The pay transparency era is here. Last year, we saw a steady drumbeat of new pay reporting requirements in Europe and around the globe, a post-pandemic revival of Gender Pay Gap reporting in the UK, a laser focus on pay range transparency in the U.S., and more employees openly discussing and sharing their pay. With the new EU Pay Transparency Directive approved, we can expect to see even more transparency on the horizon.
With a steady stream of new regulations for companies to digest and internalize, here is a summary of what the EU directive is and what it could mean for your organization:
What is the EU Pay Directive?
The new EU Pay Transparency Directive aims to establish rules for more transparency and effective enforcement of equal pay principle between women and men, as well as to improve access to justice for victims of pay discrimination in EU member countries. The new directive will require that employers have pay structures in place to ensure that there are no gender-based pay differences between workers performing the same work and between workers performing work of equal value that are not justified by objective and gender-neutral factors.
With Britain departed from the EU, the new directive will not apply to organizations within the UK. Still, it does signal a growing direction of travel-for-pay legislation that UK employers may ignore at their peril. Initially, UK-based businesses that hire internationally may model their policies on the Directive, in a bid to create global harmonization of pay regulations and company culture. And that will impact the UK labor market more broadly, meaning more progressive organizations will be more attractive to potential employees. In any case, ignoring the regulations will only delay the inevitable.
What Will this Mean for the EU?
Employers will have to move from just thinking about pay between workers in the same role to comparing pay between roles of equal value. This will require organizations to establish a methodology to compare the value of work with objective criteria.
This directive also means that pay scale disclosure laws — and more transparency — are coming soon to Europe. Employers must provide information about the initial pay level or its range in the job vacancy notice or before the job interview. Pay secrecy will be banned as the Directive bans pay secrecy confidentiality clauses. Employers will not be allowed to ask prospective workers about their pay history. Job titles must be gender-neutral (i.e., no “fireman”). And finally, employers must make accessible to workers a description of the gender-neutral criteria used to define their pay, pay levels, and pay progression.
Also included in the Directive are better employee information rights and compulsory public pay gap reporting for employers.
The Global Mindset Shift
While the Directive itself is not unexpected, many of the requirements are, and will demand a new approach to pay equity and transparency in the EU.
With these new regulations emerging in the EU, leading UK companies are already taking the initiative beyond just mandatory pay gap reports. Instead, they embrace pay scale transparency as a principle, not just a legally required chore. Without a doubt, it will be the companies that make a start now who will excel when the UK eventually enforces transparency legislation.
Regardless of what companies make of pay transparency legislation, the growing move towards global harmonization proves that similar laws could soon arrive in the UK. With the information we have access to regarding the EU’s movements, there is a plethora of instructions on which organizations in the UK can and should take advantage of.
