Decoding the New EU Pay Transparency Directive

The EU Pay Transparency Directive came into effect on 6 June 2023 and EU member states have three years to transpose its provisions into domestic law. The Directive introduces wide-ranging pay transparency measures including mandatory gender pay gap reporting in all EU member states, pre-employment pay transparency obligations and extensive employee information rights to pay data as well as a ban on pay secrecy clauses.

Equal pay for equal work is one of the European Union's founding principles enshrined in Article 157 of the Treaty on the Functioning of the European Union.  Notwithstanding this, lack of pay transparency has been identified by the European Commission as one of the key obstacles to achieving equal pay, as well as inconsistency in enforcement mechanisms across the EU.

This Briefing summarises the key elements of the Directive. 

Reporting on gender pay gaps 

The Directive require employers with 250 or more employees to report on their gender pay gap on an annual basis and those with 150 or more employees to report every three years. Employers with 100 or more employees will also in time have to report every three years.

While the reporting requirements under the Directive are similar to the Irish gender pay gap reporting requirements, the Directive goes further and requires the reporting of pay gaps by “categories of workers”. Generally speaking, "categories of workers" refers to employees carrying out the same work or work of equal value. 

The Irish Gender Pay Gap Information Act 2021 provides that the Minister may introduce regulations requiring employers to publish information by reference to job classification. However, no requirement to publish information by reference to job classification was introduced under the Employment Equality Act 1998 (Section 20A) (Gender Pay Gap Information) Regulations 2022.

Pursuant to the Directive, employees, their representatives, the Workplace Relations Commission (WRC) and the Irish Human Rights and Equality Commission (IHREC) will have the right to ask the employer for clarifications and details regarding such gender pay gap information, and the employer must respond within a reasonable time. Where gender pay differences are not justified by objective and gender neutral factors, the employer will be required to remedy the situation in close cooperation with employee representatives, the WRC and/or IHREC.

The Directive also requires that the employer's management verify the accuracy of the gender pay gap information reported, after consulting with employee representatives. 

Joint pay assessments

Employers will be required to conduct a joint pay assessment (essentially an equal pay audit) with employee representatives if the reporting identifies a gender pay gap of at least 5% in any category of workers which is not justified by objective and gender-neutral factors or remedied within six months. 

Work of equal value

Employers are required to have pay structures in place which ensure equal pay for equal work or work of equal value. To assist employers in conducting an assessment of work of equal value member states will be required to make tools or methodologies available and accessible to employers. In 2022, IHREC published a code of practice on equal pay which contains useful guidance.

Right to pay information

Employees have the right to request from their employer and receive (within two months) written information about their specific pay level and the average pay levels, broken down by gender, for categories of workers doing the same as them or work of equal value to theirs. Employees can request this pay information through their representatives or through IHREC. Employers will need to inform employees annually of their right to receive such information and how they may go about doing so. 

Pre-employment pay transparency 

In job vacancy notices or before job interviews, employers will have to disclose the initial pay level or pay range for a particular position. Employers are not permitted ask job applicants about their salary from current or previous employment relationships. Employers are required to make easily available to employees information on the criteria used to determine pay, pay levels and pay progression; these must be objective and gender-neutral.

Pay secrecy provisions

Contractual provisions intended to restrict employees from disclosing information about their pay are prohibited.

Remedies and enforcement

Where an employer has not complied with its transparency obligations under the Directive, the burden of proof will be on the employer to show that there was no discrimination in relation to pay. Where equal pay rights have been breached, members states will be obliged to ensure that employees are entitled to unlimited compensation in respect of all losses sustained including full recovery of back pay.

Next steps 

The Directive introduces significant new pay transparency measures including the requirement to conduct assessments of work of equal value and in some circumstances the potentially onerous requirement to conduct joint pay assessments (essentially equal pay audits) in cooperation with employee representatives. Notwithstanding the three year period for Ireland to implement the Directive into national legislation, employers should start planning their compliance strategy now and assess how the Directive will impact their current recruitment, pay, progression and reporting practices and take steps to address any issues identified. The Directive will undoubtedly increase awareness of equal pay rights and may stimulate equal pay claims.

This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.