The New EU Equal Pay Directive: What Employers Everywhere Need to Know

Pay transparency and equal pay are no longer just ideals in the European Union. On March 30th, the European Parliament voted to adopt the EU’s pay equity and transparency directive. The aim is to ensure equal pay for equal work regardless of gender.

Each member state will now have to devise its own laws to implement the directive, but the impact on workers, companies, and economies promises to be huge. And, similar laws could be coming to the US soon.

From an employer perspective, is this just an added burden or is there an upside to pay transparency and equity?

A long road to equal pay

The concept of equal pay has been around in the European Union (EU) for at least sixty-five years, but the actual implementation has been a slow and ongoing process. 

1957. The principle of equal pay for equal work has been enshrined in the EU since as early as the Treaty of Rome in 1957. However, in the early years of the EU, equal pay for equal work was limited to the principle of non-discrimination on the grounds of gender. 

1970s and 80s. The first EU directive on equal pay was adopted in 1975, requiring member states to ensure that men and women receive equal pay for equal work. Another directive in 1986 extended the principle of equal pay to cover equal treatment in social security schemes.

2000s. Despite these directives, there continued to be a significant pay gap between men and women in the EU. In response, the EU introduced several further measures to address the pay gap, including the establishment of the European Institute for Gender Equality in 2007 and the adoption of a new gender equality strategy in 2010.

2014. In 2014, the EU introduced a new directive on the implementation of the principle of equal pay for male and female workers for equal work or work of equal value. This directive required member states to take measures to ensure that employers provide workers with the same pay for the same job or for jobs of equal value, regardless of their gender.

2021. However, the past non-binding recommendations did not achieve the objective of more effective implementation of the equal pay principle through pay transparency. The average gender pay gap in the EU stands at 12.7%. In 2021 the EU put forth a proposal to clearly define and implement the principles of equal pay for equal work, and it now has been approved.

2023 and beyond. With the adoption of the equal pay directive in March 2023, EU-27 countries will have three years to “transpose” the requirements into local law, so by early 2026 at the latest. Employers may then be given up to a year to start complying with key provisions, so latest 2027. But many countries likely will act sooner, so companies will need to begin preparing now. And there are many solid reasons they would want to.

What do the new regulations require?

The stated purpose of the directive is “to strengthen the application of the principle of equal pay for equal work or work of equal value between men and women through pay transparency and enforcement mechanisms.” The regulations apply to companies with at least 100 workers, with some provisions applying only to those with 250 or more workers. This article will focus on the rules for larger enterprises. The key provisions designed to achieve those goals include:

Published job pay ranges: Employers need to proactively provide pay ranges for job openings, prior to job interviews.

Pay history privacy: Employers may not ask applicants about their pay history, as this can serve to perpetuate existing pay disparities.

Pay criteria transparency: Employers must provide information on the criteria used to determine pay, pay levels, and pay progression, and those criteria must be the same for both men and women.

Gender pay gap reporting: Employers have to make available sex dis-aggregated data on pay. They must provide annually—and workers may request—data on pay for work of equal value, broken down by gender, for all workers.

Pay gap reporting by worker category: Employers must provide employees with information on the pay gap between female and male workers within each category of workers.

Joint pay assessment: When pay reporting for a category of workers reveals a gender pay gap of 5% or more, where the employer cannot justify the gap on objective gender-neutral grounds, employers must conduct a pay assessment, in cooperation with workers' representatives, and must remedy unjustified gaps.

Consideration of intersectionality: While the focus is on gender pay disparity, the employer may face increased liability if analysis shows that the subjects of pay discrimination are also disproportionately members of other protected classes based on race, ethnicity, religion, etc.

Many companies are already doing elements of the above, but the requirements now will be formalized and enforced, creating new impetus for the establishment of consistent equal pay processes and governance. You can find the full directive here.

The many benefits for employers of pay transparency

There is work to do, certainly, but implementing pay transparency and equal pay can bring many benefits for employers that make it worthwhile for its own sake, beyond just compliance.

Attracting and Retaining Talent: Employees are more likely to stay with an employer who is transparent about pay and offers equal pay for equal work. They are also more likely to be attracted to an employer who has a reputation for being fair and transparent in compensation practices.

Improved Employee Morale: When employees feel that their pay is fair and transparent, they are more likely to be motivated and engaged in their work. This can lead to increased productivity and job satisfaction, which can ultimately benefit the employer.

Reduced Risk of Legal Action: Pay transparency and equal pay practices can help employers avoid discrimination lawsuits and other legal action related to pay equity and compliance requirements. This can save the employer time, money, and reputational damage.

Enhanced Reputation: Employers who are transparent about their pay practices and offer equal pay for equal work can build a positive employer brand. This can act as a competitive differentiator to attract top talent and help to retain existing employees. And by the way, what’s good for reputation is good for investors.

Increased Trust and Transparency: Pay transparency and equal pay practices can help build trust between employees and employers, as well as promote transparency and fairness in the workplace. This can lead to a more positive and productive work environment.

Managing pay transparency effectively

Complying with the pay transparency requirements can result in additional costs to employers, yet the costs of inaction cannot be ignored, and there even are ways that pay transparency and equity can lower costs. We will address these topics soon in a future blog.

Whether you see the new regulations as a boon or a burden, they are coming. It’s clear that large organizations will need to prepare well before they take effect, and will need to have the systems in place to support the required analysis, reporting, pay structures, processes, communications, and compliance.

To learn how beqom can help your organization support fair and transparent pay practices, contact our rewards specialists for more information.

Download beqom’s 2023 Leveling the Paying Field Report for insight into employee experiences and perspectives on the gender pay gap, pay transparency, and other aspects of compensation.