HR’s guide to the EU Pay Transparency Directive

24 Jun 24 | Blog

All too often, pay isn’t fair. From different wages for the same job, to a culture of silence around salary, there’s a lot of wrongs to be righted. And that’s what the EU Pay Transparency Directive is attempting to do.

The EU Pay Transparency Directive is a new piece of EU legislation aiming to enforce gender pay gap reporting, encourage pay transparency, and make pay practices fairer for employees. In this article, we explore what it covers and how HR teams, wherever they’re based, should respond.

An overview of the EU Pay Transparency Directive:

What is being asked?

  • Organisations must report their gender pay gap across the whole business, in each category of employees doing the same work, or same value work
  • Organisations must give a salary range in their job advertisements, and they are not allowed to ask prospective hires about their current/past salary
  • Employees are allowed to ask what colleagues doing similar jobs are paid

Who is being asked?

  • Organisations with a minimum of 150 employees must comply to the rules above
  • Organisations with 250+ employees must report their gender pay gap each year
  • Organisations with 150-249 employees must report their gap every three years
  • Organisations with 150+ employees must start reporting for the 2026 calendar year
  • Organisations with 100-149 employees must start reporting for the 2030 calendar year

What are the consequences?

  • If organisations find a pay gap of 5% or more in any group of workers that can’t be “objectively justified” and isn’t rectified after 6 months of reporting, they must do a joint pay assessment
  • If organisations don’t follow the new rules, they will be at increased risk if faced with an equal pay claim by an employee
  • Beyond that, penalties will vary country by country

3 implications for HR, beyond the legal obligations

The legal expectations are clear and, if you’re in the EU, you may already have made the necessary preparations to comply with the EU Pay Transparency Directive. But the implications may reach further than you realise…

1. Hiring practices have to change

Promising a ‘competitive salary’ has been commonplace, and so had asking employees their current salary – and hoping they’re scared enough to tell the truth. But now that has to change. That means a fairly significant shift in approach. How will you gauge the experience of applicants accurately? How will you decide what salary to offer, with salary benchmarking?

2. DEI needs to be taken seriously

The new expectations to measure gender pay gap not just by comparing identical roles, but by employees doing work of similar value – which is key! – mean a holistic look at your organisation’s DEI efforts should be made. But it’s not just gender. Organisations need to examine themselves for the inconsistent pay of all protected characteristics, from race to age.

3. Employee expectations will change

Whenever laws change, cultural expectations slowly shift as a result. Employees will start expecting more from you when it comes to pay transparency. Open and honest communications. Fair and frank pay negotiations. Pay that reflects the value they add, not just an arbitrary number based on their assumed experience. So it’s time to step up.

Not in the EU? Your organisation still needs to get with the times

Non-EU companies, this article is for you too! For one, the upcoming UK election promises to make changes to pay policies too – with Labour, for example, promising to end zero hour contracts and raise the living wage. They have also previously spoken about tackling structural racism and introducing mandatory disability pay gaps, meaning the UK is likely to catch up with the EU on this front.

But again, it comes down to what employees expect from their employers. There’s a growing demand for pay transparency – and those who listen to that call will attract the best talent. People leaders should take that very seriously.

What you should do (and how we can help)

If you’re in the EU, there’s a lot to do. Look at the size of your organisation to understand what’s expected of you, and start looking at how you would group roles of similar value. Review your current approach to fair pay, and identify any gaps. Do an audit of your recruitment process, and see what needs to change. And understand how you can collect and analyse the required data.

If you’re outside of the EU, this is still a good time to do your own pay audit – and understand how your pay compares to other companies too, so you can stay competitive during this time of changing pay expectations.

Our platform can help. Combining your HR data and global salary benchmarks, it offers a quick, easy, and affordable way to understand compensation in your organisation. Compare salaries between your own teams and employee groups, see how you stack up to benchmarks, and so much more. Because pay transparency is important – and it doesn’t have to be difficult.

 

  • Dynamic salary benchmarking: global pay data, from over 1 million different organisations – industry-specific and automatically mapped to your job titles
  • Automatic cost analysis of metrics: see the cost of replacing staff, what you spend on different team’s salaries, and how much sick days are costing you
  • Attrition, absence & gender ratio: benchmarks, tracking, and analysis of attrition, absence, and gender ratio – so you have all the relevant information
  • Trends & drivers auto-identified: understand how metrics are trending over time, and see auto-insights about the specific groups driving KPIs like attrition rate
  • Alerts about risk areas in your team: get notified if your attrition rate is trending up, for example, or if another challenge is going to threaten your team…
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