EU Approves Pay Transparency Directive, Covering More Companies and Non-Binary Population

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EU Approves Pay Transparency Directive, Covering More Companies and Non-Binary Population

After a political deal was reached by the European Parliament and the bloc’s member states last week, European companies will be required to disclose pay gap information between female and male employees, provide salary information to employees and job applicants, and carry out a resolution if the gap is more than 5%.

The pay transparency directive was put forward by the European Commission in April 2021 to reduce the gender pay gap in the EU. Women in the EU were paid on average 13% less than men, according to a survey in 2022, with wide variations across the Union, from 0.7% in Luxembourg to 22.3% in Latvia.

During the negotiations from last year, the European Parliament managed to make a few significant changes:

Expand the duty to disclose the pay gap to companies with more than 100 employees, from the original 250 employees.
Pushed to ensure the agreement included intersectionality – the interconnected nature of social categories such as race and gender – as an aggravating factor for pay discrimination and to strengthen the possibilities to take equal pay claims to court.
It was the first EU legislation to recognize non-binary people in its scope.

The directive focuses on two core elements of equal pay (i) measures to ensure pay transparency for workers and employers; and (ii) access to justice for those experiencing pay discrimination.

Pay transparency measures:

Pay transparency for job-seekers – Employers will have to provide information about the initial pay level, or its range in the job vacancy notice, or before the job interview. Employers will not be allowed to ask prospective workers about their pay history.
Right to information for employees – Workers will have the right to request information from their employer on their individual pay level and on the average pay levels, broken down by sex, for categories of workers doing the same work or work of equal value.
Reporting on gender pay gap – Employers with at least 100 employees must publish information on the pay gap between female and male workers in their organization. For internal purposes, they should also provide information on the pay gap between female and male employees by categories of workers doing the same work or work of equal value.
Joint pay assessment – Where pay reporting reveals a gender pay gap of more than 5% without a justification, employers will have to carry out a pay assessment, in cooperation with workers' representatives.

Access to justice:

Compensation for workers – workers who suffered gender pay discrimination can get compensation, including full recovery of back pay and related bonuses or payments in kind.
Burden of proof on employer – it will be by default for the employer, not the worker, to prove that there was no discrimination in relation to pay.
Sanctions to include fines – Member States should establish specific penalties for infringements of the equal pay rule, including a minimum level of fines
Equality bodies and workers' representatives may act in legal or administrative proceedings on behalf of workers as well as lead on collective claims for equal pay.

Outlook: The directive will be formally signed off by the European Council and member states will have 2 years to adopt into their national laws. Significantly, the deal comes after the EU approved another law that would require listed companies to move toward 40% female representation in non-executive director positions by 2026 and Japan requires its listed companies to disclose gender pay gap. We are expected to see more countries leverage legislation to promote gender equality.