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Article | Executive Pay Memo – UK

EU Pay Transparency Directive

February 2, 2023

Prepare for the EU Pay Transparency Directive as the European Commission pushes for greater pay transparency rights for employees.
Inclusion-and-Diversity|Compensation Strategy & Design|Executive Compensation|Employee Experience|Ukupne nagrade

The EU Pay Transparency Directive gives employees extensive new rights to information about their own pay and the pay of male and female peers. Employers will need to be confident that their pay and benefits are ready for this level of transparency and that they are delivering equal pay. Many employers will need to carry out significant preparatory activity. WTW rewards and communications experts can help.

Why is the EU Pay Transparency Directive being introduced?

EU data shows that 70 years of equal pay legislation has failed to secure equal pay between men and women. The EU is now using greater pay transparency and enforcement rights as the way to ensure employers are delivering equal pay. It is part of a five-year focus within the EU on equality in the workplace.

Which employers are affected the EU Pay Transparency Directive?

All private and public sector employers in each Member State regardless of size.

The provisions relating to gender pay gap disclosure only apply if an employer in a Member State has at least 100 workers.

When do the provisions come into effect?

The Directive is due to be formally passed in Q1 2023. Under current terms, Member States will have up to three years to transpose the requirements into local law, so by 2026 latest. Employers may then be given up to a year to start complying with key provisions, so 2027 latest. Some Member States may move faster. This means that employers may need to be prepared as early as 2025.

We expect either the EU or each Member State to issue guidance on the detailed application of the Directive and local law. While it is desirable that each Member State transposes the Directive in a consistent way, this may not be the case.

What are the key pay transparency requirements?

  • Pay transparency prior to employment [key new right]: Employers will have to provide information about the initial pay level or its range in the job vacancy notice or before the job interview. Employers will not be allowed to ask prospective workers about their pay history.
  • Transparency on pay setting: Employers will need to make information easily accessible on the criteria used to determine pay, pay levels and pay progression.
  • Right to information: Workers will have the right to request information from their employer on their individual pay level and on the average pay levels, broken down by gender, for categories of workers doing the same work or work of equal value. Employers must inform workers of this right annually.
  • Reporting pay gaps between male and female workers (all workers): Employers with at least 100 workers must submit information on the pay gap between female and male workers in their organisation to the relevant authority and may make it publicly available. For employers with at least 250 workers this is an annual requirement and for those with 100 – 249 employees this is every three years.
  • Reporting pay gaps between male and female workers (by category of workers) [key new obligation]: In addition, employers must also submit information on the pay gap between female and male workers in the same category of workers and provide this information to all employees.
  • Joint pay assessment [key new obligation]: Where pay reporting for a category of workers reveals a gender pay gap of at least 5% and when the employer cannot justify the gap on objective gender neutral factors, employers will have to carry out a pay assessment, in cooperation with workers' representatives, with unjustified gaps remedied.

What are the practical implications?

Employers will need to be confident that their pay and benefits are ready for this level of transparency and that they are delivering equal pay. In practice this means:

  • Job levelling and architecture is robust to allow reliable identification of employees doing same or similar work or work of equal value.
  • Pay policies on recruitment, promotion and annual review are robust and any differences in male and female pay decisions are for objective reasons.
  • The relevant data is available and analytics are being carried out on a regular basis to understand current state and track progress.
  • Managers and employees are being educated on pay, to provide a firm base for additional transparency.

A readiness roadmap

While employers will be in different stages of readiness, key steps include:

  • 2023 - Setting your ambition: familiarise key stakeholders with the terms of the Directive. Determine the company’s ambition on pay equity and transparency. Make plans for preparing for the EU Directive aligned to this broader ambition.
  • 2023 – Understanding current state: carry out initial analytics and an evaluation of pay structures, policies and practices across Member State markets to establish current state and identify key action areas.
  • 2024 - Action: Adjust individual pay and update pay structures, policies and systems as needed. Start to enhance communication around pay to managers and employees.
  • 2025 onwards: Embed preparatory activities. Track and measure progress across Member States. Develop approach to transparency communications & requests, aligned with employee experience and Diversity, Equity and Inclusion.

Europe Pay Equity Lead

Global Pay Equity Lead
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