By Murray Simpson, Ph.D.
BLOG OVERVIEW: The EU Pay Transparency Directive (Directive (EU) 2023/970) requires all EU member states to transpose binding pay transparency and pay equity obligations into national law by June 7, 2026, with gender pay gap reporting for employers with 150 or more employees beginning in 2027. Employers that act now can get ahead of compliance by following a four-stage readiness plan: satisfy day-one pay transparency obligations for job applicants and current employees, evaluate jobs to define categories of workers performing work of equal value, conduct a provisional pay gap analysis, and develop a strategy for addressing any pay gaps of 5% or more that could trigger a joint pay assessment. This article, authored by DCI Consulting Group Principal Consultant Murray Simpson, Ph.D., walks employers through each stage with practical guidance on timelines, legal considerations, and key decisions to make before the transposition deadline.
Employers face uncertainty over when and how the member states of the European Union (EU) will transpose the European Union Pay Transparency Directive (Directive 2023/970) into national laws and regulations. Despite this uncertainty, employers that act without delay can implement a readiness plan that will ease the path to compliance once member state laws take effect. The readiness plan should include four sequential stages of implementation:
1. Comply on Day One with Pay Transparency Obligations
2. Evaluate Jobs to Identify Work of Equal Value
3. Conduct a Provisional Analysis of Current Pay Gaps
4. Develop a Strategy for Addressing Pay Gaps of at Least 5%
Stage 1: Comply on Day One with Pay Transparency Obligations
The Directive sets minimum pay transparency obligations for all employers, regardless of workforce size, and then allows member states to enact stricter obligations. Therefore employers should take steps now to ensure they are ready to comply with pay transparency requirements pertaining to job applicants and workers on day one.
Job Applicants
Employers should develop a procedure to document the initial pay or pay range of available jobs and any provisions of collective agreements that apply to the jobs. In turn, employers must decide how to provide this information to applicants (e.g., in the job posting or before the job interview). Conducting an audit of job posting practices is advisable to ensure job vacancy notices include the required information and that the notices themselves and the job titles to which they refer are gender-neutral as mandated by the Directive. In addition, employers should train recruiters and hiring managers not to ask applicants about their salary history, remove fields from application forms that request salary history information, and disable corresponding fields in applicant tracking systems as needed.
Current Employees
Under the Directive, a worker has the right to request information about their own pay level and the average pay levels of women and men, respectively, who perform work that is the same or of equal value to that of the inquiring worker. As part of their readiness plans, employers should design a four-pronged process that establishes (i) a protocol for employees to request this pay information, (ii) a data source that can be queried for the pertinent pay information, (iii) a protocol for delivering the requested information in a timely manner which, according to the Directive, cannot exceed two months, and (iv) a mechanism to annually notify all workers of their right to receive this pay information and how to go about requesting it.
Because workers also have the right to discuss and disclose their pay for purposes of enforcing the principle of pay equity, employers should review, and revise as needed, employment contracts, employee handbooks, and human resource practices to confirm they do not implicitly or explicitly restrict workers from discussing and disclosing their pay. Also, employers should evaluate the criteria used to determine workers’ pay and how it progresses, doing so to verify that the criteria are objective and gender neutral. In turn, they need to document these criteria to facilitate making them easily accessible to workers as required by the Directive. Please note that member states may enact regulations to exempt employers with fewer than 50 workers from this accessibility requirement as it relates to pay progression.
Stage 2: Evaluate Jobs to Identify Work of Equal Value
Employers meeting the workforce thresholds for pay gap reporting should move in Stage 2 of their readiness plan to an examination of their current job architecture, seeking to assess how well they can form categories of workers by identifying groups of jobs in which workers perform work of equal value. Such an examination should commence well before the reporting deadlines stated in the Directive or member state regulations. Why? Because the Directive requires employers to evaluate jobs based on a specific set of compensable factors to determine if workers in those jobs perform work of equal value, namely, skills, effort, responsibility, and working conditions, with allowance, where appropriate, for other factors that may be specific to a particular job.
A recommended starting point is to assess past job evaluations on which the current job architecture is based, investigating how well those evaluations considered the compensable factors noted above in scoring or measuring the relative value of jobs for assignment to job levels or grades. If the job evaluations are sound, then the assigned levels or grades may readily identify work of equal value.
If some or all of the evaluations are found to be deficient or out of date, then the employer should undertake a new round of job evaluations, aided perhaps by experienced compensation consultants, to update their job architecture. The goal is to ensure that categories of workers derived from that architecture group consist of workers who perform work of equal value and are assigned to a group in a non-arbitrary manner using the compensable factors stated in the Directive. Some countries, such as Poland, are planning on providing guidance on how to conduct this job evaluation process.
Employers without a job architecture are advised to implement a series of job evaluations based on job analysis questionnaires, to construct a job architecture based on those evaluations, and to map jobs performing work of equal value to designated worker categories.
Stage 3: Conduct a Provisional Analysis of Current Pay Gaps
Employers that are subject to pay gap reporting requirements should plan to conduct a provisional analysis of the gender pay gaps prescribed by the Directive once worker categories from Stage 2 are identified, even if those categories are preliminary and the data records for the analysis are from 2025 rather than the reporting year of 2026. Going through this exercise will allow the employer to resolve in advance any challenging issues that arise. Such issues, if left unaddressed to a later time, may increase the risk of late report submissions, incorrectly computed pay gaps, insufficient time to investigate large pay gaps, and heightened scrutiny by worker representatives or works councils.
One issue likely to prove difficult for most employers is deciding what constitutes the “complementary or variable components” of pay to include in the analysis. The Directive defines a complementary or variable component of pay as most anything other than a worker’s ordinary basic salary, referring to it as “any other consideration, whether in cash or in kind, which a worker receives directly or indirectly…in respect of his or her employment from his or her employer.” Identifying complementary or variable components of pay and collecting data to accurately measure each component requires time and resources, particularly when reporting pay gaps for the first time. Performing a provisional analysis with sufficient lead time allows employers to effectively address these types of complexities.
Conducting the provisional analysis under the direction of an employment attorney is highly recommended for multiple reasons. Most importantly, it places the analysis under privilege to protect it, as needed, from discovery. In addition, the attorney can ensure the analysis complies with national transposition laws, provide advice on the legal implications of the analytical results, and recommend actions to reduce legal risk.
Lastly, the provisional analysis requires the employer to consider early on how key responsibilities will be assigned for ongoing compliance with the Directive. Who will retain outside legal counsel? Who will establish a process to collect the required pay data? Who will conduct the analysis, either internal staff or external consultants? Who will prepare the required annual or triennial report for submission to the designated national authority and for publication on the employer’s website or in another manner to make it publicly available?
Stage 4: Develop a Strategy for Addressing Pay Gaps of At Least 5%
The provisional analysis of Stage 3 positions the employer for insightful progress on Stage 4 of its readiness plan because it compels the employer to consider what must be done when gender pay gaps of at least 5% arise within a worker category. In such circumstances, the Directive allows the employer to (i) justify the gap based on objective, gender-neutral criteria, (ii) remedy the gap within six months of reporting it, or (iii) carry out a joint pay assessment in cooperation with workers’ representatives.
An employer seeking to justify or remedy one or more pay gaps may decide the best course of action is to use internal staff, perhaps from the employer’s compensation team, to undertake this work. Alternatively, the employer may decide to retain an experienced pay equity consultant for expert advice. The consultant can identify gender-neutral factors for subsequent use in refined statistical analyses, doing so to measure the extent to which those factors explain a given pay gap. The consultant also can advise the employer on strategies to remedy pay gaps and support the employer in carrying out a joint pay assessment with workers’ representatives. Deciding among these alternatives in advance ensures the employer has time to prepare internal staff for new duties that they will assume or to take the necessary steps to engage a pay equity consultant.
As part of its strategy for addressing pay gaps of at least 5%, the employer also should think about how best to coordinate joint pay assessments with works councils, trade unions, or other representatives of workers to ensure the “close cooperation” requirement is met. Would a joint committee or working group be useful? If so, how should work on the assessment be allocated among members of the committee or working group? If not, should the employer take on most of the work and confer with the workers’ representatives on a regular basis for their input and evaluation of the work to date? How much time should be spent on the joint pay assessment, given that an unjustified pay gap must be remedied within “a reasonable period of time”? And, lastly, how will the findings and measures arising from the joint pay assessment be documented and subsequently made available to workers, the workers’ representatives, and the national monitoring or enforcement body?
Key to Success
The key to successful implementation of a readiness plan is transforming its sequential nature into a timeline for compliance. First, be ready to satisfy pay transparency obligations by the June 7, 2026, transposition deadline or the effective date of relevant laws in the EU member states where workers are located. For member states where pay gap reporting thresholds are met, aim to define worker categories by the end of 2026 or earlier if possible, undertaking any job evaluations and job architecture restructuring needed to ensure these categories group together employees who perform work of equal value.
Use the first quarter of 2027 to collect data on base pay and the variable or complementary components of pay, then conduct a provisional pay gap analysis and investigate any gaps of at least 5% for justification or remediation. If joint assessments may be a possibility, start the second quarter of 2027 with internal conversations about how to coordinate them with workers’ representatives in applicable member states. Ensure by the end of the quarter that pay data records are complete and accurate, and a final, updated pay gap analysis has been carried out. Cross the finish line by preparing required pay gap reports and submitting them by the June 7, 2027, deadline if applicable.
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