EU Pay Transparency Directive

To address the gender pay gap, the European Council adopted the Pay Transparency Directive on 24 April 2023, introducing measures to ensure that women and men in the EU receive equal pay for equal work. The European Parliament adopted the directive in March 2023.

The Pay Transparency Directive is in alignment with the rationale behind the directive on transparent and predictable working conditions (Directive 2019/1152), requiring employers to be more transparent about the essential aspects of employment relationships, among other things. This directive was transposed into Dutch legislation on 1 August 2022.

The Pay Transparency Directive follows from the EU Gender Equality Strategy 2020-2025, presenting policy objectives and actions needed to make significant progress towards a gender-equal Europe. This strategy resulted in the EU Gender Balance Directive in November 2022, meant to improve gender balance among the directors of large listed companies with their corporate seat and listing in an EU member state.

Scope

Employers

The Pay Transparency Directive applies to "employers" in public and private sectors. As it lacks a definition of employers, we will likely have to wait for it to be implemented in the Netherlands to find out which enterprises qualify as employers.

Workers

"Workers" within the meaning of the Pay Transparency Directive is broad, and includes part-time workers, temporary contract workers and persons with an employment contract or employment relationship with a temporary agency. "Workers" also includes those in management positions. The "workers" must have an employment contract or employment relationship as defined by law, by collective labour agreements and/or practice in force in each member state, taking into account the case law of the Court of Justice such as FNV/Kunsten Informatie en Media (C-413/13) and Betriebsrat der Ruhrlandklinik (C-216/15).

Under certain conditions, domestic workers, on-demand workers, seasonal workers, voucher-based workers, platform workers, workers in sheltered employment, trainees and apprentices also fall within the scope of the directive.

There are also specific provisions that apply to applicants for employment.

Core concept

The principle of "equal pay" is the core concept of the Pay Transparency Directive, and rests on equal pay for equal work or work of equal value between men and women.

"Work of equal value" is work that is determined to be of equal value on the basis of objective, gender-neutral criteria, and agreed on with worker representatives where such representatives exist. The criteria may not be based directly or indirectly on workers’ gender and must include skills, effort, responsibility and working conditions, and, if appropriate, any other factors relevant to the specific job or position. In particular, relevant soft skills must be taken into account. Employers are allowed to pay workers performing the same work or work of equal value differently on the basis of objective, gender-neutral and bias-free criteria. Assessing whether workers are in a comparable situation may not be limited to situations where female and male workers work for the same employer, but extends to a single source establishing the pay condition. This may be the case when the pay conditions are regulated by statutory provisions, or in cases where agreements relating to pay apply to several employers, or when such conditions are laid down centrally for more than one organisation or business within a holding company or conglomerate. The assessment will not be limited to workers who are employed at the same time as the worker concerned.

The Pay Transparency Directive also contributes to the principle of equal pay by introducing mandatory pay transparency standards and stricter enforcement mechanisms to empower workers to claim their right to equal pay.

Pay transparency measures

Pay transparency for applicants for employment

Employers will need to provide information about the initial pay or the range for the specific job the applicant is applying for; this information can be included in, for example, the job vacancy description or before the job interview. Employers will no longer be allowed to ask applicants about their pay history. Employers will have to ensure that job vacancy descriptions and job titles are gender neutral and that recruitment processes are led in a non-discriminatory manner.

Pay structures for work of equal value

Employers will be required to have pay structures in place to ensure equal pay, allowing for the possibility to compare the value of different jobs within the same organisational structure.

Pay transparency for current workers

Employers must make information available to their workers about the criteria used to determine pay, pay grade (the gross annual pay and the corresponding gross hourly pay), and the pay progression of workers. The latter refers to the process of how a worker moves to a higher pay grade.

Workers' right to information

In addition, workers will have the right to request and receive written information, within two months from the date of making a request, on their individual pay level and the average pay levels, broken down by sex for categories of workers performing the same work or work of equal value. Every year, employers will have to inform employees that this right exists and about the steps that the worker needs to undertake to exercise this right. If the pay level information provided is inaccurate or incomplete, workers will have the possibility to ask for additional and reasonable clarifications and details, and to receive a substantiated reply.

Employers will be able to require workers who have obtained additional information to not use that information for any purpose other than to exercise their right to equal pay. Pay secrecy clauses in employment contracts will not be allowed.

Reporting on the gender pay gap

The reporting requirement is tailored to the size of the company:

• employers with 250 workers or more must report every year on the previous calendar year, starting four years after the Pay Transparency Directive enters into force; and
• employers with 150 to 249 workers and employers with 100 to 149 workers must report every three years on the previous calendar year (starting four years for the former, eight years for the latter after the Pay Transparency Directive enters into force).

Employers with fewer than 100 workers may report voluntarily. Member states are allowed to make reporting mandatory for companies with fewer workers, and are also free to increase the frequency of reporting.

In their reporting, employers must provide specific information related to the gender pay gap (the difference in average pay levels of employer's female and male workers, expressed as a percentage of the average pay level of male workers). The employer's management must confirm the accuracy of the information after consulting with worker representatives.

While the employer must publish this information, it has the discretion to decide where the information will be published: on the company website, in the management report (for example alongside other worker-related matters), or elsewhere. There is no requirement for a specific platform, but the information must be made available in a suitable and transparent manner.

The information must also be communicated to an authority as designated by member states to compile and publish data, allowing for a comparison between employers, sectors and regions of member states.

In addition, employers must provide information on the gender pay gap between workers by categories of workers broken down by ordinary basic wage or salary and complementary or variable components, to all their workers and worker representatives.

Workers, worker representatives, labour inspectorates and equality bodies will have the right to ask employers for additional clarifications and details regarding any of the data provided, including explanations concerning any gender pay differences. Employers must respond to such requests within a reasonable time by providing a substantiated reply. Where gender pay differences are not justified on the basis of objective, gender-neutral criteria, employers must remedy the situation within a reasonable period of time in close cooperation with worker representatives, the labour inspectorate and/or the equality body.

Joint pay assessment

Where pay reporting reveals a gender pay gap of at least 5% in a given category of workers, and the employer cannot justify the gap based on objective, gender-neutral criteria and has not remedied the unjustified difference within six months, the employer must conduct a joint pay assessment, consisting of prescribed conditions, in cooperation with worker representatives. This assessment will be carried out to identify, remedy and prevent unjustified differences in pay between female and male workers.

The assessment must be made available to workers and worker representatives and must be communicated to the authority designated by member states to compile and publish data.

Measures for better access to justice for victims of pay discrimination

There will be broad enforcement possibilities and remedies in place to ensure that victims of pay discrimination have better access to justice.

Defending equal pay rights

Member states must ensure that workers who believe they have been wronged by the employer's failure to observe the principle of equal pay have easy court access to enforce their rights, even after the employment relationship ends.

Compensation for workers

Any worker who sustains damage resulting from an infringement of any right or obligation relating to the principle of equal pay has a right to claim full compensation or reparation for that damage. This can include full recovery of back pay and related bonuses or payments in kind, compensation for lost opportunities, non-material damage, any damage caused by other relevant factors, including intersectional discrimination, and interest on arrears. There will be no fixed prior upper limit for compensation.

Other remedies

If an infringement of rights or obligations related to the principle of equal pay is found, competent authorities or national courts may - at the claimant's request and at the employer's expense - issue an order to stop the infringement or to issue an order to take measures to ensure that the rights or obligations related to equal pay are applied.

Employer bears burden of proof

By default, the employer will have to prove that there was no discrimination in relation to pay. If the employer proves the infringement was manifestly unintentional and of a minor nature, the burden of proof lies with the worker.

Penalties include fines

Member states must implement effective, proportionate and dissuasive penalties for infringing equal pay principles. These penalties include fines. There will be separate penalties for repeated infringements.

Worker representatives

Equality bodies and worker representatives may act in legal or administrative proceedings on behalf of workers, as well as take the lead in collective claims for equal pay.

Worker protection against adverse treatment

Workers may not be treated less favourably for having exercised their rights under the Pay Transparency Directive, or for supporting another person in this regard. Member states will have to implement adequate administrative and court protection to address the adverse treatment for workers seeking to invoke any rights or obligations related to the principle of equal pay.

Next steps

The Pay Transparency Directive is expected to be published in the EU Official Journal. After publication, member states will have three years to transpose the directive into national law.

In the Netherlands, the Equal Pay for Women and Men Bill was submitted to the lower house of parliament in March 2019, but may have to be amended once the Pay Transparency Directive is implemented. This may also be the case for article 7:655 of the Dutch Civil Code, which outlines the employer's information obligations towards the employee. The lower house's agenda for plenary debates shows that the bill is back on the agenda and that it will be discussed soon.

Additional pay transparency requirements are in place for financial enterprises, including those from the Remuneration Policy (Financial Enterprises) Act. See this publication for more information.