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European Commission tables binding pay transparency measures

Author: ICAEW Insights

Published: 05 Mar 2021

8 March 2021: The right to equal pay for work of equal value is a founding principle of the EU, but one seldom implemented or enforced in full. With the EU gender pay gap currently over 14%, new legislative proposals seek to remedy this through pay transparency and improved enforcement mechanisms.

In the run-up to International Women’s Day, the European Commission has published long-awaited proposals on pay transparency. Responding to Commission President von der Leyen’s push for “equal pay for equal work”, the proposed directive aims to increase awareness about pay conditions within companies while giving employers and workers more tools to address pay discrimination at work. 

The EU proposals also echo the Equal Pay Bill tabled in the UK House of Commons by the Labour MP, Stella Creasy. The bill makes similar ‘right to know’ provisions on pay transparency while also tabling amendments to current gender pay gap reporting rules. 

At the moment, only 10 EU countries have adopted legal frameworks on pay transparency (Austria, Belgium, Denmark, Germany, Spain, Finland, France, Italy, Portugal and Sweden) – with Ireland and The Netherlands also considering adoption. In the UK, a survey in 2020 by the Fawcett Society suggested it is long overdue: only 3 in 10 women thought their employers would tell them if their male colleagues earned more for the same work.

Time for transparency

The Commission proposes several key measures to ensure pay transparency for all employees, including those working part time or on fixed-term or agency contracts. 

  1. Gender pay gap reporting: Employers with at least 250 employees, whether in the public, private or non-profit sector, will have to publish information on the pay gap between genders in their organisations. This will be accompanied by internal sharing of information on the pay gap between men and women by categories of employees doing the same work or work of equal value. It is left to member states to develop tools and methodologies on what constitutes work of equal value, in line with recent legal rulings by the European Court of Justice.
  2. Pay transparency for jobseekers: Employers will be prevented from asking prospective employees to disclose their previous pay history and will also be required to provide information about the initial pay level (or range) in job adverts or job interviews. 
  3. Right to information for employees: Employees will be given the right to request information from their employer on their individual pay level as well as on average pay levels, broken down by gender, for categories of employees doing the same work or work of equal value.
  4. Joint pay assessments: If data on pay reveals a gap of at least 5% which cannot be justified by an employer on objective gender-neutral factors, employers will have to undertake a pay assessment, in cooperation with employees’ representatives.

The Commission estimates the cost of complying with the gender pay reporting measures will be between €380 and €890 per year for those employers falling under the scope of the legislation. Figures from the European Institute for Gender Equality suggest that improving gender equality by 2050 would boost EU GDP by up to €3.15tn.

Enforcing equal pay

The Commission’s proposals also focus on making it easier for employees to claim their rights, giving strong rights to compensation for pay discrimination. Measures proposed include: 

  1. Compensation for gender pay discrimination: Employees who suffered pay discrimination will be able to claim compensation, including full recovery of back pay, related bonuses or payments in kind.
  2. Burden of proof on employers: By default, it will be for employers (not employees) to prove there has been no pay discrimination.
  3. Possibility to levy fines on companies: Member states are called on to establish specific penalties for infringing equal pay rules, including setting the minimum levels of fines.
  4. Stronger roles for equality bodies and workers’ representatives: Both types of bodies will be given the right to act in legal or administrative proceedings on behalf of employees as well as leading on collective claims on equal pay.

What happens next?

The legislative proposals will now need to be scrutinised and agreed on by both the European Parliament and member states via the Council. Once this process is concluded, member states are likely to have two years to transpose EU legislative rules into their national rulebook. An evaluation of the legislation is planned after eight years.

Commenting in the European Parliament, Evelyn Regner MEP – Chair of the Women’s Rights and Gender Equality and recent speaker at an ICAEW Women in EU Finance event – said ‘it is strikingly clear that we need gender equality, without which the economic and social recovery would remain incomplete.’

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