The EU Directive for Gender Pay Gap Transparency: What Your Business Must Know

Gender pay transparency is a matter of contention globally, with a handful of countries bringing in legislation to help tackle the issue. While Japan is one of the most recent governments to announce changes, the European Union (EU) has also set an ambitious target for all its member states.

Announced in April 2023, the EU Council has produced new rules to confront gender pay discrimination head-on. As a result, companies will need to implement concrete measures to close the gender pay gap within their organizations to support the EU in driving gender equality. By 2026, this should affect medium and large corporations first.

What is the EU Pay Transparency Directive?

The EU’s Pay Transparency Directive enables employees to request information regarding their salary level and the average salary of employees doing the same work. It is broken down based on gender and requires companies to report on pay between men and women.

The Directive will deliver significant changes by 2026, with invasive actions if EU-registered companies allow their gender pay gap to exceed by more than 5%. As a result, organizations have up to three years to prepare for these changes to transpose into their country’s law.

When will it be implemented into legislation?

Legislation is already in effect and has been since 6^th June 2023. However, EU member states have until 7_^th June 2026 to ensure all changes transpose into national laws. After this date, the first reports must be published by 2027 for companies with 150-250+ employees. From 2030 onwards, the threshold will be lower to include employers with 100 or more workers.

Who will the EU Pay Directive Law affect?

First, the Directive will only affect businesses with 150-249 employees and those with 250+ employees. By 2027, organizations with 250 or more workers must have produced their first gender pay report and identified actions to minimize the gender gap. They will continue to do so annually after the first report is produced. Likewise, for companies with 150-249 workers, their first report is due in 2027, but they are required to report once every three years thereafter.

Smaller employers (100 employees) will need to report every three years on their gender pay gap from 2030 onwards, with the first reports due in 2031.

Do any countries already have gender pay laws in place?

A handful of EU member states already have some form of gender pay laws in place, with others closely following behind. At present, these countries have or are negotiating gender pay legislation:

• Austria
• Belgium
• Denmark
• Finland
• France
• Ireland
• Italy
• Germany
• Portugal
• Spain
• Sweden
• The Netherland

Although these countries have laws in place, these differ from country to country with varying expectations placed on employers. What the EU’s Directive plans to do is ensure the same legislation is transposed across all member states. Countries with existing legislation must evaluate their law and ensure it can be adapted to meet EU criteria.

Are the UK and Northern Ireland affected?

Since the UK is no longer part of the EU, there are no direct changes that will affect any UK-based companies. If you have operations both in the EU and outside of the EU, you’ll need to cater your policies to affected countries.

Employers with over 250 employees must public any data relating to pay and bonuses, alongside any correlating information around gender. This consideration was first introduced in 2018.

Northern Ireland

Unlike Great Britain and the Republic of Ireland, Northern Ireland don’t have any gender pay gap reporting requirements for employers. Essentially, businesses operating within Northern Ireland aren’t held to the same standards that its neighboring countries are. Employers may need to react to changes in the future, but for now, they are still topics of debate in parliament.

Why are changes to pay transparency coming in?

Pay transparency can positively impact business, from employee loyalty to decreased turnover. While companies might experience significant improvements in productivity and reduced expenditure for the rehiring process, its purpose goes beyond the organization and contributes a resolution to a much wider issue. The Directive for Pay Transparency sheds a light on pay inequality across EU member states and the companies that operate within them.

Implementing pay transparency is also beneficial for country-specific objectives. For example, the EU will require businesses to act when their gender pay gap exceeds 5%. Once an organization has intervened and aligned pay or put acceptable steps in place for future alignment, it will contribute to the country’s overall gender pay gap score.

Moral obligations

Many countries have a significant gender pay gap, with women often earning a fraction of a man’s salary despite doing the same job. From a moral standpoint, especially for countries that preach equal rights and opportunities, the gender pay gap is still an ongoing issue.

Improvements in productivity

As it stands, Belgium is the best country for equal pay and has the smallest gender pay gap of 1.17%. Thanks to this low figure, Belgium has also been classed as a leader in productivity. Employees across the country produce 6% more work than German workers and 9% more than French workers. With pay as a motivating force and clear equality between all workers, it can improve productivity rates.

Closing the gender gap

Introducing legislation for pay transparency is one of many steps countries must take to lower the gender gap. It will also allow both countries and companies to understand where some of their bias sits, and if certain demographics are unfairly favored over others. As a result, it should tackle gender-based prejudice and discrimination head on.

How do businesses need to prepare for the EU Pay Transparency Directive?

1. Understand the current situation.

Although 2027 is the deadline for the first reports, it’s a good idea to get a step ahead before your gender pay gap documentation is due. You’ll need to consider current salaries, your demographic of workers, such as gender, and where your company currently stands. This stage is vital to help you understand your objectives and goals around pay transparency and any interventions to align pay.

2. Consider futureproofing your policy on salary.

Regulations will be more stringent for employers, meaning consequences if appropriate actions aren’t implemented. Organizations that don’t consider legislative changes will face increased pressure to do so, from administrative burdens to fines. Companies must act sooner rather than later to resolve the issue. To get ahead, you may want to review your company policy to ensure it can adapt and adjust to upcoming legislative change.

3. Define your objectives and intervention levels.

Once you have collected your initial data and reviewed your salary policy, you will have a clearer idea of your business objectives. At first glance, you will also be able to establish any pitfalls or pay discrepancies that are present. 

As part of the Directive, your organization must act when the gender pay gap exceeds 5%. This means you, as the employer, will need to establish levels of intervention to help close the gap. It could be as simple as reviewing current job descriptions to see if they warrant a salary increase, or it could be more drastic, such as reviewing company-wide performance.

4. Draft and amend new policies.

As well as pay transparency, this new Directive enables employees to freely request information about their salary levels and salary averages across the organization. It is worth noting that this change affects every company, not just those with 150+ employees.

As part of the process, you will need to review current policies that are affected by changing legislation and update them.

5. Establish a system for accurate reporting.

Companies must organize their data following the methodologies outlined by the EU Directive. A compliant payroll service or software can be used to simplify this process. As well as storing all payroll data, it enables historical data to be analyzed and reviewed, meaning you have an overview of the pay gap within your organization.

There are also significant advantages to outsourcing your international payroll, especially as you will have access to specialist teams that directly follow local legislation changes. This ensures your reports are always accurate and compliant. If you have operations within multiple member states, there might be slight nuances in national law affecting how you run payroll. An international payroll service will consider this for you and adjust your payroll processes for you.

6. Prepare for information requests from employees

It doesn’t matter whether your organization has five or 1,000 employees, you may need to answer relevant requests for information from your workforce. These can include:

• Information for job seekers about starting salary or pay range
• Information about their salary
• Criteria that determine pay and career progression
• The average level of salary across your organization/for a category of work
• The current gender pay gap in your company

Every employee has a right to request this information, meaning no consequences can be set up to deter workers from asking. Likewise, employers will also be restricted from asking new hires to share their previous salary history.

7. Communicate changes to relevant stakeholders

All changes within your company will need to be relayed to relevant stakeholders, while affected staff will also need to be informed of policy changes. Plans for reporting, objectives, and intervention should be outlined here as well.

What should you do if your organization already has gender pay reporting in place?

Many organizations already practice gender pay reporting, making the information available to their employees, authorities and the wider public. While these businesses won’t need to adapt per se, they may need to alter the reporting process to meet nuances laid out by this new legislation. This could include actions, such as communicating with new reporting bodies or measuring different criteria. With the process to measure and record data already in place, this adjustment should be easy for companies to adapt to.

Looking for support with your international payroll?

Using expert support, like IRIS FMP, to run your international payroll enables you to remain compliant with EU Directive changes across your applicable sites. Get in touch today to find out how we can help you.