How to prepare for the EU Equal Pay Directive: a guide for companies

The European Union has adopted the new Pay Transparency Directive 2023/970, which introduces stricter rules to ensure equal pay for women and men. The Directive, which is due to come into force by June 2026, brings about major changes that companies need to prepare for now to avoid potential sanctions and demonstrate their commitment to fair pay. This article offers detailed guidance for employers on what steps to take to comply with the new Directive.

Why is the Transparent Remuneration Directive important?

Pay inequalities have been a long-standing problem across the European Union, despite efforts to ensure equality between men and women. The Gender Pay Gap (GPG) averages 13%, with the gap in the Czech Republic reaching up to 16%. The new Directive responds to this situation and introduces tools to help companies close this gap. The main objectives of the Directive include ensuring greater transparency in pay, reducing pay discrimination and better enforcement of the right to equal pay for equal work.

The main changes introduced by the Directive are

1. Transparency on starting salaries:
• Employers will be obliged to indicate starting salaries or salary ranges already at job interviews and in all job advertisements. This means that asking the employer about the expected salary becomes irrelevant.
2. Prohibition of pay secrecy clauses:
• The Directive prohibits the use of confidentiality clauses that prevent employees from sharing information about their wages. Instead, employees will be given the right to access information on the average salary of comparable positions in the company. This information must be provided anonymously.
3. Regular reporting on pay gaps:
• Companies with 250 or more employees will have to report gender pay statistics annually from 2027. Smaller companies with between 100 and 249 employees will have to do this every three years, effective from 2031. If a pay gap of more than 5% is found for a category of workers, the employer must justify the gap on objective criteria or remedy it within six months. Otherwise, the employer will be obliged to carry out a so-called joint remuneration assessment.
4. The burden of proof is on the employer:
• If the employee proves indications of unequal pay, the onus will be on the employer to prove that there has been no discrimination. This includes the obligation to disclose all relevant evidence, including confidential information.

What is an equal pay audit and how does it work?

One of the key tools of the Directive is the 'equal pay audit', which should be applied where it appears that there is a significant gender pay gap within a company. This audit involves a joint pay assessment involving employee representatives and employers. The aim is to identify the causes of the gap and propose measures to eliminate it.

Audit procedure:

1. Identification of the pay gap:
• The company must first determine whether there is a pay gap of more than 5% for certain categories of workers. If so, it must either justify it or conduct an audit.
2. Setting up an audit team:
• The audit is carried out by a team made up of employee representatives (trade unions) and the employer. It is recommended that an independent equal opportunities expert is also invited.
3. Remuneration analysis:
• The team carries out an in-depth analysis of all components of remuneration, including basic pay, bonuses, fringe benefits and other benefits. The assessment should take into account all aspects that may justify any differences, such as experience, education, qualifications and complexity of the work.
4. Evaluation and proposal for action:
• If the audit reveals disproportionate differences, specific steps should be proposed to eliminate them. This may include revising pay policies, introducing new promotion rules or training staff.
5. Implementation of corrective actions:
• The employer must implement the proposed actions within six months of the completion of the audit. Failure to do so may result in sanctions.

How can companies prepare for the new rules?

Preparation for the new directive to take effect should begin well in advance. Firms should take the following steps:

1. Conduct an internal remuneration audit:
• Even if you are not yet required to report pay differences, conduct an internal audit to assess whether you have unreasonable differences. If so, propose measures to reduce the disparities.
2. Introduce a transparent payroll system:
• Ensure that the criteria for remuneration, promotion and bonus allocation are clear, understandable and gender-neutral. These criteria should be accessible to all employees.
3. Train management and HR staff:
• Prepare key staff for new requirements. Focus on training in equal pay, gender neutrality and transparency.
4. Communicate changes to employees:
• Openly communicate your plans and steps to achieve equal pay. Employee support can increase confidence in new measures and make them easier to implement.
5. Consider external advice:
• Given the new reporting requirements and potential audits, it may be helpful to use external experts to help you set up the right processes.

Conclusion

Implementing the Transparent Remuneration Directive can be a challenge for many employers, but the right approach to implementing equal opportunities and fair pay can increase employee satisfaction, attract new talent and boost a company's economic growth. Companies that prepare early for the new requirements will gain an advantage and strengthen their position in the marketplace as a fair and responsible employer.