March 22, 2024
Break down the directive into easily understandable segments, explaining its impact on businesses and employees.
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PayGap Guide
In May 2023, the European Union introduced a landmark legislative framework, Directive 2023/970, to address long-standing issues related to pay equity. This directive marks a significant step in the EU's ongoing commitment to ensuring gender equality in the workplace. With its focus on pay transparency and enforcement mechanisms, the directive aims to bridge the gender pay gap, a persistent issue across various sectors in the member states. This comprehensive guide delves into the intricacies of the directive and will guide you from understanding its impact to knowing what and when to report.
The primary purpose of Directive 2023/970 is to strengthen the enforcement of the principle of equal pay for equal work or work of equal value between men and women. This is achieved through enhanced transparency in pay structures and robust enforcement mechanisms. The directive acknowledges the multifaceted nature of the gender pay gap, addressing issues like lack of transparency, legal uncertainties, and procedural obstacles. By mandating clearer pay reporting and stating a goal for companies to have less than a 5% pay gap, the directive empowers employees with the information they need to assert their right to equal pay. Furthermore, it facilitates employers in identifying and rectifying unjustified pay disparities, thereby fostering a more equitable work environment.
The Pay Transparency Directive casts a wide net, affecting a broad range of stakeholders across the public and private sectors in the EU. Primarily, it applies to all employers within the EU who have an employment contract or relationship as defined by the respective member state's law, collective agreements, or practice. This includes full-time, part-time, and temporary workers across various industries and sectors. Further, employers with more than 100 employees will be required to report on a set of extensive metrics related to their respective pay gaps. The directive also applies to job applicants, ensuring they have access to transparent pay information before employment.
Additionally, it impacts social partners, trade unions, and equality bodies that play a crucial role in monitoring and enforcing the directive's provisions. By encompassing a broad spectrum of the workforce, the directive aims to create a ripple effect, encouraging fairer pay practices and contributing to the reduction of the gender pay gap in the European Union.
The Directive (EU) 2023/970 establishes a framework for pay transparency to address gender pay discrepancies within the European Union. This initiative is designed to ensure that men and women receive equal pay for equal work or work of equal value, fostering a more equitable and transparent work environment.
Right to Information for Workers and Job Applicants:
Prohibition of Pay Secrecy:
Accessibility of Information:
Transparency in Pay Setting and Pay Progression:
As the new Pay Transparency directive enters into force, a key element in enforcing equal pay for equal work stems from extensive reporting requirements for companies with more than 100 employees (both part-time and full-time counts). This ensures transparency and accountability, and forces companies to work towards the goal of a pay gap of less than 5%.
A key aspect of EU Directive 2023/970, is its stipulation on reporting frequencies and deadlines for companies based on their size. This is vital for businesses to understand and comply with the directive effectively. The directive categorizes employers based on their workforce size and sets distinct reporting timelines for each category.
Besides the annual/triennial reporting requirement, employers are obliged to generate employee-specific reports within a window of two (2) months from the request date - see XX.
The Directive introduces a rigorous framework for reporting on pay gaps between genders. This section shows what elements a Pay Gap report must include, and will help you understand the scale of the future reporting requirements, so that you can best prepare for the first reporting period.
Represents the overall Gender Pay Gap in the company. This must be reported in a percentage number, such that it can be compared to the directive’s goal of being under 5%. The data can either be reported as “percentage of men’s salary”, which could be 97%. This implies a pay gap of 3%. Alternatively, it can be reported as the raw difference between men and women, for example by reporting a negative 3% pay gap from men to women.
In assessing the gender pay gap, it is important that the company analyzes it in a systematic, well-documented approach, and only relies on objective employee data. The directive allows for the utilization of objective data points to explain pay variations, but it is not allowed to deploy subjective data in the analysis.
To determine any differences in the propensity to give variable or complementary pay to men or women, the directive requires the analysis to isolate all the variable or complementary pay components, and report a pay gap on these. The reporting format is similar to the overall Gender Pay Gap.
The median pay gap is used to determine whether a pay gap exists for the “typical” worker of the organization. It does so by comparing the earnings of the middle earner of the males with the middle earner of the women. This can be done across groups, but also for the entire company, depending on the level of pay gap detail that is desired in the reporting. The data should be reported in a similar format as for the general Gender Pay Gap, but be based on median data.
Companies must also report the median gender pay gap for the complementary and/or variable parts of the employees salary. Similar to the median pay gap, the goal is to identify potential gaps for the “typical” employee. The reporting
In addition to the complementary and/or variable pay sizes, the reporting must include numbers on the proportion of male and female workers receiving them. This measure is to identify patterns in which one group is systematically receiving complementary pay more frequently than the other. This metric must be stated as the percentage of women receiving complementary/variable pay, and similar for men. Further, these two proportions can be compared to identify gender differences.
To identify the distribution of pay levels for each gender, the directive requires companies to generate quartile pay bands, in which the genders are broken down for each quartile. This provides transparency on the ability for women to achieve higher paying jobs in the company, and serves as a proxy for the company’s ability to promote women to higher positions.
To enable sufficient granular details in the Pay Transparency Report, the directive requires pay gaps to be reported between workers by their categorization. This categorization can be on a departmental level, job-function level, and/or pay grade level.
A key implication of the directive is the definition of equal pay for equal work, which requires companies to have a structured approach to pay grades, enabling comparison across job families and functions. This metric utilizes this structure to identify pay gaps in these groups. The metric should be reported for both basic salary and complementary or variable components. The pay gap number is reported in a similar way as the overall pay gap.
To address the impact of maternity/paternity/parental leave, and identify potential glass ceilings, the directive stipulates that companies must be reporting on the propensity for employees on maternity, paternity, parental, and carer's leave to receive a pay rise. To do so, employers must identify and track pay rises for all employees, and keep a record of leaves, from which the proportion of employees that received a pay rise following a leave can be calculated.
The window in which the pay rise can be attributed to the leave depends on local legislation, which is currently being implemented in EU member states. {see this page for local regulations}.
In an effort to increase the general transparency, companies are obliged to disclose their average pay levels for each category of worker (as defined by internal job and pay structure), broken down by gender. This is to be presented in a table format, depicting the pay structure with the realized average pay levels for men and women.
The EU 2023/970 represents a significant shift in the regulatory landscape for European Union member states regarding gender pay equality. Understanding the legal implications of this directive is crucial for ensuring compliance and avoiding legal consequences. Here are the key legal implications for companies under this directive.
Compensation and remedies
Workers who have suffered from pay discrimination based on gender have the right to full compensation, including back pay and related bonuses. Further, the compensation extends into compensation for foregone opportunities, in situations where an employee has been systematically discriminated against in terms of pay progression and promotions.
Shift in Burden of Proof
In cases of alleged pay discrimination, the burden of proof shifts to the employer to demonstrate that there has been no breach of the principle of equal pay. This requires companies to have well-documented procedures for their pay structure and pay progression, which demonstrates that pay-setting happens objectively.
Fines and Sanctions
Member states are required to impose effective, proportionate, and dissuasive penalties for infringements of the directive. This includes fines that could be based on the employer's gross annual turnover or total payroll. The actual fines and sanctions will rely on the final implementation of the directive in the national legislation. You will be able to find up-to-date information on the national implementations on this page.
Compliance in Public Contracts
As the directive gets implemented in national legislation, actors engaged in public contracts are likely expected to be compliant with the EU 2023/970 directive, and the underlying obligations to principles of equal pay. Thus, for companies engaged in these contracts, it becomes vital to be able to provide ample documentation in order to win new contracts and renew existing ones.
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