As the impending reality of the EU Pay Transparency directive draws near, businesses find themselves standing on the cusp of a significant paradigm shift. The weight of this directive is palpable, with a plethora of literature complicating the landscape. In this article, the experts at uFlexReward take on the challenge of navigating through the dense information surrounding the directive. With a mission to bring clarity to the complexities, the interview seeks to unravel the intricacies of the EU Pay Transparency directive. Join us as we embark on a journey to sift through the abundance of information, providing answers to crucial questions about what this directive truly means for businesses. This is your guide to understanding the impact, implications, and nuances of EU Pay Transparency—a comprehensive resource for unlocking the mysteries that lie ahead.
- Can you briefly explain what the EU Pay Transparency directive is and its primary objectives?
The EU Pay Transparency Directive is a piece of legislation that applies to EU member states. It came into force on 6 June 2023, but EU member states have 3 years to implement it into their own laws i.e. by 7 June 2026. The Directive is intended to improve gender pay equality given the gender pay gap across the EU stood at 13% in 2020. The Directive requires employers to:
- notify job applicants of the level of pay related to job vacancies
- not ask job applicants their salary history
- not prevent workers disclosing their pay in relation to pay equality
- ensure gender neutral job adverts and job titles
- provide information on pay to workers and their representatives in a timely mannor
- Provide employees with information about average pay levels and the criteria used to determine pay and career progression, broken down by sex for categories of employees doing the same work or work of equal value.
- answer clarification questions from workers, workers representatives and public labour/equality bodies
- annually inform workers of their right to request such pay information
- report gender pay gap (mean, median and by category of workers) including fixed and variable remuneration and the proportion of female and male workers receiving variable pay and in each pay quartile (annually for companies with 250 or more workers, every 3 years for companies with 150-249 workers and every 3 years from 2031 for companies with 100-149 workers)
- give worker representatives access to methodology for calculating reported pay information
- carry out a joint pay assessment with worker representatives if any pay gap is 5% or more, not justified by objective, gender-neutral criteria and not remedied within 6 months
- Why do you think many businesses appear to be unconcerned about preparing for the EU Pay Transparency directive at this stage?
Not many companies are starting to work on implementing the Directive yet. This is because each EU member state must pass its own legislation to give effect to the Directive, which will take time and may lead to variances across EU member states, making it difficult for companies to apply a consistent approach across the EU. The Directive sets a minimum standard, but EU member states may choose to introduce requirements that go further.
- What potential benefits do you believe businesses might gain from embracing pay transparency, and why do you think they might be overlooking these advantages?
The Directive places significant administrative burden on businesses, but I agree there are some business benefits. For example, depending on how the Directive is implemented in each member state and interpreted by companies, benchmarking may become much easier if pay levels are published on job adverts. This already the case in many US states such as Colorado and California. If the pay level is competitive, it may also help companies win talent. This Ensuring gender-neutral job adverts will ensure that the broadest range of talent apply for roles. Transparency and equality support a relationship of trust with employees that increases engagement and productivity and reduces attrition. The Directive requires a joint pay assessment with worker representatives in certain situations, which is an opportunity to work in collaboration with representatives to achieve the same goal, which has the potential to improve industrial relations in other matters, such as pay negotiations and collective consultation. I am not aware of any companies that set out to pay unfairly based on gender, so the Directive will focus businesses on auditing their pay practices to ensure this is the case.
- Are there any specific challenges or barriers that you’ve observed, which could be contributing to the lack of action among businesses regarding pay transparency?
Knowing where to start and lack of consistency across the EU. Some EU member states already have pay reporting obligations i.e. Spain, Ireland, Germany and France, which vary from the Directive. We also need to wait and see what member state legislation requires when implementing the Directive. Companies can start preparing in some aspects, for example, ensuring their employee pay data is centrally stored and up to date. However, some aspects will need further definition. For example, we don’t yet know for each member state what pay levels will be acceptable to provide to job applicants, whether contractors will be covered, reporting deadlines and how categories are workers are to be defined. Also, companies may not want to put themselves at a competitive disadvantage by publishing any information ahead of other companies i.e. gender pay gaps or pay levels for job vacancies.
- Some argue that pay transparency could lead to internal conflicts or disputes among employees. What are your thoughts on this, and how can businesses effectively address such concerns?
Yes, that is a likely risk. For example, an existing employee may see a similar job role advertised by the employer with a higher pay level. Or an employee may request and receive information about their pay level and discover it is lower compared to workers of the same category. Employees will no doubt raise these issues with their employer, which is one of the many reasons that employers should be prepared in advance. Firstly, employers can audit their pay practices to ensure they are fair prior to legislation coming into force in EU member states. Any anomalies can be assessed to ensure there is an objective and non-gender reason for the difference. This will reduce the likelihood of a complaint being raised in the first place, but also ensure a robust response if such complaints are raised. Companies may want to nominate a person or a team for any pay concerns to be raised to and encourage employees to speak up via that channel rather than taking to grievances, internal disputes or social media etc.
- Have you come across any companies that have successfully implemented pay equality measures? If so, what can we learn from their approach?
Salesforce is a very public example of taking steps to address the gender pay gap. In 2015 Salesforce audited its pay practices and increased pay for approximately 11% of its employees based on gender and race to the cost of $3m. What we learnt is that it is not a one and done thing. Salesforce repeated the exercise again 2 years later and found it needed to increase pay for 11% of its employees to the cost of another $3m. The Salesforce EVP of Global Employee Success Cindy Robbins said “The need for another adjustment underscores the nature of pay equity — it is a moving target, especially for growing companies in competitive industries. It must be consistently monitored and addressed.”
- As the EU Pay Transparency directive evolves, do you anticipate a shift in businesses’ attitudes towards it? If yes, what factors might drive this change?
Inevitably the closer we get to local legislation coming into force the more companies will be focused on operationalising the impact of the Directive on internal processes. And once the requirements have been in force for a couple of years, companies will get used to it and it will become second nature and a normal way business is run. For example, I remember when GDPR and UK gender pay gap reporting came into effect a few years ago. There was no action until about a year before, then a flurry of work getting ready and now it is just part of everyday business life. Business attitudes may change to value the benefits of transparency and how that approach can be expanded into other areas.
- Are there any industries or sectors where pay transparency is more prevalent, and what insights can be drawn from their experiences?
Tech start-ups tend to be more transparent on pay as they have fewer employees, but bear in mind it is difficult to scale back transparency as an organisation grows. Unionised businesses, particularly in Europe, tend to have set pay levels that are transparently published in collective bargaining agreements. For example, a level 2 engineer with 1 year experience will be paid X whereas a level 2 engineer with 5 years’ experience will be paid Y. On the face of it, this makes pay objective and transparent. However, there can still be a gender pay gap for other reasons, for example, lack of women in skilled engineering roles and women having fewer years of experience due to time off for caring responsibilities. Such differences should be justified on the basis of objective and gender-neutral criteria. Often companies rely on years of experience as an objective justification, but do number of years’ experience in a role impact the scope or skills required of the role, particularly after a certain initial period?
- What role can HR professionals and company leaders play in promoting and advocating for pay transparency within their organizations?
First thing to do is get the Directive on the business agenda. June 2026 may seem like a long time away, but the sooner companies start preparing the better. HR professionals can also play a role in advocating the benefits of pay transparency rather than just the administrative obligations.
- Considering the potential benefits of pay transparency, what advice would you give to businesses that are currently hesitant about adopting such measures?
Start with the basics. Get employee pay information into a centralised HR system and that includes all elements of pay like base pay, allowances, over time, bonus. Ensure data is correct and up to date, including job titles. Once you have all the data you will be able to run an audit, alongside legal advice if necessary, to understand the extent of any pay gaps. The results may not be as bad as you think!
- Do you think there are any misconceptions or misunderstandings surrounding the EU Pay Transparency directive that contribute to businesses’ lack of action? If so, how can these be addressed?
I think most businesses assume that EU directives create harmony across the EU, which will ensure simplicity and consistency of pay transparency obligations, and that the Directive does not come into force until June 2026. However, legislation in each member state may go beyond the Directive, use different definitions and reporting deadlines etc thereby creating differing obligations. Also, the Directive is already in force, and it is just EU member states who have until the latest of June 2026 to impose it into local law, so it could be earlier in some member states. Denmark, Finland and Sweden are well known for implementing EU legislation quickly.
The way to address these misconceptions is to get prepared early. Pull a project team together and start getting your house in order in plenty of time to resolve any issues before the Directive comes into force in member states.
- Is there anything different under the Directive than other pay transparency legislation already in force in the EU?
The Directive has different requirements to many EU member state’s current pay transparency laws. One of the biggest differences is the requirement to report gender pay gap by category of workers, which is essentially comparing like for like. Usually in gender pay gap reporting a company is not reporting a pay equality issue because it is comparing a broad group of male employees with a broad group of female employees. However, under the Directive, employers must report gender pay gap of workers doing the same work or work of equal value, which on the face of it discloses a pay equality issue and as such may give rise to a legal claim. This means under the Directive the main defence to an equal pay case for employers is justify any gap based on objective and gender-neutral criteria.
Also, the Directive doesn’t just require reporting, which is the case is some EU countries now. It requires employers to act by carrying out a joint pay assessment with worker representatives if any pay gap is 5% or more, not justified by objective, gender-neutral criteria and not remedied within 6 months. The requirement to notify job applicants of the level of pay related to job vacancies and not ask job applicants their salary history will be a new practice to most employers in the EU.
- In conclusion, what key message would you like to convey to our readers regarding the importance of pay transparency and its impact on businesses in the EU?
This is a significant piece of legislation, and it is coming our way in 2026. While that may seem like a long time away, the earlier you start preparing the better positioned you will be. As mentioned, get the Directive on the business agenda, pull together a cross functional project team, update employee pay information and job titles in your HR system and run an audit.