Employers should be prepared for the implementation of the Pay Transparency Directive

On 17 May 2023, the Pay Transparency Directive (Directive (EU) 2023/970) was published (hereinafter: “the Directive”). The aim of this Directive is to increase transparency on equal pay between men and women and thus combat pay discrimination and close the gender pay gap. Although the Netherlands is not on schedule with the implementation of the Directive, employers are recommended to prepare for its implementation. In this article, we discuss the main implications of the Directive and provide some concrete suggestions to prepare for its implementation.

Background and drafting stage

The principle of equal pay and the principle of gender equality are part of the twenty principles of the European Pillar of Social Rights. In practice, effective enforcement and implementation of this principle of equality has proven to be lacking, with one of the main obstacles being pay transparency. Against this background, the European Commission published the Directive at the beginning of 2021. As a result of the Directive, it will be easier for employees to understand whether or not they are paid equally compared to other employees who perform equal work or work of equal value, by gaining insight into how their level of pay compares to that of those other employees. This should make it easier for employees to challenge pay discrimination.

Employers’ obligations under the Directive

The following outlines the main obligations of employers (in both the public and private sectors) and rights of their employees arising from the Directive.

Information rights and obligations

The Directive requires employers to be transparent about their pay setting and pay progression policies. In this context, employers have an active obligation to provide employees with easy access to the criteria used to determine employees’ pay, pay levels and pay progression. In this context, the pay level means gross annual pay and the corresponding gross hourly pay, and the pay progression refers to the process of an employee’s transition to a higher pay level. The Directive requires that the criteria used by an employer are “objective and gender-neutral”.

In addition to the fact that employers must provide information to their employees, employees also have the right to request and receive in writing information from their employer on their individual pay level and the average pay levels, broken down by gender for categories of employees performing the same work or work of equal value. Employers must inform their employees annually of their right to this and explain the steps employees must take to exercise this right. Employers must provide the requested information within a reasonable period of time, but no later than two months after the employee’s request.

Finally, the Directive also provides for a right to information for job applicants. Under this right to information, job applicants must receive from their (potential) future employer prior to the job interview (for example in the published job vacancy notice) information about the initial pay for the relevant position and – where applicable – the relevant provisions of the collective labour agreement. Employers may no longer ask job applicants about their salary in their current and/or previous employment relationships. Vacancy notices and job titles must be gender-neutral and the recruitment process must be conducted in a non-discriminatory manner.

Reporting obligation

For employers with more than 100 employees, the Directive introduces an obligation to report on the pay gap between female and male employees. The number of times an employer is obliged to report depends on the number of employees employed by an employer:

• employers with fewer than 100 employees may (in principle) report voluntarily;
• employers with between 100 and 249 employees are obliged to report every three years; and
• employers with more than 250 employees are obliged to report annually.

The following information about the employer’s organisation must be included in the report:

• the pay gap between female and male employees;
• the pay gap between female and male employees in complementary or variable components;
• the median pay gap between female and male employees;
• the median pay gap between female and male employees in complementary or variable components;
• the proportion of female and male employees receiving complementary or variable components;
• the proportion of female and male employees in each quartile pay band; and
• the pay gap between female and male employees, broken down by regular basic wage or salary and complementary or variable components.

The employer must share the reporting with all employees and employee representation. In addition, the report must be shared with the Labour Inspectorate and the equality body (in the Netherlands: the Institute for Human Rights) upon request.

Joint pay assessment

If the pay reporting demonstrates that the pay gap is 5% or more in a category of employees, that no justification based on objective and gender-neutral criteria is given for this, and that this gap has not been remedied within six months from the date of submission of the report, the employer is obliged to carry out a joint pay assessment in cooperation with the employee representation. The joint pay assessment should ensure that the pay gap is identified, remedied and prevented. In this assessment, an employer should, among other things, address the reasons for the differences in average pay levels based on any objective, gender-neutral criteria, as established jointly by the employer and the employee representation. In addition, the assessment should show what measures the employer is taking to address differences in pay and evaluate the effectiveness of measures from previous joint pay assessments. The joint pay assessment must also be shared with employees  and employee representation and provided to the Labour Inspectorate and the Institute for Human Rights upon request.

Enforcement

Under the Directive, an employee is given the right to claim full compensation or reparation if the employee has suffered damage due to pay discrimination. The damage in this case must be compensated in a proportionate and dissuasive manner. Such compensation must include back pay (including bonuses or payments in kind), compensation for lost opportunities, non-material damage and compensation for damage caused by other relevant factors, as well as interest on overdue payments.

In addition, it is possible for an employee who is discriminated against to obtain an order to stop the infringement or an order to take measures to ensure that the rights or obligations related to the principle of equal pay are applied.

Finally, the Directive gives Member States the possibility to impose effective, proportionate and dissuasive sanctions (such as fines) to prevent infringements of equal pay rights and obligations.

Reversal of burden of proof

The Directive results in a reversal of the burden of proof, according to which the respondent – in practice often the employer – has to prove that there has been no direct or indirect discrimination in relation to pay, if the employee puts forward sufficient facts to suggest the principle of equal pay has not been applied to them. This reversal of burden of proof also applies in cases where an employer does not comply with the (information) obligations of the Directive. Member States will have to provide for a right of access to evidence, deemed relevant by the court for the equal pay claim, over which the respondent has control. This should make it easier for employees to challenge pay discrimination.

Recommendations for practice

The Directive should be implemented in national law by 7 June 2026. Large employers with more than 150 employees must then submit a report for the first time on 7 June 2027, while employers with fewer than 150 employees must do so on 7 June 2031.

Although the Directive has yet to be implemented in the Netherlands and it remains to be seen to what extent all the provisions of the Directive will be reflected in Dutch legislation, we recommend that employers already make preparations. It is clear that employers will have to work actively to promote equal pay for their employees. Employers who only take action when the Directive has actually been implemented will probably have a tough job making the pay of their employees transparent in a timely manner.

We conclude with some concrete suggestions for employers in anticipation of the Pay Transparency Directive (Directive (EU) 2023/970), where HR managers, among others, can play an important supporting role:

• analyse to what extent there is currently equal pay between male and female employees;
• determine whether there is a justification for any pay differences between employees;
• clarify on the basis of what policies and criteria employees are paid;
• examine whether and to what extent future reporting requirements will apply;
• determine whether changes in pay policy and/or recruitment and selection policy are necessary; and
• involve the works council in a timely manner in case of changes to the pay or job assessment system (in the context of the right of consent under Article 27 Dutch Works Councils Act).

Want to know more? Feel free to contact Eline Jekel