New EU rules on gender pay transparency close to coming into force - Update

24 April 2023 6 min read

By Katie Davies

At a glance

Two years after the European Commission first proposed a new directive on pay transparency to strengthen existing equal pay rights, new rules have taken a big step closer to coming into force.

*Update: 24 April 2023

On 24 April 2023, the European Council approved the directive. The next step will be the publication of the directive in the Official Journal, which is likely to take place in coming weeks (following translation into the official languages and signature by the President of the Parliament and President of the Council).

On 30 March 2023, the European Parliament adopted the directive 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. All that remains now is for the European Council to also approve the agreement before it will then be signed into law and published in the EU Official Journal. The rules will then take effect 20 days later.

In a deviation to standard practice, in order to allow employers time to put non-discriminatory pay structures in place so that the rules can be fully applied, European Member States will have three years (rather than two) to implement local laws to give effect to the new rights and obligations under the directive. This means that the likely deadline for Member States to comply will be spring / summer 2026.

Which employers are impacted by the new rules?

The directive applies to employers both in the private and public sector.

Which employees are in scope?

All workers who have an employment contract or employment relationship as defined by law, collective agreement and / or practice in each Member State are in scope. Where relevant, the rules also apply to job applicants.
Comparisons between workers may be made even when the workers do not work for the same employer, provided their pay conditions can be attributed to a single source. Hypothetical comparators are also permitted.

What are the key measures?

Job applicants

Job applicants will have the right to receive information about initial pay or its range (and, if applicable, the relevant provisions of the applicable collective bargaining agreement), provided in such a matter as to ensure an informed and transparent negotiation on pay.
Employers cannot ask job applicants about their pay history with existing or previous employers.
Job vacancy notices and job titles must be gender neutral.

Pay transparency

Employers will have to make easily accessible to their workers the criteria that are used to determine workers’ pay, pay levels and pay progression. The criteria must be objective and gender neutral. Member States may exempt employers with fewer than 50 employees from the pay progression obligations.
Workers will have the right to request and receive in writing (personally, or through workers’ representatives or an equality body) information on their individual pay level and the average pay levels, broken down by sex, for categories of workers performing the same work, or work of equal value. Employers will need to inform workers annually about this right and how to exercise it. Employers must provide the information within a reasonable time period and by no later than two months after the request.

Pay secrecy

Workers must not be prevented from disclosing their pay to others for the purpose of the enforcement of the principle of equal pay.
Member States must put in place measures to prohibit contractual terms that restrict workers from disclosing information about their pay.

Pay reporting

Employers will need to provide information (the accuracy of which must be confirmed by the employer’s management after consultation with the workers’ representatives) on:

The gender pay gap, including in relation to complementary or variable components;
The median gender pay gap, including in relation to complementary or variable components;
The proportion of female and male workers receiving complementary or variable components;
The proportion of female and male workers in each quartile band;
The gender pay gap between workers by categories or workers broken down by ordinary basic wage or salary and complementary or variable components.

The timeframe for compliance, and frequency of reporting, depends on employer size:

Employers with 250 workers or more must:
- publish their information within four years after the directive enters into force (therefore likely to be a 2027 deadline); and
- report annually thereafter.
Employers with 150-249 workers must:
- publish their information within four years after the directive enters into force (therefore likely to be a 2027 deadline); and
- report every three years thereafter.
Employers with 100-149 workers must:
- publish their information within eight years after the directive enters into force (therefore likely to be a 2031 deadline); and
- report every three years thereafter.
Employers with fewer than 100 workers are not required by the directive to publish gender pay gap information but Member States are permitted to require these employers to provide information on pay. These employers may also choose to report voluntarily.

The reports will be published by the Member State’s monitoring body in an easily accessible and user-friendly manner that allows comparison between employers.

Employers may publish the report on their website or make it publicly available in another manner.

Joint pay assessment

Where published gender pay gap information demonstrates an objectively unjustified difference in the average pay level between female and male workers of at least 5%, and the employer has not remedied this difference within six months of its pay report, the employer will be required to conduct a joint pay assessment, in co-operation with their workers’ representatives.
Unjustified differences in pay must be remedied within a reasonable time period.

Remedies and enforcement

Court proceedings must be available to workers who consider themselves wronged by a failure to apply the principle of equal pay.
Workers who have sustained damages must be able to obtain full, real and effective compensation or reparation. Compensation must include full recovery of back pay and related bonuses or payments in kind, compensation for lost opportunities, non-material damage, any damage caused by other relevant factors, as well as interest on arrears. Compensation will not be capped.
Limitation periods for bringing a claim will not be shorter than three years.
If an employer fails to comply with its pay transparency obligations, the burden of proof is on the employer to show that there has been no discrimination in relation to pay, irrespective of whether the worker has shown a prima facie case of pay discrimination.
Employers who infringe the principle of equal pay will be potentially liable for effective, proportionate and dissuasive penalties, which will include fines. These could be based on gross annual turnover or total payroll. Specific penalties will apply for repeat infringements. These could include time-limited exclusion from any public tender procedures.
Workers cannot be treated less favourably on the grounds that they have exercised their rights relating to equal pay or have supported another person in the protection of that person’s rights.
Employers with fewer than 250 employees will have support available in the form of technical assistance and training to facilitate compliance with their obligations.

Impact of the directive

For many employers, the new directive will bring a sea-change of new obligations and, in many cases, a shift in culture – many jurisdictions, including the Netherlands, Czech Republic, Hungary, Poland and Romania do not currently have any gender pay reporting obligations; the new rules will require employers to examine their existing pay structures and potentially implement an array of new measures. For others, operating in jurisdictions such as France, Spain and Italy, the new rules will sit alongside and then add to and / or adapt existing obligations. It is worth noting that Member States are also permitted to implement any provisions which are more favourable to workers.

However, regardless of where employers currently operate in the EU, it is clear that all will need to now keep a watching brief on how the Member States decide to implement the new laws and what new obligations this may bring. In this regard, employers would be prudent to dedicate resource to this issue now, tasked with tracking local developments, understanding new requirements and setting a clear action plan to ensure full compliance by 2026.

Our GENIE subscribers can access our Gender Pay Transparency: A Global Guide to Reporting Obligations to compare existing gender pay reporting information across 36 global jurisdictions, with a new edition scheduled for June 2023.