The Pay Transparency Directive—what is it and how does it work?

In May 2023, the European Union adopted the Equal Pay Directive. The document aims to strengthen equal pay regardless of gender by combating wage discrimination and eliminating the pay gap for the same work or work of equal value. The new regulations provide for the implementation of solutions that guarantee transparency of employee remuneration. What does the Pay Transparency Directive mean for entrepreneurs and what obligations does it impose on them? How to prepare your company for the changes?

Directive 2023/970 of the European Parliament and of the Council of the European Union, i.e. the discussed Directive on pay transparency, is a groundbreaking legal act aimed at ensuring equal pay for women and men in the Member States of the European Union.

The document was created in response to persistent inequalities in pay between women and men, despite existing EU legislation on equal treatment in employment. The solution introduces modern mechanisms aimed at increasing the transparency of remuneration for employees performing the same work, and thus detecting and eliminating wage discrimination in the workplace.

Pursuant to Article 7(1) of Directive 2023/970, employees will have the right to request information (including in writing) on their individual pay levels and average pay levels, broken down by gender, for persons performing the same work or work of equal value.

The directive imposes reporting obligations on employers with at least 100 employees. Detailed reports on the remuneration of women and men are to be made public – they should be published by the monitoring bodies of the Member States, and employers themselves may also decide to publish the reports, e.g., on their websites or in their activity reports.

Pursuant to Article 4(2), companies will be required to conduct pay analyses to ensure compliance with the principle of equal pay for work of equal value, using transparent methods and tools. Member States, on the other hand, are to take all necessary measures to provide employers with such analytical methods and tools.

The directive was published on June 6, 2023, and EU member states have until June 7, 2026, to implement it into national law. For Poland, this means that new regulations governing the transparency of employee remuneration must be adopted by that date. Companies operating in the European Union should already be preparing to implement the relevant procedures. It is also worth noting that the Equal Pay Directive introduces minimum rules – each Member State may decide to introduce regulations that are even more favorable to employees.

When discussing equal pay, it is worth mentioning what pay transparency is and what it is not. Directive 2023/970 aims to guarantee equal pay for employees performing the same work regardless of gender – this does not mean, however, that every employee should earn the same amount. Remuneration may still vary based on experience, seniority, or achievements. The document also stipulates that every employee will be able to request information about the remuneration for a given position – however, this does not mean that everyone will be able to find out how much their colleagues earn, but only the remuneration range for employees performing the same work.

The definition of work of equal value can be found in the preamble to the Directive. Recital 26 indicates that criteria should be used to compare the value of different jobs within the same organizational structure and to classify jobs using gender-neutral indicators and models. The Directive provides suggestions to employers in this regard by indicating four objective criteria. These include:

• skills,
• effort,
• responsibility,
• working conditions.

These criteria are considered necessary and sufficient for an objective assessment of work, regardless of the sector in which the company operates. Employers may also specify their own objective and gender-neutral criteria if they are relevant to the assessment of remuneration.

The pay gap is defined in the Equal Pay Directive as “the difference between the average pay rates of male and female employees of the same employer, expressed as a percentage of the average pay rate of male employees.” The relatively lower pay of women has been a pressing issue for years. What are the reasons for this phenomenon? More information on this topic can be found in the report Analysis of the employment and pay gap between women and men, prepared by PARP. According to the document, the reasons for the pay gap include:

• Occupational segregation (vertical and horizontal) resulting from gender stereotypes. We talk about horizontal segregation when one gender begins to dominate certain occupations—this is a common phenomenon caused by the division into typically female and male occupations. Nursing and preschool education are considered feminized occupations, while construction is considered a masculinized occupation. Vertical segregation occurs when women have limited access to promotion without formal reasons that would prevent them from achieving it.

• Part-time work. Women are much more likely to work part-time. This situation is usually caused by the need to reduce working hours in order to balance professional and personal life, which requires performing duties related mainly to childcare. Lower pay also contributes to lower pension benefits.

• Employers prefer people who are more available. The most responsible and best-paid positions require considerable availability, which is often unattainable for women who have to balance their professional responsibilities with childcare.

• The attitude of women themselves, who accept lower wages as a result of their belief that they are in a weaker position in the labor market.

The Equal Pay Directive introduces effective mechanisms for reducing the pay gap, thanks to which women can be sure that they receive adequate remuneration for a given position. Importantly, the document indicates that equal pay should be observed in relation to hourly and monthly wages and other monetary or in-kind benefits, which means that equal pay will also have to be ensured in the context of bonuses received.

In accordance with the regulations, employers will have to adapt their remuneration management practices to the requirements for remuneration transparency set out in the Directive.

First and foremost, employers will be required to prepare reports containing, among other things, information on the size and median of the gender pay gap (including in the form of supplementary or variable components). The frequency of reporting will depend on the number of employees. According to the Directive:

• An employer with at least 250 employees must submit the first report by June 7, 2027, and subsequent reports every year,
• employers with 150 to 249 employees shall submit their first report by June 7, 2027, and subsequent reports every three years,
• employers with 100 to 149 employees shall submit their first report by June 2031,
• employers with fewer than 100 employees are not required to report (however, they may do so voluntarily, and may also be required to do so as a result of an internal decision by a Member State to tighten regulations).

In order to submit reliable reports, employers will have to use objective data, which is why another obligation will be to use tools and methods that enable the collection of information necessary to assess remuneration for individual positions. One such tool is noSilo, the practical application of which will be discussed later in this article.

New equal pay regulations give employees several new rights. The most important of these is, of course, the right to obtain detailed information about individual pay levels and average pay levels broken down by gender for a specific job. Access to this data will allow employees to ensure that they are paid fairly and adequately for the work they do.

What happens if an employee discovers a breach of equal pay rules? The directive also provides for legal protection measures. According to Article 14, member states must ensure that employees who have been disadvantaged by a breach of the equal pay principle have access to legal proceedings in which they can assert their rights. It is also worth mentioning here the burden of proof being shifted to the employer, who, in the event of proceedings, will have to prove that there was no direct or indirect discrimination.

Preparing a company for the implementation of the Equal Pay Directive requires not only adapting documentation, but also a comprehensive change in management approach.

During preparations, it is necessary to:

• Identify irregularities – analysis of current payroll data will allow you to detect any discriminatory practices and eliminate them as soon as possible.
• Implement appropriate tools – practical tools will help you collect and analyze payroll data.

One of the biggest challenges employers currently face is the lack of tools for collecting data on employee skills. To ensure equal pay for women and men, it is necessary to collect and organize information on job levels and the skills assigned to them. However, many companies do not have the appropriate systems in place to do so.

New equal pay obligations may also raise concerns among both employees and management. Employees may fear that disclosing salaries will cause tension within the team, while management may see such actions as a threat to the confidentiality of the remuneration policy.

Another challenge in implementing the new rules may be the need to adjust recruitment and promotion processes to ensure equal pay at all stages of employment. A common mistake made by companies is the lack of uniform criteria for evaluating candidates or the use of subjective evaluation methods that can lead to inequality.

In practice, implementing the Directive means not only adapting procedures, but also changing the organizational culture within a company. Although Member States are required to provide methods and tools to enable comparative analyses, companies can also use other practical solutions to support them in this endeavor. One such tool is the noSilo job competency matrix.

The solution we have developed allows employers of production workers to assess the level of their employees’ remuneration and implement changes in accordance with the requirements for pay transparency. How?

• Standardization of the development path – job-specific competency matrices enable the creation and implementation of personalized development plans for employees in a given position. This guarantees equal acquisition of competencies that will allow them to work effectively and give them the opportunity to apply for promotion in the future.
• Objective determination of remuneration criteria – the noSilo tool allows both hard and soft skills to be assigned to positions. This makes it possible to establish consistent and fair skill-based pay criteria, regardless of gender.
• Transparency and clarity of requirements – job competency matrices allow for the precise definition of requirements for each position. Every employee has access to this knowledge, so they can ensure that their work meets the employer’s expectations.
• Competency scoring – a weighted sum of all competencies possessed by employees. On this basis, employers can determine the level of a position and classify it into the appropriate pay range.

noSilo supports employers in the fair management of employee competencies and eliminates the risk of discrimination. However, the use of job competency matrices not only protects employees—it can also help employers prove their innocence in the event of possible legal proceedings concerning gender pay discrimination. The tool collects data on the competencies acquired by the employee and enables periodic assessments to be carried out on this basis. Information about a specific employee and the ability to compare their competencies with the employer’s expectations and the average competencies of employees in a given position can constitute material evidence confirming the maintenance of equal pay in the company.

Salary transparency can have both a positive and negative impact on the competitiveness of companies—it all depends on how businesses prepare for the changes.

Salary transparency will increase the attractiveness of the employer and strengthen the company’s image as a fair and just organization. This will certainly translate into attracting talent looking for a stable job where they can develop. Transparent remuneration for women and men can also translate into lower employee turnover and increased trust and motivation within the team. Compliance with the regulations will also protect against the possible consequences of gender-based pay discrimination. However, the competitiveness of a company may suffer if employers are not adequately prepared for the new equality obligations.

The Pay Transparency Directive brings significant changes to remuneration management. Proper preparation for the implementation of the new rules in a company ensures equal pay for men and women employed in the company and avoids the consequences of pay discrimination.

Bibliography:
https://www.ifirma.pl/blog/jawnosc-wynagrodzen-od-2026-roku/;
https://www.prawo.pl/kadry/jak-przygotowac-sie-na-dyrektywe-o-jawnosci-wynagrodzen,525456.html;
https://sip.lex.pl/akty-prawne/dzienniki-UE/dyrektywa-2023-970-w-sprawie-wzmocnienia-stosowania-zasady-rownosci-72164952?_gl=1*5klxzo*_ga*MTY3MjkzMzQ4LjE3MzQzNjMyMDI.*_ga_TRNTF04CYF*MTczNDM2MzIwMi4xLjAuMTczNDM2MzIwMS4wLjAuMA;
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