The European Union’s recently implemented Pay Transparency Directive is set to transform the way companies across the EU approach pay equity and transparency. Doone O’Doherty explores steps organisations should take to implement the Directive.
At the end of March 2023, the European Parliament adopted the EU Pay Transparency Directive. This will go through the final formalisation steps, including Council adoption, and enter into force 20 days after publication in the EU Official Journal.
EU Member States will be required to transpose the Directive into national legislation within three years – very likely in 2026.
Given the proposed legislation’s complexity and implications, organisations should start preparing now to ensure a smooth transition from a legal, operational and strategic perspective.
Under the Directive, greater transparency will be required in four critical areas.
Gender pay gap reporting and equal pay
Organisations above a certain employee threshold will be required to publish gender pay gap figures externally.
Where a pay gap of five percent or more is found in any category of worker and other criteria are not met, a joint pay assessment must also be completed.
Recruitment
Organisations will be required to provide information on pay (e.g. pay bandings) as part of the recruitment process, such as adding pay ranges to job adverts or sharing this information with applicants. They will no longer be able to ask candidates about current pay to determine offers.
Pay approach and philosophy
Employers with more than 50 workers must provide workers with information on the criteria used to determine pay and pay progression.
Average pay levels
Workers will have the right to request information on the average pay level of workers doing similar work to them, broken down by sex. This must be provided within two months of the request.
To whom does this apply?
While local implementation may vary, the Directive suggests that the requirements listed above may apply not only to employees but also apply to other worker types (e.g. contractors and gig economy workers).
Key steps to take
Given the significance of the measures to be introduced, organisations must identify their biggest risks and opportunities and prioritise activities. This will allow for developing an effective change plan to ensure readiness for the upcoming legislation and wider transparency requirements.
For some organisations, the impact of the EU Pay Transparency Directive will be significant, potentially leading to the widespread transformation of critical people policies and activities.
Successful change (including impacted systems and processes) is a multi-year programme.
It will be critical for companies to:
- Understand the impact: Identify key stakeholders and gain a high-level understanding of key risks and opportunities for your organisation. Provide an initial briefing to identified stakeholders on the Directive and its implications for your organisation.
- Assess organisational readiness: Deep dive into the key risks and opportunities identified through interviews and document reviews. Complete a readiness assessment to prioritise activities with stakeholders.
- Develop an implementation plan: Develop a high-level implementation plan to embed change based on agreed priorities, risks and opportunities.
Doone O’Doherty is Partner of People & Organisation at PwC
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