On 7 June 2023, the European Union ("EU") Pay Transparency Directive (the "Directive") came into effect. Member States will need to transpose the Directive into national law within three years (by 2026). Hot on the heels of other EU Directives focused on work-life balance and the promotion of gender balance on corporate boards, this Directive is the EU's latest step in seeking to address and promote diversity, equity and inclusion in the workplace.
This Directive aims to eliminate unequal pay for equal work through pay transparency measures and stronger enforcement provisions, while also introducing gender pay gap ("GPG") reporting obligations across Europe. Although Ireland is well ahead of the Directive in terms of its GPG reporting obligations, organisations in Ireland should not underestimate the measures that will be required to ensure compliance with the new pay transparency obligations which seek to disrupt current pay practices and introduce meaningful change to address pay inequality in the workplace.
This Q&A highlights the key provisions of the Directive and advises employers on how best to prepare for the changes coming down the tracks.
1. Who will be affected?
All employers will be in-scope of the new pay transparency measures.
Similar to the Irish GPG regime, the enhanced GPG reporting obligations will be introduced on a phased basis over a number of years (2027 – 2031) depending on headcount but, by the time the Directive's GPG reporting obligations are in force, in-scope Irish organisations will already be reporting their GPG data to comply with the Irish GPG obligations.
2. What pay transparency measures are being introduced?
The Directive is set to introduce significant and onerous pay transparency measures including:
- A right to pay information: Existing employees will have the right to request (either directly or via representatives or an equality body) information on their own individual pay level and in respect of average pay levels broken down by gender for employees doing the same work or work of equal value to them. This information must be provided within two months of the request. Where employees negotiate their salaries or are in receipt of variable pay, we expect that this right will be of particular significance in advance of pay reviews. Employers will be obliged to remind employees of this right annually and how it can be exercised, which may trigger a larger uptake of this right.
- Pay transparency for employees: Employers will be required to have pay structures in place which ensure that there is no gender-based pay differences between employees performing the same work or work of equal value. Member States will be required to make tools or methodologies available and accessible to employers to assist them in assessing "work of equal value".
- Accessibility of pay determination criteria: Employers will be required to make information regarding the criteria used to determine employee pay level and pay progression easily accessible. Member States may exempt employers with less than 50 employees from making the pay progression criteria available.
- Pay secrecy: Employers will be prohibited from restricting their employees from disclosing their pay. Any existing contracts which restrict employees in this manner are likely to be rendered void.
- Pay transparency for jobseekers: Employers will be required to provide information about the initial pay level / pay range to applicants. This obligation may impact how employers approach job advertisements and vacancies. Further, employers will be prohibited from asking prospective employees about their pay history to avoid the perpetuation of systemic pay inequality.
3. How will the Directive impact current GPG reporting obligations in Ireland?
As detailed in our previous article: Gender Pay Gap Reporting – Top 10 FAQs, Ireland has already enacted comprehensive GPG reporting legislation. As such, Ireland has a head start in terms of transposing this aspect of the Directive, given that many requirements of the Directive's GPG regime are already a feature of Irish law. However, the Directive will introduce significant additional GPG reporting requirements. The key changes to the current GPG reporting regime are as follows:
- GPG reporting for categories of workers: In-scope organisations will be required to report the GPG between workers organised by "categories of workers", broken down by ordinary basic salary and "complementary or variable components" such as bonuses. Complying with this very onerous new requirement will require a great deal of preparatory work for employers which should not be underestimated.
- Consultation with workers' representatives and confirmation of the accuracy of GPG data: Significantly, the Directive will oblige employers to consult with workers' representatives and confirm the accuracy of the GPG report. Accordingly, the reporting obligations will evolve from a solely "information" process to an information and consultation process.
- Joint Pay Assessment: The Directive introduces a new obligation to conduct a "Joint Pay Assessment" ("JPA") (i.e. an extensive pay audit) where there is:
(i) at least a 5% GPG in any category of workers;
(ii) that has not been justified by objective and gender neutral factors; and
(iii) has not been remedied within six months of the GPG report.
- Right to request clarification on GPG data: Employees, their representatives, the Workplace Relations Commission ("WRC") and the Irish Human Rights and Equality Commission ("IHREC") can request clarifications or ask for further details regarding any of the GPG data reported and the employer must provide a substantiated reply within a reasonable time.
- Obligation to take action: Where GPG differences are not justified on the basis of objective, gender-neutral criteria, employers must remedy the situation within a reasonable period and in close cooperation with workers’ representatives, the WRC and / or IHREC. This introduces an obligation on employers to take action to reduce any GPG. As it currently stands, employers in Ireland are simply required to outline the measures being taken to narrow any GPG.
4. This Directive has teeth!
The Directive provides for a number of new and potentially far reaching remedies and enforcement mechanisms:
- No upper limit on compensation: Currently, employees who successfully bring an equal pay claim before the WRC may be awarded three years' arrears in pay, or the WRC may make an order for equal pay and / or order a specific course of action. The Circuit Court has jurisdiction to make an order for up to six years' arrears in pay and / or an order for equal pay. Very significantly, the Directive provides that compensation in equal pay claims includes full recovery of all back pay including bonuses, payments in kind, compensation for lost opportunities, non-material damage and interest on arrears, with no fixed upper limit.
- Statute of limitations: The Directive provides that the statute of limitations does not begin to run before the employee claimant knows or could reasonably have been expected to know about the infringement. It also provides that Member States may transpose the Directive in a manner which provides that the limitation periods do not begin to run while the infringement is ongoing or before the end of the employment contract / relationship and it will be interesting to see how the Directive is transposed into Irish law in this respect.
- Burden of proof on employer: Where an employer has not complied with the pay transparency obligations, the burden of proof will automatically be on the employer to demonstrate that there was no discrimination in relation to pay. This is a marked change from the current position where the burden of proof is, initially, on an employee to establish a prima facie (first impression) case of discriminatory treatment. Where such is established, the burden of proof then shifts to the employer to defend the claim.
- Penalties, including fines: Member States must establish rules on effective, proportionate and dissuasive penalties for equal pay infringements. The Recitals illustrate the EU's commitment to eliminating pay inequality in the workplace by providing that such penalties should include fines to be based on the employer's gross annual turnover or on the employer's total payroll. This is reminiscent of the fines under the GDPR and it will be interesting to see how this is transposed into Irish law.
- Access to Evidence: Competent authorities and national courts will be able to order the employer to disclose any relevant evidence or confidential information within its control in equal pay claims.
5. What steps should employers take now?
There is no doubt that the introduction of these new requirements will lead to an increase in the number of equal pay claims. There are a number of key steps that employers can take now to ensure they are best placed to comply with the new rules when they are in force and, importantly, to mitigate the risk of any pay related claims.
- Consider the pay transparency obligations and assess the measures required to ensure compliance: Organisations should, for example, consider how interviews are conducted in relation to seeking pay history information, how remuneration elements of job advertisements are drafted, how the criteria for pay levels and pay progression are determined, what pay structures are in place to ensure no gender-based pay differences exist between employees performing the same work or work of equal value, etc.
- Review current policies and procedures: Organisations should also consider which policies and procedures (e.g. remuneration, promotion and recruitment) will require amendment to ensure compliance with the Directive.
- Categorise workers: Organisations should be prepared to consider their categories of employees who are performing equal work or work of equal value for the purposes of the pay transparency and GPG obligations.
- Crunch the GPG numbers for each category of worker in advance: By running the GPG data for each category of workers, you will see if a JPA will be required.
- Prepare for information requests: Ensure you can respond to queries on pay levels across various categories of workers.
For more information please contact our Employment, Pensions and Benefits team or your usual contact at Matheson.