Pay Transparency Directive – building on existing gender pay gap legislation

The Directive due to be formally approved by the European Council by the end of 2023, will place an onus on all EU member states to implement the European law into national legislation within a three-year timeframe. The Directive provides national governments with the power to fine employers with a GPG of over 5%.

Employers need to take immediate action to ensure they are under this maximum GPG threshold, as if they have a GPG of over 5%, and cannot explain the gap using objective and gender-neutral factors, they must undergo a joint pay assessment with unions, before potential fines from the government.

Impact on Ireland

In Ireland, 71% of employers would currently face a fine under the Directive as they reported a GPG figure of over 5% in 2022. Thus, there is significant work to be done before employers are prepared for the impact of the Pay Transparency Directive. Considering that the actions required to address GPG and increase balanced representation cannot be delivered overnight, employers need to be proactive in responding to the Directive before its implementation in order to avoid being fined and also risking the negative connotations of a GPG figure higher than the 5% ceiling.

Greater pay transparency has been a key strategic goal for Ireland and the EU to address pay discrimination and ensure greater gender and pay equality. In Ireland, the Gender Pay Gap (Information) Act, 2021 introduced mandatory GPG reporting for organisations of over 250 employees, dropping to 50 employees by 2025. Last year, 2022, was the first reporting cycle and brought with it increased scrutiny on gender pay information and data. There were some shortcomings with the rollout of the legislation, principally concerning the lack of a centralised reporting portal, which undermined the impact of the Act in its first year. However, with increased scrutiny and focus on gender pay discrimination, and the possibility of fines being introduced by the Pay Transparency Directive, we would urge businesses to prioritise and pay attention to their GPG reporting requirements and to ensure that any gaps that do exist are being dealt with and addressed without delay.

Other protections

The Directive also requires employers to provide critical pay information to applicants and workers. The initial pay range on job advertisements, and, where applicable, any relevant provisions of a collective labour agreement in place will be required to be published in job advertisements. This is a marked change from the labour market norm whereby much salary information is concealed as ‘dependant on experience’ or ‘to be discussed at interview stage’.

Workers will also be eligible to request their employer demonstrate the criteria used to define their pay, pay progression and the average pay for their role in the company, split by gender.

In a further effort to balance the scales between employers and applicants, employers will also be prohibited from asking about the pay history of applicants. Doing so will ensure that new workers receive a pay based on the role and responsibilities, rather than their previous pay levels. This will reduce the likelihood of discriminatory pay decisions being made.

The Directive also further strengthens worker legal protections by shifting the burden of proof in pay-related cases from the worker to the employer. In cases where a worker feels they have been discriminated against, or that the principle of equal pay has not been observed, and takes a case to court, it will be up to the employer to demonstrate that the principle of equal pay has been observed. This mirrors the protections already in place in employment discrimination cases under the Employment Equalities Acts, 1998-2015.

Next steps

We urge all employers to set about preparing for the implementation of the Pay Transparency Directive, to act early and quickly, ensuring you are on top of you GPG calculation and are utilising correct recruitment practices in relation to recruitment, promotion and pay practices. As the first GPG reporting cycle has shown, GPG is about so much more than simply payroll data, and concerns wider concepts such as female representation at senior levels, or the uptake of parenting and caring responsibilities between female and male employees and is very much linked to the recruitment and people management processes within your organisation.  

Reducing GPG to under 5% requires fundamental action and rapid implementation for many of the 71% of organisations currently reporting a gap greater than 5%.

Action plans devising specific initiatives to address pay gaps will need to be devised, actioned and implemented to reduce GPG in time for the introduction of the Directive. These action plans cannot be driven by HR alone and require genuine buy-in and drive from senior leaders if real action is to be delivered.

Recruitment and selection policies need to be updated and new policies and procedures designed and implemented to accommodate pay scales and pay progression.

How can we help

Our expert team of HR consultants at Mazars can assist you in understanding, calculating and presenting your organisation’s GPG figures and develop bespoke actions and initiatives to address any gaps identified. We have supported both public and private sector organisations with calculating and reporting their GPG since 2019 and have developed a bespoke tool for calculating and presenting GPG data.

For more information about the Pay Transparency Directive or how we can help achieve your GPG targets, please contact Sonya Boyce or a member of our consulting team.