EU Directive on Pay Transparency

The EU Directive on Pay Transparency represents a significant step toward addressing the persistent issue of gender pay inequality across the EU Member States. Introduced in May 2023, Ireland has until June 2026 to implement the Directive into national law. The Directive lays down a robust legal framework aimed at ensuring transparency in pay structures. It also strengthens the enforcement of the principle of "equal pay for equal work." For Ireland, which introduced gender pay gap (GPG) reporting in 2022, the Directive will necessitate further legal and procedural adjustments to align with EU-wide standards.

We explain the key provisions of the Directive and its impact on Irish employers.

Overview of the EU Pay Transparency Directive

The Directive is grounded in Article 157 of the Treaty on the Functioning of the European Union (TFEU), which enshrines the principle of equal pay for equal work or work of equal value. In Ireland, the right to equal pay for “like work” is set out in the Employment Equality Acts 1998-2015. Despite longstanding commitments to gender equality, the EU continues to face a gender pay gap. This gap persists at approximately 13%, highlighting the need for stronger enforcement mechanisms. The Directive introduces several measures designed to enhance pay transparency and improve access to redress for victims of gender-based pay discrimination.

Key provisions

Pay transparency for job seekers

Employers will be required to disclose the initial pay or its range for job vacancies. In addition, they must provide clear, gender-neutral criteria for determining pay levels. Employers will not be permitted to ask applicants about their prior salaries.

Right to pay information for employees

Employees will have the right to receive information regarding pay levels and the pay levels of colleagues performing the same or equivalent work. This information will be broken down by “sex”. Employees will also be able to ask for clarifications regarding any gender pay differences. This provision aims to empower employees to identify and challenge potential pay discrimination. Employers will also have an annual obligation to inform all employees of their right to receive this information.

GPG reporting

The Directive obliges all employers with 100 or more employees to report detailed data on their GPG, including information on pay levels, job classifications, and pay progression. In Ireland, GPG reporting is currently mandatory for employers with 150 or more employees. This is set to become mandatory for employers with over 50 employees from 2025. The Directive will further expand the existing reporting obligations in Ireland.

Affected employers will have to provide details of the GPG by employment category. The accuracy of the information contained within the GPG report will have to be confirmed by the employer’s management. This confirmation should take place after consulting with worker representatives. Worker representatives will also be entitled to see the methodologies applied by the employer.

An employer will have to carry out a joint pay assessment in cooperation with employee representatives where their GPG report indicates a gender pay gap which:

  1. Is at least 5% in any category of workers
  2. Has not been justified by objective and gender-neutral factors, and
  3. Has not been remedied within six months of the date of the GPG report

Prohibition of pay secrecy

Pay secrecy clauses in employment contracts will be prohibited. Employers will no longer be able to restrict employees from discussing or disclosing their pay for the purpose of enforcing the principle of equal pay.

Burden of proof in pay discrimination cases

The burden of proof in cases of alleged pay discrimination will shift from employees to employers. Employers will be required to demonstrate compliance with equal pay principles.

Sanctions and remedies

The Directive requires Member States to establish effective, proportionate, and dissuasive penalties for breaches. These penalties include fines and compensation for affected employees.

Practical implications for Irish employers

Ireland has made strides in addressing pay transparency and the GPG. This includes the introduction of the Gender Pay Gap Information Act 2021. However, the Directive introduces several new requirements that will necessitate updates to Ireland's existing legal framework.

The Directive places a strong emphasis on transparency and accountability. This will require employers to adopt more robust systems for tracking and analysing pay data. Employers will need to be mindful of the additional obligations for sharing information with employees when the Directive is transposed. They must also consider the additional requirements for transparency when advertising positions. In addition, employers will also have to update their GPG reporting methodologies in line with the Directive.

Conclusion

The Directive marks a significant milestone in the EU's efforts to combat gender pay inequality. For Ireland, the Directive's requirements build on our existing GPG and equality frameworks. Irish employers should prepare for these changes by:

  • Investing in transparent pay practices
  • Updating policies, and
  • Fostering a workplace culture that values equality and fairness

As the implementation deadline approaches, Irish employers should proactively assess their current practices and seek legal advice to ensure compliance well in advance of the Directive taking effect. By doing so, employers can not only mitigate risk but also position themselves as champions of workplace equality in a rapidly evolving regulatory landscape.

For legal guidance on navigating the implications of the Directive, please contact a member of our employment law team.