New EU directive on the pay gap and its effects on employers

On average, men in the EU earn 13% more than women. The European Commission's directive, which was announced on 17 May 2023, aims to change this, with widespread reporting obligations for companies as of 2027. As part of this, medium and large companies will be obliged to report on the proportion of women and men receiving additional wage elements, such as bonuses, or what the gender ratio is within certain salary bands.

The data requested could even lead to legal action by disadvantaged employees. Anyone will be able to ask their employer for the pay data of people in the same position and take the matter to court if there is an unjustified discrepancy. Where there is a gender pay gap of 5% or more, employers will have to work with workers' representatives to carry out a more in-depth analysis and develop a corrective action plan to address the situation. In case of non-compliance, penalties are to be laid down by Member States. Also, competent authorities may exclude the employer from participation in a public procurement procedure in case of a failure to comply with pay transparency obligations, or in case of a pay gap of more than 5% in any category of employees which is not justified by the employer on an obljective, gender-neutral criteria. The specific national rules are yet to be adopted.

It can also be expected that national procedural rules will be adapted to ensure the appropriate protection of the allegedly discriminated employee. Consequently, in terms of remedies and enforcement, judicial procedures shall be easily accessible, and it must be ensured that employees have the right to claim and obtain full compensation or reparation. Member States are required to transpose the Directive into national law by 7 June 2026. As of 7 June 2027, companies with 250 or more employees will be obliged to report the required information every year, while those employing 150-249 employees will have to provide this information every three years. Companies with 100-149 employees are also required to report every three years, however, their obligation starts on 7 June 2031.

The Directive aims to contribute to the enforcement of the principle of equal pay by sanctioning unjustified pay differences, making information on pay structures more easily available, and putting the party claiming the harm of the equal pay principle in a better position in court, which will also impose new obligations on employers. Companies are recommended to review their organization as soon as possible and, if necessary, take steps to close the pay gap.