On 10 May 2023, Directive (EU) 2023/970 of the European Parliament and of the Council of the European Union was published introducing new measures to ensure equal pay for men and women through pay transparency. In addition, this legislation sets out the compliance mechanisms that companies must follow to ensure that they follow this supposed principle of equality.
In today’s article, we will analyse the main points of the European Pay Directive, how it will be implemented and what impact it may have on organisations (public and private), both in terms of internal practices and accountability to employees.
Targets of the new pay transparency directive
Directive 2023/970 aims to reinforce the principle of equal pay for men and women through the implementation of measures such as pay transparency, with the aim of eliminating unjustified pay gaps.
It therefore seeks to promote greater equity in the workplace by fighting forms of pay discrimination, including intersectional discrimination. In addition, it also seeks to strengthen access to information, the right of employees to know the pay levels in their company and to demand a review if a difference of more than 5% is detected that cannot be objectively justified.
When should the pay transparency directive be implemented?
Directive 2023/970 requires Member States to implement all the provisions necessary to meet its goals by 7 June 2026, by which time the legislation must be fully transposed into national law. Each Member State will report to the European Commission on the transposition measures it adopts, providing a summary of the results of the impact assessment of these measures, especially in relation to companies with fewer than 250 employees, as well as the reference to the place where this assessment will be published.
In addition, the national provisions will include an explicit reference to the directive, in line with the arrangements laid down by each State for its official publication. This date therefore marks the formal start of the mandatory application of the regulation for companies, which will have to adjust their remuneration policies in accordance with the transparency and fairness required by the regulation.
Which companies should apply pay transparency?
Although the regulation affects all organisations, both public and private, it establishes different obligations depending on the size of the workforce. Thus, companies with more than 250 employees will be required to report annually on gender pay, while companies with between 100 and 249 employees will be expected to report every three years.
On the other hand, smaller organisations (less than 100 employees) are not obliged to report, but are not prevented from doing so on a voluntary basis. This segmentation will mean that large companies will be monitored more closely, and although medium-sized companies will also be subject to the transparency obligation, it will be with a lesser degree of periodicity.
What impact will pay transparency have on organisations?
The impact of this directive on organisations will vary widely, but what is certain is that it will involve pay revisions and structural changes within pay and career progression policies. Here are some of the obligations set out in the directive:
- Pay transparency in job vacancies: Companies will have to provide clear and accessible information on pay bands and pay policies to job applicants. This new requirement will ensure fairer and more informed pay negotiations, eliminating the opacity that often contributes to the perpetuation of pay gaps.
- Privacy of job applicants’ salary history: The directive will prohibit employers from asking job applicants about their salary history. This change aims to eliminate pay biases that can be perpetuated during negotiations.
- Access to information: Employees within organisations will have the right to request detailed information on gender-disaggregated pay levels, which will increase pressure on companies to correct any pay inequality.
- Pay gap reporting obligation: One of the most significant requirements is the obligation for companies to report the gender pay gap. If a pay gap of more than 5% is detected and cannot be objectively justified, companies will be obliged to implement corrective measures.
- Penalties and access to justice: A penalty regime is also envisaged for companies that fail to comply with their obligations. This provision may lead to an increase in labour law suits, especially in sectors or companies with a history of wage differentials.
Conclusion
Although the directive aims at greater fairness, its implementation will also pose challenges for organisations, as companies, especially medium and large ones, will have to make a considerable effort to comply with the new reporting and assessment requirements. In addition, meeting the deadlines set by the regulation will require rapid adaptation of their internal systems and processes.
Organisations that do not take proactive steps to address these obligations not only risk facing sanctions, but also risk damaging their reputation in an environment where equality and transparency are increasingly valued by employees and society at large.
Last posts
