European Union (EU) Directive 2023/970 on pay transparency (the “Directive”) which entered into force on 6 June 2023, requires each EU member state to pass legislation enacting the requirements as outlined in the Directive by 7 June 2026.
The goal of the directive is to further reduce or eliminate gender pay inequity within the EU through measures aimed at countering gender pay discrimination, through the collection and disclosure of pay gap data, compensation for those who have suffered pay discrimination, and penalties against employers for violations.
Key details
EU legislation in the form of a directive requires individual EU member countries to implement local legislation meeting at least the minimum standards outlined in the directive. EU member countries are free to enhance provisions and, as a result, pay transparency requirements may vary by country. EU member countries which have already passed some form of pay transparency or auditing legislation (Sweden, Norway, Finland, Ireland, France, and Germany) will need to review their existing legislation for compliance with the Directive, and amend it as needed.
The Directive covers all employees and job applicants. Pay includes all elements of remuneration. This includes direct compensation (salary, wages, etc.), as well as variable and complementary items (bonuses, overtime, allowances, occupational pensions, sick pay, compensation for attending training, etc.).
The Directive outlines the following requirements, amongst others, that must be contained in EU member state legislation:
Pre-employment
Employers must ensure that job titles and vacancies are gender neutral and provide the salary range of the vacant position, either in the job listing or prior to the interview. In every case it must be provided before an employment contract is concluded. Additionally, the employer is prohibited from asking the job seeker about their own salary history.
Information on Pay Levels
The employer will have an obligation to be transparent about how pay levels are set and how an employee can move to a higher pay level.
Workers will have the right, upon request, to receive information regarding their individual pay level and average pay levels for workers doing the same work or work of equal value, categorized by gender. Employers will be required to respond within two months of such request.
As it may be difficult to specifically determine whether work is of equal value, the Directive states that neutral criteria such as skills, working conditions, effort, and responsibility should be used; but other criteria may be used if relevant.
Reporting Requirements
The reporting requirement for a company will vary by size. Companies with 250 or more employees will be required to report annually; companies with 150 or more employees will be required to report every three years. The threshold for employers required to report every three years will eventually be reduced to companies with 100 or more employees. Companies with fewer employees may report at their own discretion, although each EU member state could lower the threshold for mandatory reporting when they enact local legislation.
Employers above the required headcount threshold will be required to report on pay gaps between female and male workers within the same job or equal work category. Employers can publish the report on their website or other public manner. Reporting must include:
the gender pay gap in both direct compensation and variable or complementary compensation,
the median gender pay gap in both direct compensation and variable or complementary compensation,
the proportion of female and male workers in each quartile pay band,
the gender pay gap between workers performing the same job or work of equal value, and broken down by direct pay and variable or complementary components
Joint Pay Assessments
A company will need to carry out a joint pay assessment in collaboration with employees’ representatives where:
reporting reveals a pay gap of 5% or more between male and female workers in the same job or equal work value category,
that pay gap is not or cannot be justified by objective and gender-neutral criteria,
the employer does not resolve the 5% pay gap within six months.
Joint pay assessments are meant to lead to the elimination of gender-based pay discrimination, through the adoption of remedial measures and should include (amongst other items) the following:
the proportion of female and male workers in each job or work of equal value category and the average direct-pay levels as well as complementary or variable components,
differences in the average pay levels between female and male workers in each job or work of equal value category, and any reasons, using only objective gender-neutral criteria, that could justify the differences,
measures utilized to address improper differences in pay,
the effectiveness of previous measures from joint pay assessments.
Pay Discrimination Compensation
Legislation enacting the Directive will need to include provisions for victims of pay discrimination including full recovery of back pay, related bonuses, and related payments in kind. Compensation due may also consider lost opportunities or benefits accruing to a particular pay level as well as pay discrimination based on gender which intersects with other protected grounds of discrimination such as race or disability.
It is important to note that under the Directive, the burden of proof will shift from an employee needing to prove that an employer engaged in pay discrimination to an employer having to prove that they have not violated the Directive or EU member state’s equal pay and pay transparency legislation.
Penalties
Penalties imposed against employers for infractions will be determined under each member state’s legislation subject to the Directive’s guidance that penalties must be effective, proportionate, and dissuasive. Penalties may include, but will not be limited to, fines. Penalties may take various items into account such as intersectional discrimination or the level or frequency of violations and may be scaled accordingly.
Next Steps
As each member state will need to pass or amend legislation by or before 7 June 2026, companies should track legislation for any EU member country in which they have operations.
Please note that legislation passed by each member state may differ from the Directive, and, for example, companies of smaller sizes could be required to participate.
Employers may choose to wait to establish specific protocols until local legislation has been implemented. It would be prudent, however, to begin collecting at least the minimal data as outlined in the Directive and determine if any pay gaps need to be remedied. For employers in countries that have already codified gender pay transparency, companies should continue complying with that legislation unless, or until, it is amended.