A new EU Directive on pay transparency came into force earlier this month. Member States have until June 7, 2026 to introduce new legislation to give effect to the Directive.
European employers should take note as the Directive introduces potentially onerous obligations including:
- the right for workers to receive information about their pay and the average pay levels for workers doing the same work or, importantly, work of equal value, broken down by sex;
- the right for job applicants to receive information about the role’s pay range (seemingly including both annual salary and variable compensation);
- the requirement for employers to report on pay gaps between female and male workers within the same “category”; and
- the requirement for employers, in certain circumstances, to carry out a “joint pay assessment.”
Equal Value Assessments
To meet some of the core Directive requirements, employers will need to get to grips with the potentially challenging exercise of considering whether two workers in ostensibly different jobs are carrying out work of equal value. This is necessary for both the gender pay gap reporting obligations and the right for workers to request information about pay.
- Gender Pay Gap Reporting – employers are required to report on the gender pay gap within a “category of workers” performing the same work, or work of equal value. Employers with 150 or more workers are required to make their first report by June 7, 2027, whilst employers with 100-149 workers have until June 7, 2031.
- Information rights – workers have the right to request written information about their pay and the average pay levels of workers doing the same work or work of equal value, broken down by sex. Employers must remind workers of this right on an annual basis and provide the information within 2 months of the request.
UK employers will know that it is notoriously difficult to assess equal value, and that this is often a matter for an independent expert if an employee brings an equal pay claim.
So, how are employers expected to carry out this assessment? Well, the Directive envisages employers assessing equal value using gender-neutral objective criteria such as skills, effort, responsibility and working conditions, agreed with employee representatives (where they exist). This is likely to be easier in theory than in practice, and whilst Member States are required to make available “analytical tools or methodologies” to help employers, this is nonetheless likely to be a highly complex and time-consuming task.
Joint Pay Assessment (JPA)
The Directive also creates a positive obligation on employers to further investigate and remedy pay disparities. An employer must conduct a JPA if:
- its gender pay gap report identifies a difference of at least 5% in average pay levels (i.e., gross annual and hourly pay) between male and female workers doing the same work or work of equal value;
- this difference is not justified by objective gender-neutral criteria; and
- the difference is not remedied within 6 months of the date of the report.
JPAs are not something that can be carried out “behind the scenes” and must be conducted in co-operation with workers’ representatives and made available to workers, their representatives and the Member State’s relevant Government body. Employers should therefore expect maximum scrutiny of any JPA and should consider carrying out a pre-emptive assessment prior to local legislation coming into force. Instructing lawyers to carry out this initial assessment is advisable so that legal privilege can be asserted (so far as possible) over the results. If the JPA identifies an unjustified difference in pay, this must be remedied within a reasonable period of time.
Other Transparency Measures
As part of a wider move towards transparent pay setting practices, applicants will have the right to receive information about the initial pay for a role (including both basic salary and variable components). Employers are also prohibited from asking applicants about their pay history in previous roles.
Finally, employers are required to make available to workers the criteria used to determine pay levels and pay progression, which must be objective and gender neutral.
Views from Ireland
In Ireland, the Directive will result in some amendments to current gender pay gap reporting requirements which have become a feature for large Irish employers since last year. While there is significant overlap between the Directive and these existing requirements, several additional practical steps will arise when the Directive is implemented into Irish law, most notably:
- an increase in the level of information that will need to be reported on by introducing reporting by “categories of workers” requirements;
- requiring the certification of that information by management; and
- imposing a positive requirement to take steps to reduce or eliminate a gender pay gap within “a reasonable period of time.”
The significant role that is envisaged for worker representatives, particularly with regard to JPAs, contrasts with the more limited role that is typically afforded to them in Irish companies – particularly when compared with their European counterparts. In Ireland, unlike most European jurisdictions, there is currently no route to mandatory recognition of trade unions, while works councils and local employee representative bodies are not typically a feature of Irish workplaces.
In this respect, Ireland is generally viewed as being closer to UK/US labour relations models than those of continental Europe. This is reflected by the often-quoted observation that Ireland is “closer to Boston than Berlin.”
The Directive envisages (and will ultimately transpose) an approach to employee involvement that is more reflective of labour relations in continental Europe than has typically been the case in Ireland to date. This approach is also reflected in other areas that are under consideration within the EU, such as the proposed directives on AI and corporate sustainability due diligence. With the UK now outside the fold post-Brexit, the most powerful voice in favour of an Anglocentric approach to labour relations within the EU has been silenced. As signposted in the Directive, when it comes to labour relations, it appears that the direction of travel for Ireland is now clearly pointing away from Boston and towards Berlin.
Views from the UK
Post Brexit, UK employers are not legally required to comply with the Directive. Whilst the UK Government’s review of the gender pay gap reporting obligations has not yet been published, and we are also still awaiting the outcome of the Government’s pilot requiring salary ranges to be listed on job adverts, there is no indication that the current UK Government intends to pass legislation that replicates the Directive.
Nonetheless, those in multi-national groups with large European operations may find themselves under internal pressure to adopt similar pay transparency practices in the UK in interests of maintaining a consistent approach to pay reporting within their organisation.
