HR Policy Global
Analysis

EU Pay Transparency Directive (PTD): June 2024

Published on: July 2, 2024

Authors: Iain Stark

Topics: Employment Law, HR Processes Policies and Compliance, The UK and European Union

 

12 questions every CEO and CHRO should ask, with example answers, answers to be adapted:


Q1: Does this Directive approved in June 2023 affect us?

A1: Yes it does.  It applies in every country in the EU where we do business and that is xx countries out of the 27 EU countries. We have already updated the HR team. We are compliant currently as we are globally and we will see exactly what the Directive may add when countries bring it into effect by June 2026 at the latest (“transpose” in legal terms).

 

Q2: What is it aiming to achieve that decades of legislation and pay equality strategies at company level have not achieved?

A2: There has been progress but the Directive adds much more detailed disclosure requirements aimed at accelerating this.

 

Q3: What is new?

A3: We do a lot of reporting on female versus male pay in many of the countries but this Directive will require that we look at a wider worker population including contractors, perhaps even gig workers, and then also has a much broader definition of pay, for example it includes company pensions and pay for attending training in line with fair career progression being a focus.  

The methodology for assessing equal pay for work of equal value is likely to be more granular and come under more scrutiny, and comparison can be with workers in other companies.  

Also new is the requirement for a joint assessment with worker representatives where there is a difference of 5% or more in any category, as defined. And when hiring there must be transparency with candidates about pay, either an amount or a range, everywhere – today this is the case in some places but not everywhere, see Q4.

 

Q4: What is not new?

A4: Not new is the principle of equal pay for work or equal value which essentially all employers espouse.  Today individual employees are able to take legal action in most countries (tbc) where they believe this is not the case, but the PTD workforce scope is wider and the pay definition also wider.  We already sharing methodology on pay setting and career progression with worker representatives, but the PTD may deepen this.  We share pay ranges when we hire in many countries, for example as required by state in the US and then in some states by city, such as New York, or county.  And our managers already know the salary and bonus ranges for their employees as they need this for pay planning and also when hiring – they will have a sense of equal pay for equal work in the perimeter that they manage, defined by role and level, but they do not have the calculation for pay equity and a view across the business.  HR does have that and can run audits for the direct workforce.

Q5: How does it overlap with other EU legislation?

A5: The closest overlap is the EU Corporate Sustainability Reporting Directive which has a broad Environmental, Social and Governance (ESG) view.  It makes sense that we consider this in parallel as the CSRD includes some disclosures on female:male pay differences and the compensation of the highest paid versus the median worker (similar to what exists today in the US.  The PTD does not require disclosure of the ratio of the highest-paid to the median.

 

Q6: Does it change our global HR pay strategy, policies and communications?

A6: No.  But it may extend some reporting and hiring disclosures. This is a trend in other countries around the world, such as Brazil and the US.

 

Q7: When will it start to apply to us?

A7: June 7, 2026 for individual cases and 2027 for reports for countries where we have 150+ workers. 2031 where we have 100-149 workers.  This is xx countries with 150+ and yy with 100-149 based on the most recent workforce data. Each EU country is to enact the Directive (“transpose” it) by June 7, 2026 at the latest so it could be earlier if they do this before.  And they can decide to extend below 100.

 

Q8: Has there been any reaction from employees, the unions or the European Works Council?

A8: Not much as we are in wait-and-see mode for the precise country legislation.  But unions at country level may see this as an opportunity to be more involved. The Directive does imply deeper engagement with worker representatives on pay methodology and data.

 

Q9: Can our current HR systems provide all the worker and pay data required?

A9: No because worker and pay scope is so broad.  This is especially true for those who are not in our direct workforce an where costs are tracked but not by individual or pay component and that is a constantly changing population. We are assessing what additional systems may be required and the costs. 

 

Q10: Do we need to consider changing anything now in our current grading and pay methodology?

A10: No. Our roles are clearly defined and then we benchmark grading and associated pay with the methodology and assistance of a recognized consultant, (add name(s) of the consultant(s) ). This should be accepted. We will assess extension to the extended workforce when legislation is set. Clearly we also apply any leveling and pay requirements under collective agreements. Reporting by high-level category, such as the standard in France, is unlikely to be sufficient. 

 

Q11: What are the potential penalties?

A11: Country legislation will set this. It would make sense for this to be based, as today, on any individual cases or by category. 

 

Q12: What are the next steps and can I help?

A12: The PTD and also the CSRD are in line with what we have been working on globally and will continue to progress. Pending the detailed legislation we will provide you with a global update on pay equity and transparency in 2H 2024.  In some countries we currently have a salary budget to address any pay gaps and will continue with that.

 

QUESTIONNAIRE

Question

Answer

Comments

In how many countries do you do business in the EU

 

This will be all countries where there are workers as individual cases can always arise even if the population is below the threshold for reporting.

In how many of these is the number of workers, all entities combined, currently:

 

This may need to be updated closer to when reporting starts to be required because of the broad definition of worker in the Directive

250+

 

150-249

 

100-149

 

Does the Corporate Sustainability Reporting Directive (CSRD) apply to your business

 

See the PTD vs CSRD comparison table attached.

This CSR overlaps with the PTD in content and in reporting timing although the PTD is much more detailed on pay and then country reporting.

The CSRD does include European Economic Area (EEA) countries, Iceland, Liechtenstein and Norway.

Is the compliance timeline clear

 

Countries must have transposed the PTD into law by 7 June 2026 at the latest.

From transposition it will apply immediately for any individual situations including hiring.  Where reporting is required that will start, by country, in 2027 if 150+ workers. 2031 if 100-149. Countries may decide 

Is the definition of a worker clear

 

See page 2 in the document attached. 

Do current HR systems include all of these workers

 

This may be via Finance systems not HR

Is the definition of pay clear

 

See page 2 in the document attached. Even if definition may be clear it is not clear who is responsible for each pay element for contractors. For gig workers it is even less clear.

Do current HR systems include all of these elements for all workers

 

This seems unlikely beyond direct employees. 

Does current grading and pay methodology confirms equal pay for work of equal value

 

If a solid job data set and benchmarking with consultant(s) such as Mercer, WillisTowersWatson, Hay/Korn ferry, should be OK.

Are employee representatives aware and engaged

 

 

Does this change much for my business

 

While aligns with global policies and practices and current compliance in all countries the requirements in page 1 and 2 attached are unlikely to be fully met today 

 

 

 

Methodology on job evaluation and career progression disclosed to workers and their representatives

 

The consulting requirement is that “workers’ representatives. Workers’ representatives shall have access to the

methodologies applied by the employer.”

Pay transparency currently

 

Salary and bonus for direct employees, by role/grade, may be known by managers as they plan or hire, but not for the business overall. HR or senior management may have that but not for indirects.

 


EU Corporate Sustainability Reporting Directive versus the EU Pay Transparency Directive

DRAFT

EU Corporate Sustainability Reporting Directive (CSRD)

EU Pay Transparency Directive (PTD)

Comments / Actions

Businesses covered: EU parent (first reporting then yearly if not specified otherwise)

EU+EEA (Iceland, Liechtenstein, Norway)

Somewhat complex  

  • Already subject to the Non-Financial Reporting Directive (NFRD). Typically 500+ workers and/or public interest entities (2025 for 2024, may be some deferrals to 2026 based on country transposition)
  • Two or more of a) 250+ workers, b) €50M+ revenue (other currency), c)  €25M+ assets (2026 for 2025)
  • Listed SME (2027 for 2026)
  •  

EU

All where there is a EU worker

Reporting if 100+ workers, as defined below

Dates for reporting:

  • 250+ workers: June 2027 for 2026
  • 150-249: : June 2027 for 2026 then every 3 years
  • 100-149: : June 2031 for 2026 then every 3 years

Below 100 at country discretion.

While the CSRD has a much broader scope than the PTD it makes sense to look at the data now for both as the data for workers and for pay overlap. This includes for current country reporting on female:male and Ceo pay ratios. 

 

PTD coverage is more straightforward in being worker-based only.  Although the broad PTD worker definition does add a complexity. It also means that all employers will be covered for individual comparisons from day 1 in June 2026.

 

Reporting: As PTD is by country not the EU+EEA total (see below) it will result in more employers being covered. As it is by country it will also often require more reports versus one where the CSRD applies.

 

 

Businesses covered: Non-EU parent (first reporting)

Differences between subsidiary and branch tbc

  • Listed on a EU market and 500+ workers and €50M+ revenue and/or €25M+ assets (2025 for 2024). If 250-499 workers (2026 for 2025)
  • Not listed, with €150M+ EU revenue in past 2 years and 250+ workers (2029 for 2028)

How is the number of workers calculated

EU + EEA. Total across all countries.

For each EU country.

For reporting, Aggregation makes the CSRD more likely to apply. But the PTD may require more reports and 

Workers covered

Direct employee

Direct employees plus those with whom there is a working relationship, for example contractors. See page 

PTD seems to go much further than the CSRD.    Country transposition should clarify.    Whether all the data is available 

Pay covered

Wages for the female:male pay gap, which may be by “category”.

Total compensation for the ratio of highest paid to median.

Very broad. The principle being all elements with a monetary value. See page 2 attached.

All the elements that the PTD includes will likely be difficult to cover for direct workers and almost impossible for indirect workers.

Highest paid versus median

Ratio of the highest total compensation (not necessarily CEO) to median across all EU+EEA workers. And the % change of each amount in the year, which overlaps with the EU Shareholders Rights Directive.

Not covered

Similar to the US where the ratio is for the CEO vs. workers worldwide not US only. 

Different from current reporting by country, eg, France where # fmale in the top 10 highest paid French employees is reported.

Highest paid may be outside the EU+EEA.

Equal pay for work of equal value

“Jobs requiring similar skills, effort, and responsibility, and performed under similar conditions, should receive equal pay. To eliminate disparities that arise from gender, age, or other forms of discrimination

As for CSRD. Also mentions other factors as relevant. 

 

Comparison can be with another employer.

May use of the methodology of Hay/KornFerry, Mercer, WillisTowersWatson, or another be a “safe harbor”. And/or compliance with collective agreements although these may set minima only and be less role specific.

As always the job decription will be the foundation.

Engagement of worker representatives. For the PTD the foundation is by country. For the CSRD that will be a foundation for the single overall report.

Required. This includes on pay ratio methodology, the calculation process and the results.

Advised on and educated on the methodology for pay levels and career paths

Many representatives already have high-level access to the methodology, the factors, but not the details of the grading.

And sometimes internal pay ranges in addition to collective bargaining amounts. 

They also engage in individual cases. 

 

They know the results of the current pay gap assessments.

 

What is new under the PTD 

  • More granular data
  • Joint pay assessments
  • Beyond the direct workforce

Consulted on the data gathering and calculation process

Engage in individual cases

Joint pay assessment where there is a 5%+ gap 

Go beyond the direct workforce

Payment of a fair wage

In the disclosure of how pay practices are fair and equitable. An element of the overall fair pay disclosure.

Not explicitly covered

PTD focused on comparisons versus absolute levels.

Are assignees covered

Yes

Yes

Logically this is based on where they are working not the home country. Excluded in some current country gap assessments.

External pay transparency

Not covered

See page 3 attached.

The PTD will likely accelerate the external publication of ranges for hiring, job by job.  In the EU and elsewher, for example certain US states/cities.

IA tools such as ChatGPT are starting to show ranges. Glassdoor et al also. Both imprecise, for now.

Internal pay transparency

Not covered

See page 3 attached

 

 

PDF version of this article

                         +

See also this PDF presentation 

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