Pay is an emotive issue. Disputes over compensation have been affecting multiple industries throughout Europe, from travel, hospitality and entertainment to education, supply chain, waste management and healthcare. Strike action in March alone brought railways and airports to a near-halt in Europe’s largest economy, Germany; the country’s largest walkout for three decades. Even Hollywood A-listers have switched the red carpet for the picket line.
These stories hit the headlines not just because the strikes affect our day-to-day lives but also because pay is often a taboo subject. Whether there is a fear of reprisal from an employer for discussing their salaries with colleagues or social norms prevent it, most of us do not openly discuss what we are paid.
However, legislators globally are trying to change this. The primary impetus behind lawmakers’ efforts to prohibit pay secrecy policies is to eliminate a means by which employers can, intentionally or not, discriminate against women and minority groups.
“Pay transparency” laws include a range of measures, encompassing pay disclosure, salary history bans, gender pay gap reports or audits, and workers’ right to access pay data.
EU regulations. On 6 June 2023, an EU Pay Transparency Directive came into force aiming to strengthen the application of “equal pay for equal work” across the EU. The 27 EU member countries will have until 7 June 2026 to transpose its provisions into their national laws.
Employers will have a duty to report any gender pay gap in their companies. If the pay gap is higher than 5% without reasonable justification, employers will have to perform a joint pay assessment with their workers’ representatives and take corrective measures.
Businesses with more than 250 employees must report annually according to “categories of worker,” and those with 150 to 249 workers every three years, starting in 2027. Employers with 100 to 149 workers will be similarly affected from 2031. Workers and their representatives, labour inspectorates, and equality bodies will be able to ask the employer for additional clarifications and details, and the employer must respond and remedy any differences within a reasonable time.
The directive will also prohibit pay secrecy clauses in employment contracts and oblige employers to disclose to job applicants the initial pay or pay range for a position based on objective, gender-neutral criteria. Such information must be indicated in a published job vacancy notice or otherwise provided to the applicant prior to the job interview, without the applicant having to request it.
Pay history. In addition, to ensure that pay inequalities are not “baked in” at the hiring stage, employers will not be able to ask candidates what they are paid in their current or previous roles. Workers will be entitled (on an annual basis) to request information from their employer regarding their individual pay level and the average pay levels, broken down by sex, for categories of workers doing the same work as them or work of equal value to theirs.
Existing regulation. Many countries in Europe already have gender pay gap reporting regimes, but they differ in scope and frequency of required reporting — as well as enforcement. The UK and Ireland aim for change by naming and shaming large businesses through making the information public. Iceland imposes daily fines on even small companies that fail to demonstrate equal pay.
The new directive will introduce some consistency across EU member states; but international businesses may be faced with multiple reporting deadlines, while some countries already go further than required by the directive. For example, in both France and Italy, the threshold for reporting is 50 rather than 100 employees.
The impact of this legislation for employers goes beyond their public reputation and hiring practices. As they post previously hidden salary ranges in job ads, employers may face some awkward conversations and pay disputes. To avoid this, organisations should consider performing pay audits to assess pay disparities among employees performing equal or substantially similar work. A properly designed pay audit requires a substantial effort and commitment by multiple levels of a company’s workforce, ranging from executive leadership and human resources to local management. But being proactive now may pay dividends later.