Prepare for the New European Union Pay Transparency Directive and Its Impact on Corporate Compensation Policies
With the new Directive 2023/970 of the European Parliament and Council, dated May 10, 2023, aimed at strengthening equal pay between men and women, the European Union seeks to reinforce the principle of equal pay for equal work between men and women. This new regulation will require EU companies to share information about the remuneration of men and women for work of equal value within their organization.
EU member states must implement the measures outlined in the Directive by June 7, 2026.
Why is pay transparency being reinforced?
To date, a gender pay gap still exists in the European Union. In 2022, the gender gap was 12.7% in the EU. This indicates that, on average, women earn 87.3 euros for every 100 euros men earn. The most recent reports from the Spanish National Institute of Statistics (INE) place the gender pay gap in Spain above 20%.
The gender pay gap in the EU is 13%, and in Spain it is above 20%.
It has been determined that the lack of transparency is one of the main obstacles to closing the gender pay gap. Without pay transparency, job applicants and employees are unable to determine if they are being treated unfairly. Additionally, the criteria for promotions—which result in salary increases—can suffer from unconscious and discriminatory biases, and the fact that these criteria are not transparent makes it difficult for company management to correct them.
With pay transparency, candidates can evaluate a salary offer; employees can know if their salary is equal to that of their colleagues performing the same job; and management can identify and correct existing pay gaps. Pay transparency can help raise awareness among employers and assist them in detecting gender-based pay differences that are discriminatory.
In this way, the Directive aims to combat inequality in terms of compensation and eliminate the wage gap across European Union countries.
What does the new regulation imply for companies in Spain?
According to Directive 2023/970, EU companies will be required to provide information on salaries and take action if their gender pay gap exceeds a minimum of 5%.
Specifically, the most significant changes that the transposition of the Directive will introduce into our labor legal framework are as follows:
Access to information
Companies will be required to inform job applicants about the initial salary or salary range for the positions being offered, either in the vacancy announcement or before the interview.
Employers are also prohibited from asking applicants about their salary history during the selection process for current or previous jobs.
To promote gender equality, job postings and titles must be crafted in a manner that ensures neutrality about gender.
Workers will have the right to request information from their employers regarding:
average pay levels, broken down by gender, for categories of employees performing the same work or work of equal value;
the criteria used to determine pay and career progression (the process by which employees advance to higher pay levels), must be objective and gender-neutral
Obligation to provide information
In addition to the above, there is an obligation to report on the existing pay gap within the organization to the relevant national authorities.
For companies with more than 250 employees, this obligation is annual.
Companies with a workforce of 100-249 employees must do so every three years.
Companies with fewer than 100 employees may do so voluntarily, although Member States may require them to provide information on employee remuneration.
In cases where the pay gap exceeds 5% and cannot be justified by objective and neutral criteria, companies will be required to take measures to reduce it. Specifically, they must conduct a joint pay assessment in collaboration with employee representatives.
Currently, Spanish regulations mandate this requirement for justification only when the difference is greater than or equal to 25%.
Indemnifications
The Directive also includes provisions on compensation for victims of pay discrimination, as well as sanctions, including fines, for employers who breach the rules.
Employees who experience pay discrimination based on gender can seek compensation, which will encompass full recovery of back pay, bonuses, or corresponding fringe benefits. It will also cover compensation for loss of opportunities, moral damages, and any other harm caused by relevant factors (with added late payment interest).
Next steps
The aforementioned Directive came into effect on June 6, 2023, and requires Member States to transpose it no later than June 7, 2026.
Despite the deadlines, this regulation establishes measures and practices that companies aiming to lead in equality can begin implementing in their internal processes and plans—and many are already doing so.
The existing wage gap today necessitates the involvement of all stakeholders and responsible parties to eradicate it, addressing this challenge and achieving equal pay for equal work.
Commentaires