Out-Law / Your Daily Need-To-Know

Out-Law Analysis 2 min. read

The EU Pay Transparency Directive and how rules compare across borders

Employers can expect to have to comply with strict rules around pay transparency when, as is expected, the proposed new EU Pay Transparency Directive comes into force.

Our analysis has found that despite measures having been put forward to bolster pay transparency in some member states already, employers will likely face more onerous obligations than they currently do in some countries once the new directive takes effect.

Below, we look at what obligations the Pay Transparency Directive will introduce and compare it to the current legal position in Germany, France, Spain, the Netherlands and Ireland. We also look at how matters of pay transparency are currently addressed in Singapore and the UK.

The EU Pay Transparency Directive

The proposed new EU Pay Transparency Directive is aimed at ensuring that the right to equal pay is upheld across all member states. The European Commission published the draft directive in March 2021 and it has subsequently been the subject of scrutiny by the EU’s two foremost law-making bodies – the European Parliament and the Council of Ministers.

Following inter-institutional negotiations, the Parliament and Council reached a compromise on the proposals late last year. Following the provisional agreement, MEPs voted to formally endorse the proposed reforms on Thursday 30 March. The Council is expected to subsequently hold a vote of its own.

The Council’s endorsement would trigger the process for the directive’s publication in the Official Journal of the EU and subsequent entry into force. Member states will have three years from the date the directive enters into force to implement it into national legislation, at which point the new rules would take effect.

What the draft directive provides

Employers can expect to be subject to significant new disclosure obligations according to the text that was subject to provisional agreement.

Article 4 of the draft directive requires each EU member state to provide companies and social partners with simple, easily accessible and gender-neutral methods of analysis to promote the assessment and comparison of the value of work.

Article 5 provides job applicants with the right to obtain from the prospective employer information on the starting salary or its range based on objective, gender-neutral criteria for the job in question and, where applicable, the relevant provisions of the collective agreement.

Under Article 6, employers with 50 or more employers must make easily accessible to employees what the criteria are for pay, pay levels and opportunities for advancement. These criteria must be objective and gender neutral.

Under Article 7, employees would have the right to request in writing information on their individual pay levels and the average pay for groups of employees performing the same work or work of equal value. Employers would also be prohibited from preventing employees from disclosing their pay in order to enforce the principle of equal pay.

Article 8 sets out a reporting obligation for employers on several indicators, in particular their gender pay gap (GPG). This reporting obligation is to be introduced in stages, depending on the size of the company. For example, for companies with 100 employees or more, the reporting obligation would arise for the first time five years after the directive is transposed into national law and every three years thereafter.

Under Article 9, employers subject to the reporting requirements of Article 8 would be obliged, in cooperation with their employee representatives, to conduct a joint wage and salary evaluation if all of the following conditions are met:

  • the wage and salary reporting conducted in accordance with Article 8 shows a difference in average wage levels between female and male employees of at least 5% in any category of employees;
  • the employer has not been able to justify such difference in average wage levels using objective and gender-neutral criteria; and
  • the employer has not remedied such unjustified difference in average wage levels within six months after the submission of the report under Article 8.
  • Germany

    Since the introduction of the Pay Transparency Act (Entgelttransparenzgesetz) in 2017, the gender pay gap (GPG) in Germany has fallen from 20.4% to 18% in 2022. Despite this improvement, Germany still has the widest GPG of all EU countries.

    The central measure of Germany’s Pay Transparency Act is employees’ general “right to information” which applies to companies with more than 200 employees. In addition, the law provides for company procedures to review and establish equal pay in companies with more than 500 employees, as well as a reporting obligation.

    In practice, the right to information has limited impact, as it is still very difficult for those affected to prove pay discrimination based on gender in court proceedings. The German Federal Labour Court (Bundesarbeitsgericht) improved this situation at the beginning of 2021 by shifting the burden of proof in favour of the persons affected, but most employees in Germany cannot exercise a right to information because that right is qualified by the need to form a comparison group with at least six colleagues of the opposite sex.

    As the current regulations in Germany lag behind the measures of the EU Pay Transparency Directive, implementation of the proposed new EU rules in Germany will most likely be very difficult. In addition, the issue is highly controversial – the German government has not yet been able to agree on a position on the legislative process at EU level.

  • France

    In France, the law currently only provides for collective information on GPG and this mainly concerns companies with more than 50 employees.

    However, France has had a gender equality index in place for two years. This is a “name and shame” scheme, requiring companies with at least 50 employees to calculate and publish on their website, in a visible and legible manner, their overall score from the index, as well as the score obtained for each of the indicators that make up the index. In due course, large companies will need to meet quotas around female representation and could be fined up to 1% of their annual payroll for persistent non-compliance.

    In addition, companies with trade union delegates are already subject to mandatory annual negotiations on gender equality in the workplace, including measures to eliminate gender-related discrimination during the hiring process and pay gaps. The same companies are also subject to the obligation to keep information on gender equality available to their staff representatives, in particular: an assessment of the respective situation of women and men from each of the company's professional categories in terms of hiring, training, professional promotion, qualifications, classification, working conditions, health and safety at work, effective remuneration and the balance between professional and personal life.

    However, French law has not provided for any right to individual information on GPG during the performance of the employment contract. The EU Pay Transparency Directive will undoubtedly therefore help identify gender-based discrimination and will be a tool for the employee to use to pursue legal action, albeit the labour courts in France have already demonstrated that they will not hesitate to request disclosure of the pay slips of other employees in a similar situation to the claimant in order to establish the existence of a pay discrepancy. 

  • Spain

    In recent years, the pay gap in Spain has been decreasing thanks to the implementation of equal pay laws in 2019 and 2020.

    In Spain, the principle of pay transparency is applied through instruments such as pay registers, pay audits, job evaluation systems based on the professional classification of the company and the applicable collective agreement, as well as employees' right to information.

    Companies with 50 or more employees are obliged to have a pay register in which all salaries are broken down by gender, job and occupational classification. The aim is to provide information on average wage values, wage supplements and non-wage payments. This obligation is fully enforceable regardless of the type of employment agreement.

    The Spanish law establishes that pay information or its absence may be used for the exercise of administrative and judicial actions, both individual and collective, with the application, where appropriate, of sanctions for discrimination.

    When employees or employee representatives request access to the register, the information to be provided by the company is limited to the percentage differences in the average remuneration of men and women and further broken down according to the nature of the remuneration and the applicable classification system.

    The purpose of the pay audit is to obtain the information necessary to check whether the company's pay system, in a cross-cutting and comprehensive manner, complies with the effective application of the principle of pay equality between women and men.

    As is the case of Germany, it is still difficult for those affected to prove gender-based pay discrimination in legal proceedings. However, with the tools described above, it is becoming easier for affected employees to successfully establish pay discrimination on the basis of gender.

    It remains to be seen how the EU Pay Transparency Directive will be implemented in Spain.

  • The Netherlands

    Under Dutch equal treatment legislation, employers may not discriminate between men and women when it comes to terms and conditions of employment and promotions, amongst other things. Men and women doing the same work and with the same experience should be rewarded equally. However, there are no specific statutory transparency obligations concerning gender pay equality.

    Under the Dutch Works Councils Act (WCA), works councils are tasked to promote equal treatment of men and women in the organisation. Works councils have certain rights that can be relevant in the context of combating gender pay discrimination. For example, the works council has a right of consent regarding the introduction, amendment and withdrawal of a remuneration or job evaluation system as well as the company’s policies on appointments, dismissals, and promotion, unless this is regulated in a collective bargaining agreement.

    In companies with at least 100 employees, the works council also has a right to annually receive written information on the amount and content of the schemes and agreements relating to the employment conditions as they apply to different groups of employees working in the company as well as to the management representing the company. Information should also be provided on the total remuneration granted to the supervisory body.

    Currently, a legislative proposal on equal gender pay is pending before the House of Representatives in the Netherlands. If adopted, it would introduce a certification obligation for companies with at least 250 employees demonstrating that equal pay is paid for equal work. Companies with at least 50 employees would be required to:

    • at the request of an employee, provide access to the anonymised data of the wages of other employees who perform work of equal value or, failing that, work of virtually equal value within the company;
    • report on the gender pay ratio in the management report on a ‘comply or explain’ basis; and
    • annually provide information to the works council on the differences in remuneration between male and female employees who perform work of equal value or, failing that, work of virtually equal value within the company, as well as the policies in respect thereto.

    If an employee finds that there are unexplained differences in wages, they may file a complaint with the employer. The employer should immediately report the complaint to the works council or a similar employee participation body. If the complaint is not handled to the satisfaction of the employee or is not handled by the employer within two months, the employee can file a complaint with The Netherlands Institute for Human Rights. In the absence of an employer complaints procedure, the employee may file a complaint with the Institute directly.

    The Dutch legislative proposal is not fully aligned with the EU Pay Transparency Directive. As a result, further actions to implement the directive would be required if and when it enters into force.

  • Ireland

    In December 2022, annual GPG reporting became mandatory for organisations employing at least 250 employees on their chosen snapshot date in June 2022. In 2024, the annual reporting obligation will extend to organisations employing at least 150 employees and in 2025 to those employing at least 50 employees.

    The GPG reporting obligations in Ireland are more onerous in some respects than those set out in the proposed EU Pay Transparency Directive. Whilst Irish employers that meet the reporting threshold are required to report their GPG annually, the proposed directive envisages that organisations employing 100 or more workers would be required to report their gender pay gap every three years. In addition, Irish law will require employers with 50 or more employees to report their GPG in 2025 whilst the lowest threshold employee number for reporting purposes is 100 in the directive.

    Despite this, the Irish regulations concerning GPG reporting will require amendment to implement the proposed EU Pay Transparency Directive – including in the following respects:

    • pay gap by categories: employers in Ireland are not currently required to report pay gaps by “categories of worker”. The directive will require such information to be published and, therefore, Irish law will need to be amended;
    • action: whilst Irish law currently requires employers to publish a statement setting out the reasons, in their opinion, for any GPG and the measures, if any, which they are taking, or proposing to take, to reduce or eliminate such gap, the directive will go further and require employers to take action in certain circumstances;
    • information accuracy: there is no mechanism for assessing the accuracy of GPG calculations under Irish law. The proposed directive provides that the accuracy of information shall be confirmed by the employer’s management and that workers’ representatives shall have access to the methodologies applied to calculate the information.

    Irish law will also need to be amended to reflect the various other pay transparency obligations set out in the draft directive. Employers in Ireland will, therefore, face more onerous obligations regarding gender pay gaps and transparency measures.

  • Singapore

    In Singapore, currently there are generally no legal requirements mandating salary transparency for private sector employees. Traditionally, a lack of salary transparency is fairly standard and present on both ends of the employment spectrum – i.e. both by companies, and by workers themselves being unwilling to disclose how much they are paid.

    Companies in Singapore are generally unwilling to reveal levels of remuneration due to confidentiality concerns; the desire to prevent internal comparison and maintain morale; to prevent poaching, and to prevent upward pressure on remuneration due to market comparison, among other reasons.

    Workers are traditionally reluctant to share how much they earn because salary is often perceived as private and confidential. People traditionally view talking about money including salary levels, to be distasteful from a cultural perspective, and this in turn contributes towards a lack of salary transparency in Singapore. In addition, there is a view that income should never be divulged in a social situation as it may affect the self-worth of others and could also be seen as arrogant behaviour.

    In spite of this, there are there is a gradual shift towards increasing salary transparency in Singapore, particularly for companies listed on the Singapore Exchange.

    Listed company director and CEO salaries

    The Code of Corporate Governance (Code) currently applies to all companies listed on the Singapore Exchange on a ‘comply or explain’ basis. In other words, Singapore Exchange listed companies are required to comply as far as possible with the principles of the Code, but if their practices do vary from any provisions of the Code, they must explain both the provisions from which their practices have varied and the reasons for such variation.

    The Code currently sets out requirements for the salaries of directors and certain senior employees to be disclosed. Based on a 2022 study, it was found that only 53% of the Singapore Exchange listed companies polled had made such disclosures.

    In January 2023, however, it was announced that there would be some amendments to the Singapore Exchange listing rules and Code. Under the new rule, it is mandatory to disclose the exact amount and breakdown of salaries and other payments made to directors and chief executive officers in their annual reports. The new rule takes effect for annual reports prepared for the financial years ending on or after 31 December 2024.

    The new mandate was introduced with the intended goal of boosting corporate transparency over remuneration, and to align disclosure practices with global standards.

    Legislative developments for anti-discrimination

    Furthermore, there are currently plans for workplace discrimination laws to be put in place in Singapore. Under the proposed changes, rules will be implemented to protect workers against discrimination based on age, nationality, sex, marital status, pregnancy status, caregiving responsibilities, race, religion, language, disability, and mental health conditions.

    Although the proposed measure does not directly address the issue of salary transparency, it is expected that this may improve salary fairness, which is one of the aims of salary transparency, as employers would have to ensure that salaries are paid in a fair manner, and that there are no discriminatory considerations taken into account when deciding on an employee’s salary.

    Shifting attitudes

    Notably, despite traditional cultural beliefs that it is not appropriate to discuss matters related to money, surveys have shown that attitudes may be starting to shift with the younger generation. There is a newfound belief that concealing salary information will put workers at a disadvantage when it comes to pay negotiations, as they are unable to ascertain the true market rate for the role they are applying for.

    Further, many younger people take the view that companies are put at an advantage as they can leverage the informational asymmetry to keep wages down. Thus, among the younger generation, it is generally accepted that enhancing salary transparency by openly discussing salaries would, contrary to past beliefs, improve overall worker welfare.

  • UK

    The main driver for many companies to consider pay transparency in their organisations was the introduction in April 2018 of the requirement for British employers with 250 or more employees to publish their first GPG reports.

    Employers with 250 or more employees in Great Britain are required to publish data relating to pay and bonuses and the gender spread of their workforce based on data collected during the snapshot date of 5 April. There are six core metrics that need to be reported on – a public sector employers are subject to similar obligations but with different timescales:

    • The mean gender pay gap;
    • The median gender pay gap;
    • The mean bonus pay gap;
    • The median bonus pay gap;
    • The proportion of men and women employees who received a bonus in the 12 months preceding the snapshot date;
    • The number of men and women employees in each quartile of the employer's overall pay range – although often overlooked, salary quartile metric is perhaps the most meaningful and instructive as it demonstrates how the GPG differs differently over levels of seniority within the organisation and it helps to identify where women are concentrated in terms of their remuneration and whether there are any blockers to progression.

    GPG data must be published on the employer's website by 4 April in each reporting year and signed by a senior executive to validate the accuracy of the information. They must remain there in an accessible form for a minimum period of three years. The figures also need to be published on a government portal.

    Employers are able to provide a contextual narrative explaining any pay gaps and what remedial action to address underlying causes. This is not required but is strongly recommended and the vast majority of employers that have published their GPG data to-date have produced a comprehensive report explaining their data and what they are doing to address any underlying problems.

    The reporting requirements mean that it is relatively straightforward for employees and others to compare data year-on-year and to ascertain the extent to which progress has been made, whether initiatives which companies have pledged to implement have had the intended impact or whether businesses have followed through with these big pledges at all.

    The current median gender pay gap in the UK, according to latest statistics published by the Office of National Statistics (ONS) in 2022 in the UK is 14.9%%. The median figure is most accurate indicator because, unlike the mean figure, it is not distorted by a small percentage of very high earning men and low earning women.

    GPG reporting in the UK was never meant to generate a quick fix. Rather, it is intended to shine a spotlight on pay disparities in the workforce and drive progress over time. The good news is the long-term trend is downward from 18.4% in 2017 to the current pay gap of 14.9%. In real terms, this means that for every £1 an average man earns, a woman earns just 85.1p. Progress is still painfully slow and at the current rate many women starting work today will have long retired by the time the UK GPG is closed. The matter is not just about fairness, it is about bottom line: the current GPG means that women – and by extension the UK economy – are losing out on nearly £140 billion a year in wages, which is the equivalent to £9,112 per woman.

    Other trends in UK

    Top talent, shareholders, customers and clients are increasingly choosing to work for and do business with companies based on actual diversity credentials and are increasingly expecting transparency above and beyond mandatory reporting requirements, like GPG reporting. 

    With this in mind, a growing number of employers are voluntarily reporting on a broader range of diversity pay gap. According to the Women and Equalities Committee’s report, in 2021, 19% of employers in the UK reported on ethnicity pay, up from 11% in 2018, including Barclays Bank, BBC Studios, Centrica – and Pinsent Masons. We expect this number to rise once the UK government publishes its long-awaited guidance on ethnicity pay gap reporting.

    Many businesses have gone further and reported on other diversity pay gaps such as disability, sexual orientation and – for the first time this year – socio-economic or class too, including PWC, KPMG and Penguin Random House.

    Impact of the EU Pay Transparency Directive in the UK

    Whilst the proposed new EU directive will not apply to the UK, UK registered businesses with operations in EU member states will need to comply with reporting requirements in respect of those operations and may come under pressure to adopt a “one business approach” across their global operations in the spirit of transparency. The requirements of the EU Pay Transparency Directive go beyond mandatory pay reporting requirements in the UK and so, in a competitive labour market, UK employers may find that they need to follow the international trend towards transparency if they want to remain attractive to the best talent, clients, customers and investors.

We are processing your request. \n Thank you for your patience. An error occurred. This could be due to inactivity on the page - please try again.