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Demystifying pay equity and transparency: Your guide to frequently asked questions

By Eva Jesmiatka | May 17, 2024

We address some of the common questions we are getting from business leaders surrounding pay transparency and pay equity. Along with how we believe the EU Pay Transparency Directive will impact organizations, and what they should consider when preparing for greater pay transparency and the Directive.
Compensation Strategy & Design|Inclusion-and-Diversity|Employee Experience|Health and Benefits|Pay Equity and Pay Transparency|Ukupne nagrade
Pay Transparency Legislation

In today's rapidly evolving workplace, the concept of pay transparency has gained significant attention. Add the EU Pay Transparency Directive into the equation and organizations in and out of the European Union (EU) are paying attention and are actively preparing for greater transparency and ensuring they deliver pay equity.

A quick pulse survey in our One Year On webcast: The EU Pay Transparency Directive – What a difference a year makes showed that almost 80% of respondents are actively planning and preparing for the EU Pay Transparency Directive. As the conversation moves into the detail and implications of the Directive, we address some of the common questions we are getting from business leaders surrounding pay transparency and pay equity. So, whether you’re an employer seeking guidance on implementing transparent pay practices or you want to keep up to date with the latest on pay transparency legislation, we aim to answer your questions and provide you with valuable insights and practical solutions.

If you have a question that’s not answered below, please get in touch. Or if you would like to find out where to start, how to develop your roadmap for change and build confidence on equal pay, then check out our EU Pay Transparency Readiness Check.

What pay and benefits elements does the EU Pay Transparency Directive cover?

The definition of pay in the Directive covers all pay (base, variable, benefits in cash and kind). Average pay levels to be provided to employees are gross annual pay (base, variable and benefits) and the hourly pay equivalent.

For some of the specific considerations in relation to benefits, please see our article on EU Directive, benefits and pension considerations: EU Pay Transparency Directive also impacts benefits.

What is meant by "Category of worker"?

Category of worker is defined as workers performing the same work or work of equal value based on objective, gender-neutral criteria. Under the Directive, the employer will likely have discretion to determine their categories of workers based on their internal job-evaluation or classification systems

This is an area where there could be additional guidance as Member States adopt the provisions into local law as some Member States already have classifications used in local gender pay gap legislation.

Does the EU Pay Transparency Directive require an analytical job evaluation tool?

The Directive specifically provides that pay structures need to be "as such to enable the assessment of whether workers are in a comparable situation in regard to the value for work on the basis of objective gender-neutral criteria agreed with workers' representatives where such representatives exist" (Article 4.4). It refers to Member States making tools or methodologies available so employers can establish and use gender-neutral job evaluation and classification systems to support equal pay for equal work.

What are objective reasons for pay difference?

It is important to stress that companies first of all need to make sure that they have an appropriate job levelling methodology or analytic tool in place that allows them to objectively classify work of equal value. Companies need to make sure that any differences in pay (between people that do similar work or work of equal value) can be explained by objective reasons. Objective reasons for pay differences need to be aligned with a company's pay policy and for that reason can differ from company to company. Objective reasons can relate to the job (e.g., differences in work location, differences in scope of responsibility) and the incumbent (e.g., differences in performance history, differences in competence level).

What should I do if my organization has a gender pay gap greater than 5% in a category of worker?

If there is a gap of 5% or more between the average pay for men and women within a category of worker, that cannot be explained by objective reasons, and that has not been remedied within six months following the publication date, then a detailed pay assessment potentially followed by remedial action is required.

If the gap is over 5%, but can be explained by objective reasons, no action is required under the Directive. Leading practice is to aim to reduce the gap as much as possible.

What impact will transparency of pay range on hire have on current incumbents?

The EU Pay Transparency Directive will require companies to share information on the pay range or pay level with candidates prior to an interview taking place. This might be done through including the pay range in the public job advertisement. Our experience from the U.S where this is rapidly becoming the norm, is that it could lead to more questions from employees on why their pay is different to the range in the job advertisement.

It means that (a) you need to be clear on why pay varies in the company, and (b) be confident that you can explain why current pay from an employee differs. WTW is supporting companies on this and we have a team of experts who can advise on how to approach this.

What’s the impact of the EU Pay Transparency Directive on organizations with small numbers of employees?

All the provisions of the Directive will still apply except those relating to the calculation, disclosure and remediation of gender pay gaps (minimum of 100 employees in an employing entity). Specifically, the employee right to average pay level information does apply.

The only data protection provision is that if average pay level disclosure would lead to an individual's pay being disclosed, only the workers' presentation or the labour/ equality body should receive the information and they can advise if there is a possible claim under the Directive.

How different will the final Member State legislation be?

Member States must transpose the requirements into local legislation. They can add additional provisions and their own guidance. As multinational employers want conformity, WTW will be engaging with key Member States to promote legislative conformity and consistent guidance. In partnership with PayAnalytics and A&O Shearman, we have a whitepaper in development that will provide our recommendations for Member States to consider. We will continue to track legislative developments across Member States and are just discussing how best to keep clients updated on the developments.

Will there be further formal guidance?

The EU has indicated that it will not provide further central guidance. It will be for each member state to provide. Typically, Member States have issued quite detailed guidance for new pay gap/ transparency regulations like we have seen in Ireland, for example. Keep up to date with the latest legislation and bookmark our Pay Transparency Legislation page.

What is the impact of the Directive outside the EU?

From a legislative perspective, the EU Directive will not apply to countries outside the EU. It is important to note that we continue to see legislation across the world increasing, with a growing number of countries introducing pay transparency legislation.

Furthermore, we see that companies are increasingly looking at pay transparency as something that goes beyond regulatory compliance. Especially for companies that have a significant part of their headcount in non-EU countries, we are seeing discussions about whether it is a sustainable position not to extend pay transparency rights to other employees, especially if the employer has a strong commitment to environmental, social and governance (ESG) and diversity, equity and inclusion (DEI).

What actions can we already take now to prepare for the Directive?

Although not all details have been defined, there is already a lot of work that can be done in preparation. Ultimately this comes down to ensuring that everyone in the organization is paid fairly, any differences in pay can be objectively and coherently explained, and the organization is ready for greater pay transparency. Some specific activities that you can start now include:

  • Build a good understanding of what will be required under the EU Pay Transparency Directive and define where you need and want to be as an organization (i.e., compliant or leading?).
  • Conduct a current-state assessment to determine where you are now and if there are any gaps with the desired future state.
  • Ensure that your organization has appropriate job frameworks and reward structures, policies and practices: ensure these are underpinned by objective and gender-neutral criteria.
  • Ensure that you are confident that any differences in rewards can be explained by objective reasons. This applies to all reward programs.
  • Prepare your stakeholders for greater pay transparency, define the key messages for different stakeholder groups and how you are going to engage with them. Make sure that managers are equipped to have conversations around pay and can explain differences in pay levels.

What organizations should do next

Whilst there is time before the Directive is enforced the requirements cannot be rushed at the last minute. The need to both establish a strong foundation of what jobs are in your organization, and how pay policy interacts with them will set organizations of a firm path. We have been guiding organizations through this process for decades, and along with our global team of pay equity experts this this makes us ideally placed to help you navigate not just the EU Pay Transparency Directive, but pay transparency for each country you operate in. Not just to comply, but to help you lead and thrive.

Book a meeting with us and we can develop a full roadmap for your organization, starting with a strong foundation, all the way through to ongoing pay transparency support. No matter which stage you are at, or even if you haven’t started, we are here to help.

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Europe Pay Equity Lead

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