What does the EU pay transparency directive mean for my business?
Michelle Dervan
Aug 21, 2024
• 4 minute read
Pay transparency is no longer a distant aspiration but an imminent reality. As the EU gears up to enforce new pay transparency laws, companies with EU employees are under pressure to act. But this isn’t just a European issue—businesses outside the EU cannot afford to ignore the ripple effects of wider legislative changes and the global pay transparency movement.
Proactive companies now have a critical window of opportunity to get ahead, setting the tone for ethical leadership. But what exactly does this mean for your business, and how can you prepare?
What is pay transparency?
Pay transparency involves openly sharing compensation information with employees. This can include a range of measures such as publishing salary ranges for roles, conducting regular pay equity audits, and ensuring that pay decisions are transparent and understandable to all employees.
There’s no one-size-fits-all approach; different companies adopt varying degrees of transparency depending on their legislative requirements and company culture.
What is the EU Pay Transparency Directive?
The EU wants to strengthen the principle of equal pay for equal work between men and women with its directive on pay transparency. It reinforces existing laws against pay discrimination by mandating transparency and public reporting, making it easier to detect and address cases of unequal pay.
Key Points to Note:
EU member states must transpose the directive into national law by 7th June 2026.
Pay gap reporting deadlines are tailored based on organisation size and will be phased in from 2027.
Organisations with a gender pay gap greater than 5%, which cannot be justified by objective, gender-neutral factors, must assess the reasons and create an action plan to address it.
Job applicants will have the right to pay level and pay range information for advertised roles.
Employers will not be able to ask candidates about their current pay or previous salary.
Employers must share information on how pay is set and managed, including details of promotion and progression criteria.
Employers must inform workers annually of their right to request pay information and how to access it.
In pay discrimination cases, the burden of proof shifts to the employer to demonstrate that no discrimination occurred.
Companies will be penalised for noncompliance and may have to pay compensation to victims of pay discrimination.
Pay Transparency Beyond the EU
These are sweeping changes for companies with EU employees to contend with. However, the rise in pay transparency is not limited to the EU. Businesses worldwide are feeling the impact of a global pay equity movement. There are a number of factors driving this movement:
A worldwide wave of pay transparency legislation
As of June 2024, 30% of US states have local or state-wide pay transparency laws in place or about to come into effect. And 71% of OECD countries have enacted pay transparency policies since 2000.
A recognition that past pay decisions were not always equitable
The failure to close the gender pay gap shows that gender pay equity has still not been achieved. In some countries, organisations continue to pay large sums in response to equal pay claims. And governments are also considering additional pay gap reporting, like ethnicity and disability, demonstrating a determination to drive pay equity across society.
A changing business context
Pay transparency reflects an increasing desire for businesses to have a positive social impact. For example, only 7% of Fortune 500 CEOs believe their companies should “mainly focus on profits and should not be distracted by social goals”.
A generational shift in pay transparency expectations
86% of Gen Z employees openly discuss salaries compared to 41% of Baby Boomers. Where companies don’t take charge of the narrative around pay, employees shape the story instead.
The Benefits of Pay Transparency
While the obligations under the EU directive might seem daunting, implementing pay transparency can offer several business advantages. Here’s what people are saying about the benefits.
Boosting attraction and retention
Pay equity is 13 times more important for employee retention and satisfaction than pay levels alone. In a competitive recruitment market, companies are more likely to attract and retain top talent when they ensure pay equity.
Better performance and innovation
Diverse, inclusive workplaces that prioritise pay equity tend to be more innovative and financially successful.
Enhanced employee experience
When employees feel fairly compensated, it creates a more positive work environment, leading to higher engagement, productivity and loyalty.
Social responsibility and brand
Companies that take active steps toward pay equity show they’re committed to fairness and equality, all of which is good for their brand and reputation, making them more attractive to socially conscious candidates, consumers and investors.
Improved salary management
Introducing pay transparency doesn’t necessarily mean your salary bill will get bigger as research shows pay transparency can:
Constrain salary growth by around 2.8% per employee, drive better salary forecasting and help avoid unexpected salary costs.
Lead to more accurate and more optimistic beliefs about earnings potential, increasing employee motivation and productivity.
Whether you have employees in the EU or not, pay transparency makes good business and financial sense and is increasingly an employee expectation. The time to act is now - before your competitors do and you miss the chance to lead from the front.
How to apply pay transparency to your business
Every organisation is unique, so there’s no one way to tackle your pay transparency project. However, the following areas are crucial for all businesses subject to the EU Directive:
Equal pay practices - pay discrimination was already illegal, but the new EU directive requires companies to ensure pay discrimination does not exist in their pay practices.
Internal information sharing - the new legislation adds significant additional rights for workers to request information about their pay. Organising your data and ensuring it’s easily accessible is key.
External reporting - many EU jurisdictions already required some form of gender pay gap reporting. However, the new directive means EU companies must provide significantly more granular reporting.
Obligations when a potential pay inequity is identified - the burden of proof is shifted from workers to employers. The EU Pay Transparency Directive contains detailed remediation procedures and timelines that your business must meet.
Embrace pay transparency, make business gains
The EU Pay Transparency Directive - and the broader pay transparency movement - presents a pivotal opportunity. Not only for your company to meet legal requirements and drive meaningful business benefits but to position itself as a leader in fair pay practices.
However, achieving pay transparency is a journey, not a quick fix. It requires a clear understanding of your current pay structures and sufficient time to strategically plan and implement changes before the legislation takes effect.
Leveraging the right technology is essential to navigating this complex process and staying ahead of the curve. Purepay simplifies this journey, guiding your company toward seamless pay transparency, ensuring compliance and fostering a culture of fairness and trust.
Book your free consultation today to find out how we can help you with our complete pay transparency solution.