Pay Transparency Directive: new employee rights to pay information

Employees in the EU will soon be entitled to information about pay before applying for a role, to details of how their employer sets pay, and to data about what those performing work of equal value to them are being paid.

In this article, we take a closer look at the new rights to pay information created by the EU Pay Transparency Directive.

Which employers are in scope of these new rights?

The Directive will apply to all employers in the EU. The gender pay gap reporting requirements will only apply to employers above certain headcount thresholds. The pay information requirements, however, will for the most part apply to all employers, whatever their size.

What new employee rights does the Pay Transparency Directive create?

The Pay Transparency Directive creates new rights for employees covering:

• “Pay transparency prior to employment” (a right to information on pay/pay range and a ban on asking about pay history).
• “Transparency of pay setting and pay progression policy” (a right to information on pay criteria).
• “Right to pay information about those performing “like work” and “work of equal value”” (a right to access to information about pay gaps in a worker’s category).
• Ban on pay secrecy clauses.

We explain these further below.

Pay transparency prior to employment

Job applicants will have the right to know the initial pay or pay range for the position they are applying for. The Pay Transparency Directive does not state that this information must be published on the job advert, but it is something that an applicant is entitled to ask for at any stage during recruitment. For administrative reasons, employers are likely to choose to publish pay ranges on the advert rather than respond reactively to requests.

We expect EU member states to ensure that employers cannot circumvent this new requirement by, for example, publishing very broad salary ranges e.g. “this role is paid between €5,000pa and €5m pa”.

Similar requirements have been introduced in various states in the US, and these have had a marked impact on the recruitment market. Even where broad ranges might be permissible, employers have found that a failure to publish realistic ranges can put candidates off applying.

Ban on pay history questions

Employers will also be banned from asking job applicants about what they were paid during their current or previous roles. This will prevent employers from entrenching pay discrimination which may have started elsewhere.

Currently, employers might ask about an applicant’s current salary and make an offer based on that. But if this applicant is a woman who was experiencing pay discrimination in her previous role, such an approach would only carry it over to the new position. This new measure aims to prevent this.

Employers will of course be keen to ensure they do not ‘over-pay’ but will need to think carefully about how they do this. As with pay ranges, similar requirements apply in some parts of the US, where employers have been reluctant to ask any question that might be linked to pay history (e.g. asking about salary expectations) but have found that some candidates still volunteer details of current compensation.

Transparency of pay setting and pay progression policy

Employers will have to make available to employees the criteria that are used to determine workers’ pay, pay levels and pay progression. The criteria will have to be objective and gender neutral.

Most employers do not currently have objective methods for deciding pay captured neatly in a development framework with grades and pay spines. For those that don’t, this new right will expose them to potential allegations of bias and discrimination.

The format and level of detail is likely to take some time to work out and normalise as employers adjust to the new landscape. However, as a minimum, employers should review their pay setting methods and critically assess them. If there are subjective factors that determine pay (including bonus), these should be removed or mitigated as much as possible.

There should be evidence to support decisions behind pay. This might include market data showing ranges for a particular type of role and how those vary to reflect other factors like location, a job description for each role showing how it matches those in the market, and reasons why the eventual pay level set beats or meets the market average (or is below average).

An employer should have a “philosophy” as to its approach to pay and market rates and stick to it consistently.

Not all employers will be affected by this new right. The Pay Transparency Directive says that, when member states implement the Pay Transparency Directive, they can choose to exempt employers with under 50 employees from this requirement. Some member states may ignore this option, however, and give all employees this right, regardless of the size of their employer.

Right to pay information

Employees will have a right to request and receive written information on their pay level and the average pay levels for “categories of workers performing the same work as them or work of equal value to theirs”. This is akin to a “right of access” to information that could reveal potential pay discrimination.

This right supplements the new obligation on employers to report gender pay gaps by categories of worker (something we discuss in more detail here). Note that the definition of ‘category’ goes beyond workers doing the same role to includes workers doing roles that are different, but of equal value. In effect, employees will become entitled to obtain a large amount of information.

The request can be made by the individual employee, but also via workers’ representatives and equality bodies. This is significant. It gives reticent employees extra avenues to get the information they need in order to bring a claim. Those who might be unwilling to do so personally can use their representatives instead.

This information must be provided within two months of the employee (or representative/body) making the request. Employers must remind employees of their right to this information on an annual basis, making sure the right to access pay information will remain top of mind for employees.

Like work vs equal value

Two jobs are "like work" if the work is "the same or broadly similar" and any differences that exist are not of practical importance in relation to the terms of their work. Examples might be two Sales Manager roles.

“Work of equal value” refers to two jobs which might be quite different but which, when properly analysed using job evaluation methodologies, can be determined to require the same level of skill, effort and decision making. Examples might be an IT Manager and a Finance Manager.

Employers will need to know which roles are “[a]like” and which are “equal value”. This might be easily visualised in a matrix, with all jobs listed in both rows and columns and the intersections showing where they are equal (and whether like work or work of equal value):

Potential impact of the right to receive pay information

Equal pay claims are in general not common across the EU. Part of the reason is that it can be difficult for employees to know when there is an equal pay issue. Employees need to be able to point to a comparator (i.e. someone who is doing “like work” or “work of equal value”) and have the knowledge that they are being paid more.

This new right – combined with the requirement for employers to publish gender pay gaps by categories of employee doing “like work” or “work of equal value” – means that employees will have the information they need to bring a claim. EU employers must take steps now to identify gaps, then reduce pay differences or obtain evidence to justify any difference. If they do not, they may face a glut of equal pay cases from employees.

Ban on pay secrecy clauses

Article 7(5) of the Pay Transparency Directive says that workers cannot be prevented from discussing their pay with anyone.

Legislators across the globe have been similarly clamping down on so-called “pay secrecy” clauses. For example, pay secrecy clauses were banned in Australia, in Ontario in 2018, in the USA under a nearly 90-year-old federal labor law (and locally in more than half of states). In the UK, pay secrecy clauses are still found (1 in 5 employees in the UK are affected by them) but they cannot be used to prevent employees from discussing pay amongst themselves for the purposes of a potential equal pay claim.

Whether banning pay secrecy clauses is an effective policy is not something that has been studied. In the UK, talking about pay is uncommon. A study in 2021 showed that 36% don’t even talk about their salary with their partner. While attitudes to talking about money will vary across the EU, just because people are able to talk about pay, it doesn’t mean they will start immediately doing so. The impact of this particular ban may therefore be limited.

Who is an “employee” under the Pay Transparency Directive?

The new pay information rights described above will apply broadly to all types of employee and worker, including (for example) trainees, apprentices and atypical workers although (as is always the case with questions of worker status) much will depend on individual facts.

Conclusion: a new era of openness

The new gender pay gap reporting requirements have grabbed the headlines but the Pay Transparency Directive introduces a range of new pay information rights which, alongside gender pay gap reporting, look set to have a major impact on employers throughout the EU. The rights to information about how pay is determined and to know the average pay of potential comparators are especially significant. Employers need to start identifying and investigating pay gaps and areas where they could be exposed to allegations of bias or discrimination before this information is opened up to greater scrutiny.

We can help you prepare for the Pay Transparency Directive. Find out more about our support.