A deep dive into the EU Equal Pay Directive. Why is it needed, what is included and how to prepare yourself for it!

The European Union’s Equal Pay Directive represents a significant step forward in addressing the persistent issue of gender pay disparity across the EU member states. This legislation is a response to the enduring gap in earnings between men and women, which has remained stubbornly wide despite numerous efforts and policies aimed at promoting gender equality in the workplace. This article provides a comprehensive overview of the EU Equal Pay Directive, discussing its necessity, the key components it includes, and how organizations and individuals can prepare for its implementation.

Why is the EU Equal Pay Directive needed?¹

Despite decades of progress, gender pay disparity remains a pervasive issue within the EU. On average, women earn 13% less than men for equal work, which is a slight decrease compared to 2011 (16.2%). 

Within the EU Latvia, Estonia and Austria are among the top 3 countries with the highest gender pay gap (18.9% and more). Comparing the gender pay gap by occupation we can see the biggest gap between men and women for “Craft and related trades workers” (48%) followed by “Managers” (45%). At the other end of the scale we can find “Service and sales workers” with a pay gap of 10%. There are many factors that are contributing to unequal compensation for the same work. Among them are career interruptions (91% of career breaks due to childcare are taken by women), gender imbalance in leadership roles, part-time work and job segregation. 

The effectiveness of existing regulations and initiatives has been limited, with the gender pay gap barely changing over recent years. The Equal Pay Directive is an acknowledgment that more robust, enforceable measures are needed to tackle this issue head-on.

What is included in the EU Equal Pay Directive?²

The EU Equal Pay Directive is a comprehensive regulation aimed at ensuring that men and women receive equal pay for equal work or work of equal value. Here are the key components included in the directive:

1. Right to information
   1. Employers need to inform candidates during the recruiting process about the starting salary or pay range of the position. 
   2. Once hired, employees are entitled to ask average pay levels (broken down by sex, for categories of employees doing work of equal value) as well as criteria taken into consideration for pay and career progression

This requires employers to have a gender neutral and objective job classification and career framework in place.

2. Reporting requirements

Companies with more than 250 need to report on the gender pay gap annually to the relevant national authority. Companies between 100-249 employees need to do that every three years and companies below 100 employees don’t have to report the gender pay gap to the national authority. 

In case that the report reveals an unjustified (objective, gender neutral criteria) pay gap of more than 5%, companies are obliged to take counter measurements.

3. Enforcement and Remedies: 

The directive provides for more robust enforcement mechanisms, including penalties for non-compliance and the provision for employees to seek back pay and other remedies if they have been subject to discrimination. Important to note that the burden to prove pay discrimination will shift from the employee to the employer.

This requires employers to have decisions and criteria well documented to be in the position to prove compliance.

While it is on the member states to define the penalties and fines, the directive requires effective, proportionate and dissuasive penalties and fines which could be based on the employer’s gross annual turnover or on the employer’s total annual payroll. 

Preparing for the EU Equal Pay Directive

The implementation of the EU Equal Pay Directive will require preparation and adaptation. Here’s how employer can prepare for it:

– Conduct an Initial Pay audit: Understand where your organization stands in terms of pay equality by conducting a comprehensive audit of your pay practices.

– Develop Transparent Pay policies: Create clear, transparent policies regarding how pay is determined, including the factors that influence pay levels and increments.

– Implement regular monitoring: Set up systems to regularly monitor and assess pay levels across your organization to ensure ongoing compliance with the directive.

– Train management: Educate your management team on the requirements of the directive and how to address pay-related inquiries from employees.

– Communicate with employees: Be transparent with your workforce about your efforts to comply with the directive and how it will affect them.

The EU Equal Pay Directive is a landmark piece of legislation that aims to close the gender pay gap within the European Union. While its implementation will require significant effort, the long-term benefits of a more equitable and transparent pay system are undeniable. By understanding the directive and preparing for its requirements, stakeholders can contribute to a more fair and equal society. As the EU continues to push forward with its agenda of promoting gender equality, the Equal Pay Directive stands as a testament to its commitment and a beacon of hope for a more equitable future.

Note:Please note that countries have three years to transpose the directive into national law. Therefore we expect that some aspects of the regulation will vary by country. We expect a wide range of penalties for non-compliance across the member states

¹ https://www.consilium.europa.eu/en/infographics/pay-transparency/ 

² https://www.consilium.europa.eu/en/policies/pay-transparency/