In 2023, the EU Pay Transparency Directive (referred to as “the directive”) got ratified by the EU Parliament and Counsel. The directive bestows unprecedented rights on employees and those seeking jobs about their remuneration. The underlying intent of this directive is to obligate employers to implement equal pay. Contextually referring to gender, equal pay dictates that any salary variances between males and females undertaking identical or comparable roles should be predicated on objective factors such as diverse work locations, personal experience, or performance, not on gender. To achieve this, the directive enforces employers to offer their workforce increased information about their salary and the earnings of others, along with addressing unexplained salary disparities between males and females. Specific punitive measures, such as minimum fines, still quantitavely undefined, will be introduced by member countries for non-compliant employers.
What the directive conveys to Irish employers
By 7 June 2026, the directive mandates member countries to enforce this new law and all private and public employers to adhere to it within one year hence. Despite a two to three years preparation window, companies must start getting their house in order immediately. WTW’s Senior Reward Consultant, Anne Phelan, cites ongoing preparation with clients is in full swing, evaluating current rules and practices among employers in Ireland and throughout Europe.
To quote Anne, “Depending on WTW’s experience, the transition period fluctuates between three to five years for employers to assure themselves of pay equality and brace for increased pay clarity.”
Anne pointed out that numerous Irish organisations do not have the foundational mechanisms to delineate work of equal worth comprehensively, like a precise outline of individual roles or the tier these roles occupy within the all-over company structure.
The directive’s core stipulations summarised
· Transparency in pay before employment: The directive makes it obligatory for employers to furnish initial pay details or pay band in the job vacancy advert or prior to the interview. Furthermore, employers are barred from querying prospective employees about their past salaries.
· Transparency in pay determination: Current employees must readily access information about the pay determination criteria, pay scales and pay hikes.
· Right to information: Employees can demand insights from their employer on their individual pay scale and the median pay scales, distinguished by gender, for employees performing the same or equivalent value work (Defined in the directive as “categories of workers”). Employees must be informed annually of this right by employers.
In reference to pay disparities between female and male staff (for all employees), businesses with a minimum headcount of 100 are required to provide the relevant authority with their wage discrepancy data. They also possess the option to disclose this information to the public. A yearly disclosure is mandated for businesses employing at least 250 people, whilst those with 100 – 249 employees are obligated to disclose this information triennially.
With regards to disparity in payment across similar job roles, it is necessary for employers to determine the wage gap between males and females performing identical tasks and make this information accessible for all employees.
In circumstances where an unclosed wage gap of 5% or more is uncovered, and the employer is incapable of providing a fair gender-neutral explanation, they must execute a wage assessment. This should be carried out in partnership with workers’ representatives, and any unjustifiable disparities need to be reconciled.
Preparatory actions employers ought to undertake
Employers will have to ensure they are ready to maintain pay transparency and that they uphold the notion of equal wage distribution. To prepare for this, it is necessary for employers to establish:
· A hierarchy of roles within their organisation: Instituting well-defined, gender-neutral job tier methods for making accurate identifications of employees engaged in the same role, a similar role, or tasks of equivalent value.
· Wage policies for hiring, promotions, and annual evaluations: Able to provide proof that any differences in wage choices for males and females are founded on impartial reasons, with all wage decisions bearing the concept of equal pay as a priority.
· The access to and presentation of data: Certify that the pertinent data is ready to be shared with the staff and enable regular appraisals to understand the current situation and monitor progression. They need to prepare how to efficiently manage the increased number of wage data requests from employees, possibly by using technological solutions to assist in order to prevent it becoming a significant burden for the HR department. Furthermore, the worth of benefits should be factored in when calculating the average salaries and disparity per category of workers each year. For further information relating to the intricate details specified in the directive such as pension and benefits definition in consideration of pay, please refer to WTW’s whitepaper.
Crafting the Message: The narrative employers wish to portray may not always align with their true practices. For instance, claiming ‘We uphold equal pay’ demands concrete evidence through structured processes and supporting data. This narrative must reflect the organisation’s identity and their desire to be recognised, for instance, as an inclusive, diverse, and socially responsible employer.
Strengthening Managerial Skills: According to WTW’s 2023 Pay Transparency pulse survey, one-third of Irish companies are confident that managers effectively communicate pay and pay equity details. As per the data, apprehension about potential employee responses and a deficiency of confidence in managerial competence to discuss pay are primary factors inhibiting more comprehensive wage scheme communication. Addressing this issue will be a significant endeavour requiring time.
Recruitment and Retention Considerations: High salaries are often bargained at recruitment, or when employees consider leaving a company. It’s crucial for recruiters and managers to realise that this can compound pay equity issues, which leaves the company vulnerable.
Benefits Valuation: Employers need to understand the types of benefits they offer and their individual value to employees in each EU country. These values are required to be incorporated in average pay levels and gap calculations for different worker categories annually. For more insights into the intricacies involved in including pensions and benefits in pay definitions, refer to WTW’s whitepaper.
Steps towards Compliance Preparedness:
While companies will be at different readiness levels, WTW suggests the following steps for clients:
– Set Goals: Ensure key stakeholders understand the directive’s terms, ascertain the company’s aim concerning pay equity and transparency, and develop readiness plans in line with these larger objectives.
– Assess the Current State: Conduct preliminary analytics and review pay structures, policies, and practices across member state markets to determine the current state and pinpoint key action areas.
– Implement Actions: Modify individual salaries and amend pay structures, policies, and systems as required. Begin to elevate pay-related communication to managers and employees.
Incorporate groundwork activities, assess and monitor advancements among member countries, and form a strategy for clear communications and queries, harmonised with staff experience and Equal Opportunities, Inclusivity, and Diversity. Pay equality and transparency are persistent and foundational issues for employees from various ranks and experiences across all institutions. As society evolves and globalisation continues, employers find themselves confronted with the necessity of keeping up not only with laws but also with changing norms and values. The latest Pay and Transparency Directive of the EU serves as a key turning point for these transformations, hence, it’s crucial for employers to expand their strategy around overall reward transparency.