of this, there are also a lot of benefits for companies too:
- Access to better and/or better-matched talent – research by LinkedIn found that many job seekers will not apply to roles that don’t advertise a salary range
- Better matching of candidates to job openings will reduce wasted time throughout the entire application process – especially when it comes to job offer negotiations, as you’ll be starting from a shared understanding
- Pay transparency and a culture of openness about pay has been shown to increase trust amongst employees, who are able to see that their pay has been fairly calculated, which is a key factor for retaining talent
- Research has shown that more varied teams make better business decisions and lead to better performance, so increasing transparency and reducing discrimination is only positive for your business’ bottom line
- Companies who take the opportunity to re-evaluate their practices and find new ways to further improve pay transparency and equity will set themselves apart from the competition and enhance their reputation as desirable employers – in brief, it could be huge for your employer brand.
How does this compare to existing job applicant requirements across Europe and the world?
Many EU states already have pay transparency regulations in place, including Germany, France, Spain, Italy, and the Netherlands – we outlined these existing regulations in our first article on the EU Pay Transparency Directive.
However, most of those existing rulings do not cover job applicants or specifically the two key points of including salary ranges in job postings and not asking about salary history – although this is generally frowned upon already as an invasion of candidate privacy.
This means that there will be new regulations coming across all EU states, as they roll out the rulings in the EU Pay Transparency Directive.
The Directive is designed to “lay down minimum requirements”, and different EU member states will now interpret the Directive in different ways and introduce different pay transparency measures – we’ll be sharing updates on how the Directive is being rolled out in different countries as information arises, so make sure you’re subscribed to our newsletter to be the first to know.
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Across the world, similar pay transparency laws are already coming into play, particularly in the USA where several states have made it a legal requirement to include salary ranges in job adverts – including Colorado, New York, California, and Washington.
The feedback from the US so far has been mixed. The need to enable employees to negotiate their salary on an equal foundation to help close pay gaps is clear. But, some companies have manipulated the rules by listing incredibly broad salary ranges or by not publicly advertising roles and rather relying on recruiters. Of course, this completely undermines the need to increase pay transparency. The EU Pay Transparency Directive does include specific wording on determining pay structures based on the ‘value of work’ and ‘objective criteria’ which should eliminate any misleading interpretation of the rules, but it’s still important learning for the EU rollout.
How can European companies get prepared: do you need to adjust hiring processes to be compliant?
Here are a few starting points to prepare for this job applicant aspect of the EU Pay Transparency Directive:
- Brief any stakeholders within your company who will need to be involved in making changes e.g. HR / people, recruitment, finance, and legal teams
- Review your process for writing job descriptions and ensure it a) includes salary ranges going forward and b) all job titles and descriptions are written in gender neutral language
- Review your interview process and ensure that it includes the rule to not ask about salary history
- Review your salary structure – your salary ranges for different job roles are going to be out in the open, so it’s worth making sure you have an evidence-backed structure in place that aligns with your company values and the latest market insights, that you’re proud to have visible alongside your brand name
- Communicate internally to ensure all team members involved in hiring, interviewing, salary negotiation are clear on the upcoming changes and the legal implications of violating them
- Communicate with existing employees to make them aware of upcoming changes as well as to have an open conversation about your salary structures for different job roles – because those existing employees will soon be able to see salary ranges for new roles too, so internal transparency about your approach is just as important as for new candidates.
If you’re looking for support with reviewing and updating your salary structure, understanding how your competitors and the wider market do compensation is a useful starting point – sign up to access real-time market data on compensation and pay equity (for free).