The EU Pay Transparency Directive: Is Your Organisation Ready?

Pay transparency has become a HR hot topic across the globe. From mandatory pay ranges in U.S. job listings to a post-pandemic revival of Gender Pay Gap reporting in the UK, legislatures have been busy entrenching the principle of pay transparency in law. Now, the passing of the EU Pay Transparency Directive is on the horizon. With sweeping changes expected, it’s no wonder that some companies are scrambling to keep up with the new rules - as well as shifting employee expectations.

EU Pay Transparency

What Is The EU Pay Transparency Directive?

The truth is, in 2023 women in the EU still earn 14% less than men. Equal pay for equal work is one the EU’s founding principles; yet, actually enforcing it has proven difficult. So, back in March 2021, the European Commission presented a proposal to bring in a sweeping range of binding pay transparency measures.

After passing through various levels, the Directive was approved on January 27, 2023 by the Committee on Women’s Rights and Gender Equality (FEMM) and the EU Committee and Employment and Social Affairs.

Now, there’s just one more step: the plenary vote in March 2023. If approved, Member States will need to transpose the new elements of the Directive into national law within three years.

The fundamental aim of the directive? To establish EU-wide minimum standards on pay transparency measures so that workers can assert their right to equal pay and squash the EU’s enduring gender pay gap.

What Are The New Rules?

The Directive brings in sweeping changes for employers that will massively impact their HR practices. Some of the key requirements include:

  • Obligatory Objective Measuring: Employers will need to have an objective method of comparing the value of work. This can include criteria such as educational requirements and responsibility. Importantly, comparators do not have to work for the same company and collective bargaining agreements can be used.
  • Pay Transparency For Job-Seekers: Employers will have to provide information about initial pay or pay range either in job postings or before interviews. Employers asking prospective employees about their pay history will be banned, as will pay secrecy confidentiality clauses.
  • Right To Information: Employees will have the right to request information from their employer about their pay level, broken down by sex. Employers must also be able to provide workers a description of the gender-neutral criteria used to define their pay, pay levels, and pay progression.
  • Public Pay Reporting: Employers will be required to publish information on their pay gap between female and male workers based not only on base pay, but also on complementary and variable pay such as bonuses. At first it will only apply to companies with 250+ employees, but in five years the companies with 100+ staff will also have to report this information.
  • Justice For Victims of Pay Discrimination: Victims of gender pay discrimination can receive compensation, including back pay and bonuses. Crucially, in an equal pay claim, the burden of responsibility will fall on the employer (not the employee) to prove that there wasn’t pay discrimination.

What Does All This Mean For Organizations?

The truth is, many companies are seriously unprepared for pay transparency. For organizations without objective HR processes, adequate protections or a culture of having it all out in the open, it’s clear that they’ll need to make big changes to comply with the Directive.

First up, the new rules will empower employees to access information and seek clarity on why they’re paid what they are. To prepare for these conversations, companies need to be ready to justify their pay practices with an objective system that can be explained clearly to staff.

A lot of this comes down to organizations having a solid system to establish what constitutes ‘equal work’ - not only in their own organization, but when compared to other similar companies. Only an objective, data-driven job evaluation scheme will break down and analyze the myriad of components that make up each job role.

In terms of hiring practices, organizations will need to get ready to post salary scales in their job listings. To do this, they’ll need to establish pay bands that not only make sense within their own organization, but that match up with the market rate and the salaries being offered by their competitors.

Finally, a key aspect of the Directive is making it easier for workers to claim their right to equal pay. So, organizations will need to prioritize establishing watertight, legally defensible pay evaluation strategies that are strong enough to stand up in court.

Sounds like a lot? That’s because it is! If - or more likely, when - the Pay Transparency Directive comes into action, many companies will find themselves needing to make some drastic HR changes. The good news is, gradar is ahead of the curve with a comprehensive solution.

So, How Can gradar Help?

By building an accessible, affordable and end-to-end job evaluation system packed with progressive features, gradar wants to help all businesses comply with emerging pay transparency laws and be at the forefront of bridging the gender pay gap.

Considering a wide range of factors such as professional knowledge, specific responsibilities and interpersonal skills, gradar offers a deeply analytical and highly objective approach to job evaluation.

Our system not only determines the internal relativities in an organization, but it also offers the potential to translate grading results into job codes from numerous salary surveys and labor agreements. This will help organizations comply with the objective measuring and right to information aspects of the looming Directive.

Also, gradar’s pay gap analysis feature helps companies make sure they’re getting pay equity right. By analyzing the distribution of salaries within a grade among male and female employees, our software spots discrimination before it becomes a real issue.

And if companies do end up in court, gradar’s point-based analytical approach offers justification for non-discriminatory pay practices. As recent headline-hitting equal pay cases have proven, a valid job evaluation scheme is an essential component of an equal pay defence.

Finally, gradar helps companies create salary bands and pay ranges. This gets companies fully prepared to post prospective salaries on job listings, making sure the figures are appropriate, competitive and - above all - equitable.

Want to prepare your business for pay transparency? Get in touch with our support team today to find out how gradar can help!