This article was originally published on 14 February 2023. It was last updated on 23 May 2023.
There were several unexpected requirements in the new EU Equal Pay and Transparency Directive along with some significant shifts in the EU mindset on pay equity and reporting. In our webinar on the Directive, we discussed these surprises, as well as our recommended next steps.
1. Equal pay equal for equal work and work of comparable value
The EU Directive requires that employers have pay structures in place to ensure that there are no gender-based pay differences between workers performing the same work and between workers performing work of equal value that are not justified by objective and gender-neutral factors.
Two things about this first requirement in the EU Directive that may require a mindset shift:
- Employers will have to move from just thinking about pay between workers who are in the same role, to also comparing pay between roles of equal value. This will require that organisations establish methodology to compare the value of work with objective criteria. Think in terms of education, professional and training requirements, skills, effort and responsibilities, work undertaken, and the nature of the tasks involved. Comparators need not work for the same employer. In fact, companies can even use a “hypothetical comparator or other [statistical] evidence” if no real-life comparator exists. How this is going to be interpreted is very uncertain.
- The possible move toward the U.S. litigation-focused approach, where a worker can receive compensation, including full recovery of back pay and related bonuses, or payments in kind, with Member States setting specific penalties. There will be meaningful penalties for unequal pay violations. This shifts the burden of proof from employees to employers, increases the risk of litigation, and requires improved documentation.
“No more double standards, no more excuses. It is high-time both women and men are empowered to claim their right. Equal work of men and women deserves equal pay and transparency is key to make sure this becomes a reality. Today we are taking another step away from discrimination and one more step closer to equality.”
— Commissioner Věra Jourová, Vice-President for Values and Transparency, European Commission
2. Pay and career progression transparency
Pay scale disclosure laws — and more transparency — are coming soon to Europe. Employers will have to provide information about the initial pay level or its range in the job vacancy notice or before the job interview. Pay secrecy will be banned as the Directive bans pay secrecy confidentiality clauses. Employers will not be allowed to ask prospective workers about their pay history. Job titles must be gender-neutral (i.e., no “fireman”). And finally, employers must make accessible to workers a description of the gender-neutral criteria used to define their pay, pay levels, and and pay progression.
This will require a big mindset shift with the need for greater pay explainability and opportunity equity transparency as well as open discussions about pay. Organisations will need to heed the prohibition on asking questions about prior salary and using that information to set pay for new hires.
“Even if you can get away with it, it’s a bad practice to try to see if you can just flout the system by making a pay range between one euro and €10 million. You’re signalling to the prospective talent that you’re trying to hire and recruit that this is how you treat your employees and you don’t take their compensation seriously. It’s a really bad move.”
— Zev Eigen, Founder and Chief Data Science Officer, Syndio
3. Right to information
Employees will be able to request individual pay level and average pay levels, broken down by sex, for categories of workers doing the same work or work of equal value, with requirements including:
This notably will apply to all employees in the EU, irrespective of company size.
Among the mindset shifts here are the need to be less secretive about compensation and comparisons within your organisation, a significant increase in the need for consistent policies and practices, and that this requirement decreases room for subjectivity and managerial discretion and autonomy.
4. Public pay reporting
Covered employers will be required to complete public pay gap reporting on base pay and “any other consideration”. The report will include:
- Overall mean and median pay gap
- Mean and median pay gap calculated from “complementary and variable” pay (e.g., bonuses)
- The proportion of female and male workers receiving complementary or variable components of pay
- The proportion of female and male workers in each quartile pay band
- The pay gaps between “categories of workers” (i.e., workers performing the same work or work of equal value), calculated from both base pay and complementary and variable pay
For the requirement on public pay reporting, what’s unexpected is that it includes complementary or variable components of compensation such as:
- Bonus
- Overtime compensation
- Travel facilities (car/travel cards)
- Housing allowances
- Training compensation
- Dismissal payments
- Statutory sick pay
- Statutory required compensation
- Occupational pensions
We see this as a shift in mindset from a “behind closed doors” model to a “spectator sport” model, and a shift from “one and (not really) done” audit mindset to ongoing, always-on pay equity management.
The first reports in all 27 Member States for employers with 150+ employees due 6 June 2027 based on 2026 calendar year data. Employers with 250+ employees will need to submit this report annually thereafter. Employers with 150-249 employees will need to submit every three years thereafter. For smaller employers (those with 100-149 employees), the first report will be due 6 June 2031, with subsequent bills due every three years thereafter.
“If you’ve got an organisation that gives managers a lot of discretion and autonomy in how they set compensation for their teams, I think we’re going to see a real need for a mindset shift. You could do it, but it’s going to require a lot more significant review.”
— Christine Hendrickson, Syndio VP of Strategic Initiatives
5. Joint pay assessment
When you conduct your pay gap analysis, if the average pay gap is at least 5% in any category of workers (note: the requirement was not lowered to 2.5%, as proposed in the negotiations) and it is not explained by objective and gender-neutral factors, and the gap has not been remediated within six months of the submission of the gender pay gap report, employers must perform a joint pay assessment in all groups, in coordination with works council or representative.
The final mindset shift in the Directive is that if you previously thought in qualitative and subjective terms, you need to shift to quantitative and objective/empirical terms. You will need to systematically evaluate existing policies to ensure that they aren’t pushing towards this limit (or the cause of being over this limit), and you will need to empirically vet any new policies. We see this most commonly now with respect to policies about remote work.
The new Directive requires new thinking
While the Directive itself is not unexpected, many of the requirements are and will demand a new approach to pay equity and transparency in the EU. We believe that organisations will be best served by beginning to prepare as soon as possible by following the steps detailed above. For additional information, watch the on-demand webinar at the link below or check out other resources here on the Syndio blog, such as our EU Directive on Equal Pay and Transparency FAQs and Cheat Sheet.
The information provided herein does not, and is not intended to, constitute legal advice. All information, content, and materials are provided for general informational purposes only. The links to third-party or government websites are offered for the convenience of the reader; Syndio is not responsible for the contents on linked pages.
