In 2023, the EU Parliament and Counsel approved the EU Pay Transparency Directive (“the directive”) that will give significant new rights to employees and job seekers in relation to pay. The goal of the directive is to ensure employers are delivering equal pay. Equal pay, in the context of gender, requires any differences in pay between men and women performing the same role, similar role or work of equal value to be for objective reasons (these might be different job location, individual experience, performance) and not due to gender. The directive aims to achieve this goal by requiring employers to provide their employees with more information about their pay and the pay of others, as well as addressing unexplained differences in pay between men and women. Whilst not yet defined, member states are set to introduce specific sanctions, including minimum fines, for employers who don’t comply.
What the directive means for Irish employers
The directive requires member states to implement the new legislation by 7 June 2026 and for all private and public employers to comply within a year. Although employers have two to three years to be ready, it’s essential for organisations to start preparing now. Anne Phelan, Senior Reward Consultant at WTW, remarked preparation with clients is actively underway by reviewing current policies and practices amongst employers in Ireland and across Europe.
“In WTW’s experience it can take employers between three to five years to be confident on pay equity and be ready for greater pay transparency.”
Anne indicated that many organisations in Ireland do not currently have the foundations in place to define work of equal value, such as a clear definition of individual roles or the level these roles sit at within the overall organisations structure.
Summary of key provisions in the directive
· Pay transparency prior to employment: Employers will have to provide information about the initial pay level or pay range in the job vacancy notice or before the job interview. Additionally, employers will not be allowed to ask prospective employees about their pay history.
· Transparency on pay setting: Employers will need to make information easily accessible to current employees on the criteria used to determine pay, pay levels and pay progression.
· Right to information: Employees will have the right to request information from their employer on their individual pay level and on the average pay levels, broken down by gender, for employees performing the same work or work of equal value (in the directive referred to as “categories of workers”). Employers must inform employees of this right annually.
· Reporting pay gaps between male and female employees (all employees): Employers with at least 100 employees must submit information on the pay gap between female and male employees in their organisation to the relevant authority and may make it publicly available. For employers with at least 250 employees, this is an annual requirement and for employers with 100 – 249 employees this is required every three years.
· Reporting pay gaps between male and female employees (by categories of workers): Employers must calculate the pay gaps between female and male employees in the same categories of workers and provide this information to all employees.
· Pay gap justification: Where pay gap reporting by categories of workers reveals a gap of at least 5%, and when the employer cannot justify the gap with objective gender-neutral criteria, employers will have to carry out a pay assessment, in cooperation with workers’ representatives and remediate unjustified gaps.
What employers need to be doing
Employers will need to be confident their pay is ready for this level of transparency and that they are delivering equal pay. In preparation, employers will need to have:
· Levels for all roles in the organisation: Robust and gender-neutral job levelling methodologies allow reliable identification of employees performing the same role, similar role or work of equal value.
· Pay policies on recruitment, promotion and annual review: Need to demonstrate differences between male and female pay decisions are based on objective reasons and all pay decisions are made with equal pay top of mind.
· Data availability and how it will be shown: Ensure relevant data is available to communicate with employees and enable regular analysis to understand current state and track progress. Employers must consider how they will deal with numerous additional pay data requests from employees and consider using technology to support this, to prevent it becoming HR’s full-time job. In addition, the value of benefits will have to be included in the calculations of average pay levels and gaps by category of workers each year. For more information on the complexity in the directive, regarding the inclusion of pension and benefits in the definition of pay, refer to WTW’s whitepaper
· Developing the narrative: What employers can say and what they want to say may be two different things. Can you say ‘We’re an equal pay employer’ if you don’t have the structure in place to know this and data to tell you this is true? It also needs to be aligned with who they are as an organisation and how they want to be known – for example as a diverse, inclusive and responsible employer.
· Build manager capabilities to make -informed pay decisions and have constructive pay conversations: WTW’s 2023 Pay Transparency pulse survey suggested only 1 in 3 Irish organisations believe their managers are effective at communicating information on pay and pay equity. The data shows that nervousness around possible employee reactions and a lack of confidence in managers’ abilities to have pay conversations are the most commonly cited factors holding back increased pay program communication. Remedying this in itself is a huge undertaking and will take time.
· Being mindful of exacerbating the problem at recruitment or for retention: High salaries often get negotiated at the point of hire or when people threaten to leave an organisation. Recruiters and managers must be mindful this can exacerbate the problems for pay equity, leaving their organisation exposed.
Practical steps employers can take to prepare for compliance
While employers will be in different stages of readiness, WTW recommends and supports clients in taking the following steps:
· Set your ambition: Familiarise key stakeholders with the terms of the directive, determine the company’s ambition on pay equity and transparency, and make plans for preparing for the directive aligned to this broader ambition.
· Understand current state: Carry out initial analytics and an evaluation of pay structures, policies, and practices across member state markets to establish current state and identify key action areas.
· Action: Adjust individual pay and update pay structures, policies, and systems as needed. Start to enhance communication around pay to managers and employees.
· Sustain: Embed preparatory activities, track and measure progress across member states, and develop approach to transparency communications and requests, aligned with employee experience and Diversity, Equity and Inclusion.
Transparency and equality in terms of pay is a fundamental and long-standing issue for employees of all levels and experience, across all organisations. In an ever changing and globalised society, employers are being challenged to keep pace with not only legislation, but also norms and values. The new EU Pay and Transparency Directive is an important milestone for these changes, and now is the time for employers to develop a broader strategy around total rewards transparency.
If you would like to know more about this topic, contact WTW