Editor's Note
Pay Gap Reporting Coming the EU
Part of the EU's new Pay Transparency Directive requires that employers actually do pay equity audits and then report their pay gap data to regulators. This is amazing.
It doesn't go into effect until 2026 and it only applies to EU employers and employers with employees in the EU. But I expect to see states begin to enact similar requirements. Several have already borrowed from the EU's laws on using AI in employment decisions.
In the US, some states (like CA, MA, IL) have started requiring that employers report their pay data, but role, gender, and race. This is a great start toward encouraging employers to audit pay equity and fix pay gaps. But at this point, the information required is simply the pay data for the ten EEO-1 job categories.
These categories are very broad:
- Executive and senior level officials and managers
- First/Mid-level officials and managers
- Professionals
- Technicians
- Sales workers
- Administrative support workers
- Craft workers
- Operatives
- Laborers and helpers
- Service workers
In order to assess pay equity, you have to know which jobs are comparable so you can tell if you are comparing equal work with the pay. EEO-1 categories will give you a sense of whether there are issues that require further investigation, but they are too broad to tell if there are potential discriminatory pay gaps.
I think the real value in pay data reporting is that it encourages pay equity audits. You don't want to report data you don't know and understand even if they data you have to report is pretty general. It's a baby step.
The EU is taking a very big leap, although it is focused on gender pay gaps rather than race or other protected factors. The EU Pay Transparency Directive is going to require employers to do pay equity audits and not only report the results, but also report why they pay people what they do.
Here are some of the important pay data reporting requirements of the Directive.
Disclosure of Pay Practices and Criteria: Employers will have to explain why people make what they make and what the criteria is for pay decisions. They must state how pay is set, progressed, and managed, including the criteria for progression and promotions.
This means that employers will have to look at their pay practices. If they don't already have one, employers will need to come up with a compensation philosophy and strategy then figure out what that looks like for their employees.
Pay Equity Audits: Pay equity audits must be based on gender-neutral criteria and include gender-neutral job evaluation/classification systems.
This means employers will need a job architecture, job descriptions that can compare the work, and clear criteria for grouping comparable jobs that are gender neutral. The audit must be done with reliable methods of analyzing pay equity.
Disclosure of Pay Equity Audit Results: Employers will also be required to disclose the results of their pay equity audits, and expressly disclose pay gaps.
This means that they have to tell regulators their pay equity troubles with the data from their audits. Before the regulators start asking questions, employers will also need to come up with a plan and start closing those pay gaps. Where pay gaps exceed 5%, employers will be required to do further analysis and either justify or fix the gaps. And any justifications for apparent pay gaps must be nondiscriminatory.
Certification of Compliance: EU employers must certify that their pay practices comply with the EU Pay Transparency Directive. This is not a big deal, but it does make it a lot harder to say you didn't know what you were supposed to do and that's why you didn't do it.
I'm excited to see what happens with this level of pay transparency reporting. Look for similar requirements coming to a state near you.
- Heather Bussing
[co-author: Lorraine Matthews]
Pay equity and pay transparency are becoming increasingly important to global organisations. The European Union’s pay transparency directive is a landmark piece of legislation for organisations with employees across the European Union.
Quick Hits
- The EU’s pay transparency directive applies directly to EU member states, and non–EU employers that employ individuals in the European Union.
- The directive requires substantial adjustments to the handling and disclosure of pay information.
The EU has been working on pay transparency requirements for several years, and members of the European Parliament voted to endorse an amended version of the directive originally proposed in 2021.
Employer Obligations
On June 7, 2023, Directive (EU) 2023/970 took effect and new requirements for employers were introduced.
The requirements include the following employer obligations:
- Disclosing salaries from the recruitment stage. Employers must provide candidates (pre-interview) with information on an initial pay range based on objective, gender-neutral criteria. Additionally, employers are not permitted to request information on candidates’ prior salaries.
- Complying with employee requests for salary data. Employers must provide existing employees with easily accessible pay and pay progression information within sixty days of a written request, including information on their individual pay and the average pay levels for other employees, subdivided by gender, for those workers who are performing the same work or work of equal value. Employers must annually inform employees of their right of access to this information.
- Reporting gender pay gap statistics. In the first stage, employers with at least 250 employees will report every year, and employers with between 150 and 249 employees will report every three years. Where a gender pay gap of 5 percent or more exists, employers will also be required to work with their employee representatives/works councils to conduct deeper analyses and develop corrective action plans.
- Complying with audits and fines if unreasonable inconsistencies are found. Employees have a right to request full compensation or reparation if they have suffered damage due to an infringement of any right or obligation relating to equal pay.
EU member states have until June 7, 2026, to implement the directive into their own laws—each member state can implement compliance requirements above and beyond the directive’s requirements, if they wish.
Next Steps
The June 2026 deadline is fast approaching, and it is anticipated that many EU member states will announce national measures during 2025. The directive calls for a review of current practices to ensure ongoing compliance. Key considerations for employers include:
- reviewing existing remuneration and progression policies, such as employment contracts and workplace policies, to identify potential gaps in current pay practices;
- reviewing recruitment procedures and policies, such as advertisements and job titles to ensure gender neutrality and the provision of salary information pre-interview;
- including gender pay as an integral part of company risk assessments and implementing regular staff training sessions;
- evaluating categories of workers to define applicable groups—in particular, related to the concept of equal value (employers may want to consider job evaluations, if appropriate);
- accessing data storage methods and processing practices to aid compliance with employee pay data requests and generating mandated reports under the directive; and
- remaining up to date with legal developments and national adjustments.
