Pay Transparency Directive – Rights to Pay Information

On 10 May 2023, the EU Council adopted a directive with the aim to strengthen the application of the principle of equal pay for equal work between men and women through pay transparency and enforcement mechanisms, otherwise referred to as the Pay Transparency Directive. This article looks at the main provisions and the implications of the Pay Transparency Directive for employers.

Member states now have 3 years in which to adopt the Pay Transparency Directive into national legislation following its adoption in May 2023. In this article we consider what the new obligations mean for employers, and how it interacts with the current pay transparency provisions in Denmark.

The aim of the Pay Transparency Directive is to combat pay discrimination between men and women and to assist in closing the gender pay gap. The Pay Transparency Directive expands on previous measures by the EU to ensure gender pay equality by introducing individual rights to pay transparency, increasing reporting obligations, providing for joint pay assessments and the overall strengthening of enforcement mechanisms.

The Pay Transparency Directive applies to all workers, including part-time workers, workers on a fixed-term contract and persons with a contract of employment or those who have an employment relationship with a temporary work agency, as well as workers in management positions, who have an employment contract or employment relationship as defined by law or in collective agreement. The definition of worker for the purposes of the Directive will focus on the nature of the relationship rather than how it is defined between the parties.

Provided that they fulfil relevant criteria, domestic workers, on-demand workers, intermittent workers, voucher based-workers, platform workers, workers in sheltered employment, trainees and apprentices will fall within the scope of this Directive.

Furthermore, the provisions of the Pay Transparency Directive will also apply to job applicants. The EU considers that an essential element of eliminating pay discrimination is pay transparency prior to employment.

Pre-employment pay transparency

Article 5 of the Pay Transparency Directive creates a new right for job applicants to receive information regarding the initial salary range for the role (which must be based on gender neutral criteria) and where applicable relevant provisions of any collective agreement that is applicable to the role.

The Pay Transparency Directive does not specify that the salary must be published on the job advert however is does state that “such information shall be provided in a manner such as to ensure an informed and transparent negotiation on pay, such as in a published job vacancy notice, prior to the job interview or otherwise”.

Many employers already state the salary range on job adverts and will continue to do so after the implementation of the Directive. This global approach will avoid the administrative issues of responding to individual questions on salary following the implementation of the Directive. However, we advise that if employers publish salary ranges in job adverts, they should ensure that the information is concise with reference to the actual salary range. The purpose of the Directive is to ensure pay transparency and publishing unreasonably wide salary ranges could lead to claim of circumvention of the Directive.

Employers will also be prohibited from asking job applicants about current or historic pay levels. The rational for this is to try and prevent underlying historic discriminatory practices continuing. Employers who currently ask workers about their current salary levels during the recruitment process should consider reviewing their processes now to prevent such questions from being asked.

Right to pay information

The Pay Transparency Directive provides that workers will have the right to request and receive information on their individual pay level and the average pay levels, broken down by sex, for categories of workers performing the same work as them or work of equal value to theirs. If an worker makes a  request the employer must provide the information within 2 months of the request.

In addition, employers will be obligated to annually inform all workers of their right to receive such information.

The Danish Act on Equal Pay for Men and Women currently requires companies with 35 employees, and at least 10 employees of each sex within the same job category, to compile reports every three years for the relevant subset of employees. These statistics are then reported to Statistic Denmark.

The new Directive will strengthen the current law by providing individual rights to workers to request information on gender pay.

Employers should start to consider how they will inform workers about the right to receive such information. It may be prudent to consider taking a proactive approach in which the company prepares the pay information annually and distributes it to workers or posts it on the company intranet site. This could avoid the administrative work of dealing with ad-hoc requests. This approach will also highlight where there may be gender pay discrepancies which could lead to a discrimination claim.

Companies with at least one hundred workers will also have new reporting obligations (see below) so would need to collate this information in any event.

Gender Pay Gap Reporting Obligations

The Directive will mean that employers with at least one hundred workers would need to publish information on the pay gap between male and females in the company.

The requirement will be implemented in stages.  In 2027 employers with at least 250 workers (calculated on number of workers on 7 June 2027) will be required to report annually on the gender pay gap. Employers with 150 to 249 workers will be required to report on the gender pay gap every 3 years, commencing in June 2027.

Companies employing 100 to 149 workers will also be required to report every three years, with the reporting obligation commencing in 2031.

The gender pay information should be calculated from the salary data in the previous calendar year.

The Directive places no requirement on companies with less than one hundred workers to report, however each member state can implement their own rules regarding reporting for companies with less than one hundred workers. It is not clear at this moment how the Danish parliament will implement the directive in connection with companies with less than one hundred workers.

The Directive envisages that the information relating to the gender pay gap should be communicated “to the authority in charge of compiling and publishing such data pursuant to Article 29(3 (c)”. Article 29 creates an obligation on member states to designate a body for the monitoring and support of the implementation of the Directive. It is not clear at this stage who will be the designated body responsible for this and whether this would be incorporated into the functions of Statistics Denmark.

Joint Pay Assessment

The Directive also creates stricter obligations for employers if the gender pay reports highlights:

• a gender gap of at least 5% in any category or work, and
• the difference cannot be justified based on objective, gender-neutral criteria, and
• the employer has failed to remedy the gap withing 6 months of the date of submission of the pay report in question.

If the above conditions are met an employer will be required to undertake a joint pay assessment with worker representatives. If there are no worker representatives some will need to be chosen for this purpose.

Pursuant to Article 10(2), the joint pay assessment should be carried out in “order to identify, remedy and prevent differences in pay between female and male workers which are not justified on the basis of objective, gender neutral criteria”. The joint pay assessment must include:

• an analysis of the proportion of female and male workers in each category of workers;
• information on average female and male workers’ pay levels and complementary or variable components for each category of workers;
• any differences in average pay levels between female and male workers in each category of workers;
• the reasons for such differences in average pay levels, on the basis of objective, gender-neutral criteria, if any, as established jointly by the workers’ representatives and the employer;
• the proportion of female and male workers who benefited from any improvement in pay following their return from maternity or paternity leave, parental leave or carers’ leave, if such improvement occurred in the relevant category of workers during the period in which the leave was taken;
• measures to address differences in pay if they are not justified based on objective, gender-neutral criteria.

Employers must share the joint pay assessment with their workers, their representatives, and the dedicated national authority (to which pay must be reported), as well as, upon request, with the labour inspectorate and the national equality body.

Summary

Whilst the directive will not be implemented into national law until 2027 and the Danish government have yet to provide any details on how national legislation will look, employers should start considering how they will comply with the obligations.

The Pay Transparency Directive creates several new obligations on employers to ensure transparency regarding pay to reduce the gender pay gap.

Employers should consider amending their recruitment practices now to avoid asking applicants about pay history.

In addition employers should consider analyzing salaries now to determine if there are gender pay gap issues with a view to addressing these before gender pay gap reporting becomes mandatory. Taking proactive steps to understand whether there is a gender pay gap and taking action to remedy any gap now could avoid the need to undertake joint pay assessments and reduce the risk of discrimination and equal pay claims.