EU Pay Transparency Directive - Navigating The Journey To Compliance

Pay transparency has rapidly emerged as a major theme in the global conversation about fairness, equality, and corporate responsibility.
European Union Compliance

THE GLOBAL RISE OF PAY TRANSPARENCY

Pay transparency has rapidly emerged as a major theme in the global conversation about fairness, equality, and corporate responsibility. What was once considered a private matter between employers and employees is now a key issue that organisations across the world must address. The growing demand for transparency around pay has been driven by various factors: increasing concerns about pay inequality, heightened employee expectations for fairness, and societal movements advocating for greater corporate accountability with a focus on equality in the workplace.

Regulatory frameworks have responded accordingly, with several regions introducing stricter pay transparency laws aimed at narrowing gender pay gaps and promoting equality. The United States has seen states such as California, Massachusetts and New York introduce pay transparency requirements, while countries like Germany, Finland and Sweden have previously led the charge in Mainland Europe, shedding light on salary discrepancies.

The EU Pay Transparency Directive (EPTD) is part of this global momentum. Announced in 2021, the Directive aims to increase transparency in pay structures and address the persistent gender pay gap across EU member states. As the deadline for compliance draws closer, organisations are facing the dual challenge of meeting new regulatory requirements while navigating the cultural and operational shifts that transparency demands.

THE EU PAY TRANSPARENCY DIRECTIVE: TURNING COMPLIANCE INTO OPPORTUNITY

Organisations with operations across the EU now face a watershed moment. Pay transparency, once considered a future concern, is now front and centre on the HR and leadership agenda, bringing with it promises to reshape reward practices across Europe.

But how ready are organisations for compliance with the Directive's requirements at this stage? A&M decided to explore this through a pulse survey of HR and Reward Leaders from across a diverse range of European and UK-headquartered organisations.

While the Directive's immediate objective is to ensure fairness and address gender pay gaps, its implications stretch far beyond compliance. For forward-thinking organisations, we believe that pay transparency offers a strategic opportunity to enhance employee trust, drive engagement, and strengthen competitive positioning in the talent market. To reflect this, our hypothesis was that for organisations already well progressed in their pay transparency and EPTD-readiness journey, pay transparency effectiveness would not be dictated simply by a compliance target but would be woven into the strategic and cultural fabric of the organisation.

Pay transparency offers a strategic opportunity to enhance employee trust, drive engagement, and strengthen competitive positioning in the talent market.

Initially, we set out to understand where organisations are on their journey towards compliance and readiness. However, we didn't stop at surface-level readiness; we dug deeper to gauge the strategic and cultural alignment necessary for true pay transparency. Are organisations merely preparing to tick the compliance box, or are they positioning themselves to harness this as a strategic advantage? Are leadership teams and management aligned in their understanding and approach, or is there a disconnect that could undermine efforts?

The results present an interesting snapshot of where companies are today with their readiness for the Directive, and our findings tell a compelling story: while many companies are making progress, the majority still have a long way to go to turn a legal requirement into a strategic advantage. However, by reframing pay transparency as an opportunity, rather than a compliance exercise, organisations can position themselves as leaders in the market — driving equity, boosting engagement, and ultimately creating a more sustainable and inclusive workplace. This report provides actionable steps and strategic insights to help organisations achieve this goal.

The road to compliance begins with strategic alignment and ends with leveraging transparency as a powerful muscle within your organisation. So, buckle up and let's dive in.

EPTD OVERVIEW: WHAT YOU NEED TO KNOW

EPTD implementation timeline: key dates

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The EU Pay Transparency Directive sets forth several requirements for employers within the European Union, with specific obligations that vary depending on the size of the company. While the Directive sets the baseline, post-transposition requirements in each member state may also vary across the EU.

1. Pre-employment pay transparency measures

Job postings and descriptions:

Employers must provide clear information about the initial pay level or pay range for a position in all job advertisements or before the first interview. This ensures candidates have a clear understanding of the potential pay before engaging in negotiations, reducing pay discrimination risk.

Pay transparency in interviews:

Employers cannot ask prospective employees about their pay history. This measure aims to prevent any past pay discrimination from affecting future earnings.

2. Right to information for employees

Employees have the right to request and receive information on their pay level and the average pay levels, broken down by sex, for employees performing the same work or work of equal value. This right applies to all employees, regardless of company size.

3. Pay reporting requirements

Large companies (250+ employees):

Annual reporting: Companies with 250 or more employees are required to publish an annual report on the gender pay gap within their organisation. The report must include:

  • The gender pay gap for the entire organisation.
  • The median and mean pay differences between male and female employees.
  • Pay differences for different categories of employees (e.g., full-time, part-time, etc.).
  • Pay differences for categories of employees doing the same work or work of equal value.

Medium-sized companies (100 to 249 employees):

Triennial reporting: Companies with workforces in this range must report the gender pay gap data every three years. The reporting requirements are similar to those for large companies, focusing on the gender pay gap. median and mean pay differences, and other relevant pay data.

Small companies (Less than 100 employees):

No mandatory reporting: There are no mandatory pay reporting requirements for companies with fewer than 100 employees under the Directive. However, companies are still subject to general pay transparency and anti-discrimination requirements. Member States may choose to apply certain aspects of the Directive to smaller companies if they wish.

4. Pay gap action plan when the gender pay gap exceeds 5%

If the reported data reveals a gender pay gap of more than 5% that cannot be justified by objective gender-neutral factors, companies must conduct a joint pay assessment:

  • The assessment must be conducted in cooperation with employee representatives.
  • It must identity the pay gap causes and develop measures to address and close the gap.
  • Results and any remedial actions must be reported to employees and their representatives.

5. Pay structures and job evaluations

Employers must ensure that their pay structures are genderneutral, ensuring that job evaluations and classifications are free from gender bias and establishing transparent criteria for setting pay levels to ensure that jobs of equal value receive equal pay. This includes any performance management to reward linkages for variable pay.

6. Protection against pay discrimination

Employers are prohibited from retaliating against employees who exercise their rights under the Directive, such as requesting pay information or participating in pay assessments. Employers must establish procedures to handle complaints about pay discrimination.

7. Transparency in collective bargaining

Employers involved in collective bargaining processes must include pay transparency as a key topic of negotiation. This ensures that pay equality is addressed collectively, involving both employers and employee representatives.

8. Communication and awareness

Employers must communicate clearly to all employees about their rights under the Directive. This includes providing information on how employees can request pay information, the procedures for reporting suspected pay discrimination, and the protections available to them.

9. Penalties for non-compliance

Member States are required to establish penalties for employers who fail to comply with the Directive which may include fines, compensation for affected employees, and other sanctions as determined by national law.

10. Implementation and monitoring

Employers must maintain records of their compliance efforts and make these available to labour inspectors and other relevant authorities upon request. Regular monitoring and audits may be conducted to ensure ongoing compliance with the Directive.

SURVEY METHODOLOGY: OVERVIEW OF OUR APPROACH

A&M's survey aimed to assess organisational preparation progress for the EU Pay Transparency Directive, covering levels of understanding, and strategic, cultural and operational readiness. The goal was to uncover pay transparency sentiment, an insight into current readiness levels, and identification of any actionable insights for consideration. HR and Reward Leaders from across multiple industries and countries were invited to submit data via an online questionnaire during July and August 2024. Our survey was designed to explore several key areas:

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While participants were able to opt to receive a copy of this report and the summary results, the survey is committed to anonymity within our analysis, results, and commentary to encourage radically honest feedback and input.

To generate the most insightful information on key issues relating to readiness for the EU Pay Transparency Directive, the data was collected, analysed, and segmented by various factors, and included multi-dimensional analysis focusing on critical dimensions such as:

  • The impact of transparency on employee morale;
  • Alignment on pay transparency strategies;
  • Current pay transparency culture; and
  • The extent of any anticipated cultural shift resulting from the new Directive.

This survey provides a concise, actionable understanding of how organisations are preparing for the EU Pay Transparency Directive.

Organisational rating of overall readiness for the EPTD

SURVEY DEMOGRAPHIC DATA

We received input from many organisations from across multiple sectors and spanning a wide geographical footprint.

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CURRENT READINESS: WHERE DO ORGANISATIONS STAND TODAY?

Let's start with perceptions of the overall readiness for compliance with the EU Pay Transparency Directive. Our findings highlight that while many organisations have begun preparing for this shift, readiness levels vary significantly. Some are taking a reactive approach, focusing narrowly on meeting the minimum compliance requirements, while others are seizing the opportunity to embed transparency at the heart of their workforce and reward strategies. There is also a significant proportion of organisations that are still at the planning stage, with little action taken to meet the Directive's requirements.

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Some of these organisations are struggling with where to begin. Others are facing significant challenges such as gathering and analysing the necessary data – no small feat for larger organisations with complex, multi-country operations, reviewing pay structures, and identifying disparities. For many, this complexity is compounded by the lack of a coherent reward infrastructure bringing challenges around, for example, jobarchitecture redesign or a performance management review.

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The reality is that preparing for pay transparency is a road of complexity that also requires a deep dive into company culture, reward infrastructure, data and systems, communication strategies, and leadership alignment.

Organisational rating of overall readiness for the EPTD

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For the organisations that deem themselves not ready – are they underestimating the level of effort required to meet the Directive's requirements? Or, are the low levels of readiness actually indicating that many businesses are facing operational, strategic, and/or cultural challenges in meeting the Directive's requirements.

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Our analyses discovered an interesting relationship between the current level of readiness for compliance and the sentiment towards the perceived impact of pay transparency on employees.

To view the full article, click here.

Originally published by 16 October, 2024

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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