Fair Pay Regulatory Update – 2021

EU – Draft Pay Transparency Directive

A very significant development for employers and employees.

Introduction

• The EU Commission has issued a draft Directive of Pay Transparency as part of the EU’s Gender Equality Strategy 2020-2025 and its commitment to a gender equal Europe. The Commission views as inadequate the implementation of current measures to ensure delivery of equal pay.
• The Directive comprises a far-reaching set of measures to secure equal pay through (a) significantly increased pay transparency obligations for employers and (b) significantly enhanced rights for employees. It goes far beyond recent provisions of Member States.
• The Directive means that every employer, regardless of size, will need to be confident that their pay structures and processes are delivering equal pay for same work and work of equal value in each EU Member State.
• The draft Directive is currently being reviewed by the European Parliament (representing EU citizens) and the European Council (representing Member States). Once amended and/or approved by them, Member States will have two years to transpose the Directive into national law. Compliance may therefore not be required till 2024 or later.

Employer action

• Given the scope and potential impact of the directive, employers must familiarise themselves with the terms of the Directive now, assess readiness and look to integrate into pay planning. Willis Towers Watson will be holding a Fair Pay webcast on 13 October during which we will also cover the EU Directive, what this means for reward management now and in the future. Further details and register here.
• In addition, we can run tailored sessions at any time. To register interest for a tailored session please contact Willis Towers Watson Fair Pay team.
• In our experience it can take three – five years for employers operating in multiple markets to become confident they are delivering equal pay across all pay and benefit elements.
• Taking action now not only prepares employers for the EU Directive and other regulatory changes in the US, Canada and beyond, it is also part of being an inclusive, equitable and diverse employer and addresses investor focus on being a responsible employer within the ESG agenda.

Directive details

Employers obligations on pay transparency (please note 4 – 7 especially)

1. All employers to provide pay level or pay range details in job adverts or prior to a job interview.
2. All employers prohibited from inquiring about pay history from job candidates.
3. Employers with 250 or more employees in an EU country to publicly disclose entity-level gender pay gaps for salary, variable pay and all pay and benefits elements.
4. Employers with 250 or more employees in an EU country to disclose internally gender pay gaps by categories of workers performing the same work or work of equal value.
5. Employers with pay gaps of 5% or more by category of workers which cannot be justified on gender-neutral grounds would need to carry out a pay assessment with unjustified gaps remedied, in co-operation with existing workers’ representatives and relevant national authorities.
6. Employers, in pay discrimination cases, would have the burden of proof to show there was no pay discrimination based on gender.
7. EU Member States would be expected to establish penalties and fines for violations of equal pay rules.

Employee rights for transparency and redress

1. Employees to have right to request information on their individual pay level, as well as on average pay, broken down by gender, for employees doing same work or work of equal value.
2. Employees found to have been subject to pay discrimination to be eligible for compensation, including recovery of back pay (uncapped) and related bonuses and payments in kind.
3. Workers’ representatives and equality bodies would be empowered to pursue legal or administrative action for claims on behalf of employees and lead collective claims.

A reminder on current requirements in Europe to support equal pay

Belgium – equal pay analysis; Denmark - equal pay analysis; France - pay equity reporting; Germany – employee right to information; Ireland – pay gap disclosure Act signed into law in July 2021; Portugal - pay gap disclosure and action; Sweden - equal pay analysis; Spain - pay gap disclosure and action; Switzerland - pay gap disclosure; UK - pay gap disclosure.

New European and global developments

• US: a growing number of US States and cities are requiring employers to provide job pay range information on recruitment and forbidding pay history requests: California, Colorado, Connecticut (effective October 1, 2021), Maryland, Massachusetts (proposed), Nevada (effective October 1, 2021), Washington State, the City of Toledo and the City of Cincinnati. Reporting requirements: California and Illinois.
• Canada: the new federal Pay Equity Act became effective from 31 August 2021 and will be phased in over a three-year period. The Act applies to federally regulated workplaces with 10+ employees and requires equal pay for work of equal value for male and female employees. It requires employers to (a) establish a pay equity plan that examines any differences in compensation between positions of equal value that are mostly held by women and those mostly held by men; (b) eliminate differences in compensation identified in the plan; and (c) revise and update their pay equity plan at least every five years to ensure that no gaps have been reintroduced and to close gaps if they exist. These Federal provisions are similar to current Provincial requirements in e.g. Quebec and Ontario.
• Israel: from 1 Jun 2022, employers with more than 518 employees must publish an annual report on the organization’s gender pay gap.
• Italy: a new Gender Pay Equity law is proceeding through Parliament and is expected to be published by the end of 2021. It is focused on reducing pay gaps related to gender with mandatory disclosure for companies with more than 100 employees.
• South Africa: in May 2021 the Government announced it was close to finalising regulation to require disclosure of pay gaps relating highest to lowest paid.
• UAE: the updated equal pay/equal value regulation aims to strengthen the UAE’s commitment to gender equality in the workplace