It’s here: Equal Pay for Equal Jobs!
I am sure you’ve read the news that on March 30 the European Parliament approved the Pay Transparency Directive. In this article, I explain why this is important, provide a summary of the most important requirements and some suggestions for solutions to help you get started. And scroll to the bottom for my downloadable Equal Pay Infographic with the highlights on one page.
The Gender Pay Gap
The right to equal pay between women and men for equal work or work of equal value is one of the EU’s founding principles enshrined in the Treaty of Rome. However, despite existing laws, according to the latest data, women in the EU are paid on average 13 percent less than men. Some countries (Luxembourg!) do really well and have almost eradicated the gender pay gap, while others lag behind (including my home country…). Progress has been slow. Between 2010 and 2020, the gap only shrunk with 3.1 percent. If we continue on this trajectory, it will be decades before women and men are paid equally.
Why is this such a big deal?
Let’s use the European numbers as example: the average starting salary for men is 100, and for women it is 87, 13 percent lower, equal to the pay gap. Let’s standardize their performance and assume they receive an annual increase of 3 percent. This is what it looks like:
After 15 years, men earn 151.2, while women receive 131.6. The pay gap has grown from 13 to about 20 per year. But before you say that is a logical consequence, let me point out that this is a cumulative loss. Over that 15-year period, women have earned 228.8 less than men while doing the same job. Do you think that’s acceptable?
And that loss has further consequences: most benefits are based on a percentage of income. It’s not just less income, it also means lower benefits. It even leads to women receiving a far smaller pension than men, simply because the employer contributions are lower.
If I were an economist, I would also mention that paying women equally leads to higher GDP and economic growth, but I’m not, so I’m merely suggesting that you realize the issue has wide ramifications that are beyond the scope of this article.
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Let’s fix this once and for all
The new Pay Transparency Directive is a significant step towards achieving gender pay equality. It requires companies with more than a hundred employees to disclose information about their pay policies and report on the gender pay gap. This information will be publicly available, allowing employees to compare their pay with their colleagues to identify and address any gender pay gaps. The directive also prohibits employers from discriminating against employees based on their gender when it comes to pay and benefits.
Before we dive into the details, here are a few clauses that I think are significant:
- The Directive applies to employers in public and private sectors.
- The Directive applies to all workers who have an employment contract or employment relationship as defined by law, collective agreements and/or practice. That includes part-time workers, fixed-term contract workers and persons with a contract of employment or employment relationship with a temporary agency, as well as workers in management positions.
- When they fulfill relevant criteria, domestic workers, on-demand workers, intermittent workers, voucher based-workers, platform workers, workers in sheltered employment, trainees and apprentices fall within the scope of this Directive.
- The concept of pay is broad: it comprises not only salary, but also complementary or variable components of the pay. It includes any benefits in addition to the ordinary basic or minimum wage or salary, which the worker receives directly or indirectly, whether in cash or in kind. It also includes bonuses, overtime compensation, travel facilities, housing and food allowances, compensation for attending training, payments in the case of dismissal, statutory sick pay, statutory required compensation, and occupational pensions.
- The value of work must be assessed and compared based on objective criteria, including educational, professional and training requirements, skills, effort, responsibility and working conditions, irrespective of differences in working patterns.
- Job titles and job vacancy notices must be gender‑neutral and non-discriminatory.
You can download the full text of the Directive as pdf or as Word document. Or print the infographic at the end of this article where I collected the highlights on one page.
Six important topics
The Pay Transparency Directive introduces six important requirements:
Pay transparency prior to employment
Employers must include information about the initial wage level or pay scale in the job ad or share it before the interview. You are not allowed to ask future employees about their pay history or what they currently earn.
Transparency regarding pay level and career progression
Employers must give workers a description of the criteria used to define their pay, pay levels and pay progression, like increases and promotions. Those criteria must be objective and gender neutral.
Right to information
Employees have the right to request information about their individual salary level and the average salary level, broken down by gender. This right applies to all employees irrespective of company size. This information should be provided within two months.
Pay gap reporting
Employers with more than a hundred workers must report on the pay gap between female and male workers in their organization.
Joint pay assessment
If the pay gap report shows a difference in average pay between female and male workers of at least five percent, and it can’t be justified by objective factors and has not been remedied within six months after the report, the employer is required to carry out a pay assessment in cooperation with workers’ representatives.
Remedies and enforcement
Workers have the right to full compensation for the loss and damage sustained. This includes the recovery of back pay and related bonuses or payments in kind, compensation for lost opportunities, moral prejudice, and any harm caused by other relevant factors as well as interest on arrears. The Directive introduces a ‘burden of proof’ on the employer in cases of alleged pay discrimination. Companies can also be fined for repeat infringements.
What happens next?
Before the Directive goes into effect, the European Council has to formally approve and sign it. The Directive will be published in the Official Journal of the European Union and the new rules come into effect twenty days after publication.
The EU member states have three years to codify the Directive into their national laws. The Directive explicitly states that these are the minimum requirements. In other words, if a country already has a law in place that is more favorable to workers, they cannot lower their current standards. Countries can also choose to go a step further, as long as they abide by the Directive. This is analogous to the GDPR, where some countries have a stricter version in their national laws than others.
Using this timeline, it is reasonable to assume that your first gender pay gap report must be published in 2027. (2023 + 3 for states + 1 for companies with 150 or more employees). Reporting requirements are related to the number of employees, as you can see in the table below.
What should you do next?
The first step is to read the Directive. The document is about eighty pages, but the actual Directive is less than half of that. I encourage you to read the original text: it’s a quick read and it will provide you with all the knowledge you need.
The next step is to assess the current state of the gender pay gap in your company: do you know if you have one? Closing the pay gap is complex, takes time, and eliminating gaps on an individual level is costly, so the sooner you start to correct it, the better it is.
HR Tech to the rescue
Fortunately, there are solutions to help you with the most important aspects:
- Hiring solutions assist in identifying and mitigating unconscious prejudices throughout the recruitment process, enabling companies to select candidates based on merit and qualifications. The software also aids in uncovering potential disparities in the candidate selection process, empowering organizations to make data-driven decisions and implement fair and impartial hiring practices.
- Job grading is a critical component of ensuring equal pay for equal work. Job grading solutions help you determine the relative value of different jobs within the organization and help you set fair and consistent pay structures. The software can also help identify any discrepancies in pay for similar jobs, allowing you to take corrective action.
- You will also need access to salary benchmarks. Benchmarks allow organizations to compare their pay rates to industry standards and ensure that you are offering competitive compensation packages. This can help identify any areas where you may be falling short in terms of pay equity.
- Compensation solutions allow organizations to compare and manage their overall rewards packages, ensuring that they are consistent and fair across the organization. This can help identify any discrepancies in pay and other benefits between workers and allow you to take corrective action.
I will look at these solutions more in-depth in a future edition, but for quick inspiration take a look at:
- Equalture uses scientific and objective methods to remove bias from the hiring process
- Figures can help you build compensation policies including benchmarking for improved pay equity
- Gradar is a job evaluation platform to define a consistent job architecture with job grades leading to fair and transparent pay structures
- Syndio helps you measure, correct and monitor pay and opportunity equity in line with global regulations, like the new Pay Transparency Directive.
Addressing pay disparities is not just a legal requirement; it is also a moral imperative and good business practice. Research has shown that companies with more gender diversity in their workforce are more innovative, make better decisions, and have higher financial returns. Additionally, addressing pay disparities can help improve employee satisfaction, retention, and motivation.
The Directive does not forbid you from publishing reports before the deadline. In fact, I know several companies who publish their (gender) pay gaps on a regular basis. The direction is clear, so if you are serious about tackling this issue, publishing these reports now signals to your employees that you are aware of the problem, and that you are actively monitoring and remedying it. The time is now!