As with any legislative endeavor, its nuances warrant careful examination.
As a bit of background, this directive is not the first Pay Transparency Law within the EU. Slovenia has implemented mandatory pay information in job ads, and Denmark requires firms to provide detailed income statistics. While still a member of the EU, the UK put a similar transparency law in place. The new EU Pay Transparency directive seeks to harmonize the legal environment in all member states and guide firms as well as employees to fair and transparent compensation.
One of the cornerstone objectives of the EU Pay Transparency Directive is to enhance information accessibility for both job seekers and employees. The directive mandates companies to be transparent about their pay levels for different jobs as well as about gender pay gaps within different job levels. The goal of increasing transparency is to give individuals more information, and thus more bargaining power. The mandate also includes a penalty mechanism: if the gender pay gap within a job category exceeds a 5% margin, the company must take measures in the form of a joint pay assessment to close the gap. This is a novelty for all member states.
The directive includes an innovative and important element in considering “pay.” Companies must report total remuneration, not just base pay, of their employees. That is, the statistics must include information on base pay as well as extra pay, such as bonuses, company cars, allowances, and other benefits. This inclusion is important because these categories of pay typically demand bargaining and negotiation, and there are gender differences in those skills. Moreover, the directive reverses the burden of proof regarding (un)equal pay, which now lies with the employer instead of the employee.
It is not only just job seekers and employees who can benefit from the directive. Companies can use the newly gained platform of pay transparency to stand out with fair compensation schemes and to decrease gender pay gaps, so critical to attract and retain the best talent.
The effectiveness of the directive might vary across different EU countries, contingent upon the prevalence of collective bargaining agreements and the strength of labor unions within each nation. In countries with robust collective bargaining frameworks, where unions play a pivotal role in negotiating employment terms rather than individual bargaining outcomes, the impact of the directive may be less pronounced. Conversely, in countries in which collective bargaining is less prevalent, the directive's influence might be more pronounced.
While the EU Pay Transparency Directive is a significant step forward, its scope is not without limitations. Perhaps most notably, main parts of the directive apply exclusively to companies with 100+ or 250+ employees, namely the mandatory reporting of gender pay gaps to a national institution. This threshold leaves a substantial segment of the workforce outside the purview of its applicability. As a counter-example, Denmark already has a Pay Transparency Law that applies to companies with as few as 35 employees.