On 30 March 2023, a large majority in the European Parliament approved the new "EU Pay Transparency Directive." With this directive, Europe aims to implement concrete measures to close the gender pay gap. Among other things, the directive gives employees access to the information needed to determine whether they are being treated fairly compared to employees in the same company and gives employees the necessary tools to claim their right to equal pay.  Member states have three years to transpose the directive into national legislation.

Why does this matter?

This directive will have a big impact on reward policies within companies, for example:

  • Employers must already inform about the initial wage level or pay scale in the job announcement or before the interview. Employers cannot ask future employees about their pay history.
  • Employees have the right to request information about their individual salary level and the average salary level, broken down by gender, for categories of employees doing the same work or work of equal value. This right applies to all employees irrespective of company size.
  • Obligation to report annually on the gender pay gap for companies with more than 250 employees. Companies with more than 100 employees should report every three years.
  • A joint pay gap assessment must be conducted with employee representatives if the gender pay gap exceeds 5%.

These new obligations are part of a larger European movement that goes far beyond gender equality. In addition to gender equality, companies will have to strive for workplace diversity and inclusive policies in the future. This is seen as essential by Europe and fits into the framework of a future proof ESG strategy (Environmental, Social and Governance standards).

How can companies prepare?

The clock is ticking, as member states now have three years to transpose this directive into national law. Employers can prepare by:

  • Mapping the potential current wage gap based on objective data and statistics;
  • Drafting an ESG future proof wage policy;
  • Establishing clear objectives & plan of action to close the wage gap;
  • Drafting policies and procedures;
  • Step-by-step implementation and follow-up; and
  • Communicating to all stakeholders.

What are the sanctions for non-compliance?

  • Compensation for employees who have been victims of gender pay discrimination, including full recovery of back pay and related bonuses or benefits of any kind.
  • Reversal of burden of proof - where the employer has failed to meet its transparency obligations, it will be up to the employer, not the employee, to prove that there was no wage discrimination.
  • Sanctions will include fines - member states must establish specific sanctions for violations of these regulations, including fines.
  • Organizations watching over equal treatment and employee representatives may act on behalf of employees in judicial or administrative proceedings.

Equal work deserves equal pay. And for equal pay, you need transparency. Women must know whether their employers treat them fairly. And when this is not the case, they must have the power to fight back and get what they deserve.

Ursula von der Leyen
President of the European Commission

Today’s adoption of the pay transparency directive is a significant step towards addressing the gender pay gap in the European Union and increasing women’s economic and financial independence.

Helena Dalli
EU Commissioner for Equality

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Authors: Amanda De Meulenaer, Manager People Services & Mary-Ann Staar, Sr. Counsel KPMG Law