The Pay Transparency Directive
“In many cases, women are still paid less than men for doing the same job.
In the EU, women are on average paid 13% less per hour than men. Increased pay transparency and new enforcement mechanisms aim to combat pay discrimination based on sex and contribute to closing the gender pay gap.”[1]
The primary driver of the gender pay gap in modern economies is the very undervaluation of women’s work, rather than women receiving less pay than men for the same work (Meyersson Milgrom, Petersen and Snartland 2001)[2]
What is the gender equal pay directive?
The Pay Transparency Directive[3] was adopted by the European Parliament on March 30, 2023, to strengthen the application of the principle of equal pay for equal work or work of equal value between men and women through pay transparency and enforcement mechanisms. The Directive entered into force on 6th June and Member States have 3 years to transpose it into national law.
Below, we go into more detail regarding the significant ramifications that the Pay Transparency Directive has on both employers and employees.
By establishing pay transparency standards to enable employees to assert their right to equal pay and accountability, the Pay Transparency Directive seeks to tackle the gender gap and promote fair pay practices throughout the EU.
The introduction of mandatary reporting requirements for larger employers on pay equality, the right of employees to ask their employer for information about their individual pay level and on average pay levels, some of which are prior to employment, and mechanisms that strengthen the enforcement of the equal pay principle, are all just a few of the measures used to achieve these goals.
The Pay Transparency Directive affects all employers in the public and private sectors, as well as individuals with an employment contract or other type of relationship with an employer, as well as individuals looking for work.
Under Malta law, the principle of equal rights and equal pay between men and women is somewhat already included in our legislation. However, the Pay Transparency Directive, once implemented in Malta law, will require additional transparency by employers, who will need to assess and ensure compliance with its requirements, review their current policies and procedures, and perhaps conduct an audit to identify any existing gender pay gaps.
The following are a few of the key provisions under the Pay Transparency Directive:
- Pre-employment pay transparency: job seekers shall have the right to receive information about the initial pay level or range for a specific position without the applicant having to request it. Information must be objective and gender-neutral. The information will need to be given in a way that ensures an informed and transparent pay negotiation, such as in a published job vacancy notice or before the interview. The Directive prohibits employers from asking future employees about their former and current salary.
- Transparency regarding pay level and career progression during employment: employers are required to make accessible to workers the criteria used to determine pay and career progression, which must be objective and gender neutral. Employers with fewer than 50 workers may be exempted by a Member State from the obligation to make accessible to workers a description of the criteria used to define this pay progression.
- Right to pay information during employment: workers are entitled to request information on their pay levels and average pay level, broken down by sex, for categories of workers doing the same work or work of equal value. Information must be given as soon as possible and, in any case, within two (2) months of the request date. All employees must be told of their right to receive this information by their employers once a year. Such right to information cannot be prevented through confidential clauses.
- Pay Gap Reporting obligation: Employers with more than 250 employees must submit an annual report on the gender pay gap. Companies with more than 150 employees should report every three (3) years.
- Pay secrecy provisions: Contractual provisions intended to restrict employees from disclosing information about their pay are prohibited.
- Remedies and enforcement: The Pay Transparency Directive introduces a number of protective provisions and enforcement mechanisms, including a right to compensation to workers who have suffered gender pay discrimination, with the burden of proof shifted to the employers to prove that they have not violated EU rules on equal pay and pay transparency. Penalties for violations to be introduced by Member States must be effective, proportionate and dissuasive and will include fines.
- Joint pay assessment: qualifying employers will be required to carry out a joint pay assessment with employee representatives if the reporting identifies a gender pay gap of at least 5% in any category of workers which is not justified by objective and gender-neutral factors or remedied within six months.
How can we start preparing for the Pay Transparency Directive?
The Pay Transparency Directive introduces significant implications for employers and employees in the EU. Notwithstanding the three (3) year period for implementation, employers should analyse their organisations with the aim to identify any gender pay gap and take corrective actions where necessary. Employers should also assess and review their policies, in particular those relating to non-discrimination, diversity, equity and inclusion. Most importantly, employers should raise awareness on equal pay by training managers and HR staff.
On the other hand the Pay Transparency Directive enables employees to make more informed and better decisions, allowing hiring and pay negotiations to take place on a level playing field. Additionally, it helps employees to identify potential discriminatory pay practices and enforcing corrective measures.
Should you have any questions about the Pay Transparency Directive and/or its practical implementation, we will be happy to help.
[1]https://www.consilium.europa.eu/en/infographics/pay-transparency/
[3] Directive (EU) 2023/970 of the European Parliament and of the Council of 10th May 2023 to strengthen the application of the principle of equal pay for equal work or work of equal value between men and women through pay transparency and enforcement mechanisms.