In December 2022, EU negotiators reached an agreement on a new directive, the EU pay transparency legislation to make salaries more transparent. The new rules will come into force twenty days after their publication in the EU Official Journal, and then member states will have three years to transpose these pay transparency requirements in their national law.
Following Brexit, the Directive will not apply in the UK. However, UK employers with European operations may want to ensure consistency of practice across their business.
The main aim of EU pay transparency legislation is to narrow the gender pay gap across the EU, where currently women earn on average 13% less than men per hour. There is, however, considerable variation between EU countries ranging from a gender pay gap of:
Less than 5%:
More than 18%:
In the UK, the gap among full-time employees increased to 8.3% in 2022, up from 7.7% in 2021. Although, this is still below the gap of 9% reported in 2019 before the coronavirus pandemic.
When thinking about gender pay gaps, it is also important to consider the impact a salary pay gap can have on other aspects of overall compensation, such as pension provision. The EU currently has a gender pension gap of 30% between men and women.
The challenge for most organisations is not just how to keep up with the changes, but mechanisms and processes to ensure compliance globally
Pay transparency for job seekers
Employers will be required to provide information to job seekers about the initial pay level or the pay range of the role they are applying for. This could either be set out in the job advert, or provided in another way to jobseekers, before they reach the interview stage of the recruitment process.
Candidates cannot be asked about their pay history
Employers won’t be able to ask candidates what they are paid in their current role or what they have been paid for previous roles.
Employees will be able to request pay information
Employees will be able to request information from their employer, annually, regarding their individual pay level and the average pay levels, broken down by sex, for categories of workers doing the same work or work of equal value.
Pay setting and career progression
Employers must make easily accessible to workers a description of the gender-neutral criteria used to define pay levels and career progression.
It is also important to consider the impact a salary pay gap can have on other aspects of overall compensation. The EU currently has a gender pension gap of 30% between men and women.
Gender pay gap reporting
Employers with at least 100 employees will have to publish information on the pay gap between female and male workers. Employers with at least 250 employees will report every year, while employers with between 150 and 249 employees will report every three years.
As of five years after the transposition of the EU pay transparency legislation, employers with between 100 and 149 employees will also have to report every three years.
Pay assessment
Where pay reporting reveals a gender pay gap of at least 5%, and when the employer cannot justify the gap on basis of objective gender-neutral factors, employers will have to carry out a pay assessment, in co-operation with workers' representatives.
What is the evidence that pay transparency legislation has a positive impact on gender pay gaps?
In 2006, Denmark introduced pay transparency legislation for organisations over a certain size. Research showed that the impact of this legislation was a 7% reduction in the gender pay gap in the organisations included within the new rules. Further analysis showed that this reduction was primarily caused by a decrease in the wages of men rather than an increase in the wages of women.
Pay transparency legislation is being introduced all around the world. The challenge for most organisations is not just how to keep up with the changes, but how to put in mechanisms and processes to ensure compliance globally, managing increasing changes and the nuances of regional variations. For many companies, this now involves investing in technology to automate and integrate compliance and hiring specific DEI compliance experts to manage this process and protect the organisation against future issues.
Key actions for organisations:
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