The EU Pay Transparency Directive

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Is your salary strategy ready for transparency, or

are you also discriminating without knowing?

Inequality is never an active salary strategy; however, many European companies are facing a significant gender pay gap.

This gap has changed very little in the past decade, which is why the directive is being implemented. However, working actively to reduce unfairness in pay can also become a competitive advantage for your company, making it more attractive to the workforce, improving your employee retention rate and easing your recruitment processes.

To assess your pay landscape, you need to be able to compare like for like, which requires a structure that allows you to group employees across functions based on the value they add to your company.

This is also known as a job structure, job hierarchy, job architecture, job catalogue, or leveling.

Once your structure is in place, you can run the gender pay gap analysis.

One of the stipulations of the Pay Transparency Directive is that companies with a Gender Pay Gap of more than 5% need to publicly analyze the cause and resolve the issue within six months to avoid being penalized.

Hence, knowing the extend of your Gender Pay Gap challenge today can help you ensure the issues is resolved before the directive enters into force.

Book a Pay Transparency Audit

The Four Pillars of the EU Pay Transparency Directive

The purpose of the Pay Transparency directive is to enhance pay equity across the European member states. The legislation covers four overall themes, and the requirements vary with the number of employees in the company.

Right to Information

All employees, regardless of the company size, will have the right to ask for an overview of how their pay compares to colleagues doing the same work or work of equal value, broken down by gender.

The Recruitment Process

Going forward, companies must include a salary scale or starting salary for new hires in all job ads or prior to an interview.

Salary and Career

Employers must be able to describe in gender neutral criteria what defines the salary and career paths in the company and all employees must be allowed access to this information.

Gender Pay Gap Reporting

Companies with more than 100 employees must publish a gender pay gap report and if the pay gap exceeds 5%, they must take action.

What is the Gender Pay Gap?

The gender pay gap refers to the difference between the salaries of men and women. However, when evaluating whether the gender pay gap could be discriminatory, it is important to distinguish between the unadjusted gender pay gap the adjusted gender pay gap. The latter could more precisely be termed the Pay Equity Gap, as this compares like for like.

The unadjusted gender pay gap is simply the difference in the average pay between all men and women in a workforce.

Whereas the adjusted gender pay gap, aka the Pay Equity gap shows the differences between men and women who carry out the same jobs, similar jobs, or work of equal value.

In order to assess your pay landscape, you to be able to compare like for like to know both your unadjusted gender pay gap and your Pay Equity gap.

Book a Pay Transparency Audit

The European Gender Pay Gap Issue

According to Eurostat, the unadjusted gender pay gap is defined as the difference between the average gross hourly earnings of men and women expressed as a percentage of the average gross hourly earnings of men, and it is calculated for companies with more than 10 employees.

In 2021 the unadjusted Gender Pay Gap was 12,7% across Europe. It varies by sector, and for most member states the public sector has a significantly lower gender pay gap.

The main driver behind the Pay Transparency Directive is to lower this number and ensure pay equity across the European Union.

12,7%

Equal work deserves equal pay. And for equal pay, you need transparency. Women must know whether their employers treat them fairly. And when this is not the case, they must have the power to fight back and get what they deserve.

- Ursula von der Leyen, March 2023, President of the European Commission

Key Points to Consider

Could you have hidden gender-based pay gaps?

Many companies will need time to prepare and adapt to the new EU Pay Transparency legislation in order to be compliant. It will require new ways of communicating about pay structures, and it may also necessitate targeted raises to close existing gender pay gaps.

Often pay gaps arise over time and there can be many contributing factors that may not necessarily be gender-based but end up affecting men and women differently. This could be lack of pay adjustments during periods of (parental) leave, part time vs. full time employment and the impact of this on promotion possibilities, shifts in market prices of new-hires, and so forth.

Questions to Consider

Do you have a job structure in place incl. gender-neutral criteria and defined salary bands?
Do you know how your pay landscape currently looks?
Can you define your career progression criteria?
Are you ready to publicly disclose a gender pay gap report?
Can you document each individual employee's relative place in the job hierarchy, their pay level and their pay progression?

What Prevents You From Early Adaptation?

By June 7, 2026, all member states will have transposed the Pay Transparency Directive into local law - likely some countries will even be ready before. This gives you a window of time to prepare before the legal requirements and possible ramifications of existing Gender Pay Gaps.

There can be significant advantages to early adaptation, as it could give your company a competitive edge in the recruitment market and beyond. By actively working to close the Gender Pay Gap now, you can brand yourself as fair and advancing diversity, thus be a more attractive employer and business partner.