Gender pay transparency

1. Introduction

On May 10, 2023 the European Parliament adopted a new Directive to strengthen the application of the principle of equal pay for equal work or work of equal value between men and women through pay transparency and enforcement mechanisms (the Directive). This new Directive was adopted on June 6, 2024.

Despite previous initiatives, pay discrimination remains a reality in the EU. According to Eurostat, the gender pay gap in the EU was still 12.7% in 2022 (and in some members state even +20%; Belgium is – for once! – doing relatively well with an aggregate gap of +- 4.5% ). That is why the Directive introduces new rights and obligations for employees and employers to ensure gender pay equality. 

This article provides an overview of the key aspects of the Directive. In particular, it focuses on the objectives of this Directive and the resulting obligations for companies.

However, it is first important to emphasize the need to prioritize the Directive at the top of the agenda, even if at the time of drafting of this article the Directive has not yet been transposed into national law in Belgium.

2. Don't be fooled by the distant transposition deadline mirage!

Belgium is required to transpose the Directive into national legislation by June 7, 2026.

This may seem distant, but actually it is not:

• Most requirements under the Directive  apply to all private sector companies. Contrary to popular belief, the obligations will apply to most companies, not just large enterprises with a certain number of employees.
• Most requirements will at the latest take effect from the deadline for transposition into national laws, i.e. June 2026.
   
  By then, companies must have an HR organization and payroll structure in place that are compliant with the Directive.
  
  Put simply, this means that companies have only one full pay cycle left to ensure that its current HR structures meet the gender equality requirements imposed by the Directive, and to apply changes where needed.
  
  For many companies this entails a thorough and presumably time-consuming analyses of fundamental HR processes, including recruitment, function classifications, compensation schemes and policies (e.g., are the current bonus eligibility criteria gender-neutral?) and employee relations in general.
  
  Where changes are needed, preliminary information and consultation with employees or their representatives will often be necessary. In some cases, prior consent may even be required where changes would be substantial.

• When drafting this article the social partners are still discussing how to best transpose the Directive. However, given the thorough and detailed regulations of the Directive, we expect that the law transposing the Directive into Belgian national law will not be very different from the Directive's content. Hence, companies should not wait until the Belgian legislator acts before starting to have a look at the Directive's requirements.

Considering the above, June 2026 no longer sounds distant at all.

3. Aim

Before discussing some key obligations imposed by the Directive, let us first have a look at its primary objectives.

1. Introducing Transparent and Gender-Neutral Pay Structures

The Directive imposes an obligation on employers to implement transparent and gender-neutral pay structures and function valorisation systems. The Directive states that binding measures are required to ensure that organizations review their pay structures to guarantee equal pay for women and men performing the same work or work of equal value.

In this framework, employers must establish (i) pay structures and (ii) function structures that eliminate gender-based pay differences between workers performing the same work or work of equal value, unless such differences are justified by objective, gender-neutral criteria.

2. Improving Transparency

Under the current legal framework, the European Parliament identified several barriers to the application of the principle of equal pay, including a lack of transparency in pay systems.

Research shows that employees often lack the necessary information to make successful equal pay claims, particularly regarding pay levels for categories of workers performing the same work or work of equal value.

Imposing specific transparency requirements should therefore reveal (voluntary or involuntary) gender bias and discrimination in the recruitment processes and in the pay and HR organizational structures, enabling workers, employers, and social partners to take appropriate action to ensure the right to equal pay.

3. Ensuring Effective Enforcement

Besides ensuring proper access to justice to all employees and candidates, the Directive stipulates that, in addition to euro-for-euro compensation of identified pay gaps, other remedies must be available.

Competent authorities or national courts should be empowered to require employers to implement structural or organizational measures to comply with equal pay obligations. Such measures may include reviewing the pay-setting mechanism based on a gender-neutral evaluation and classification, establishing an action plan to eliminate identified discrepancies, and reducing any unjustified pay gaps.

4. Obligations

1. Gender-neutral functions and pay structure

The Directive mandates that companies implement gender-neutral job functions and pay structures to ensure transparency and fairness in compensation.

The value of work must be determined in a gender-neutral manner, based on skill, effort, responsibility, working conditions, and any other relevant factors specific to the job or position.

Moreover companies must establish objective criteria to determine pay, pay levels, and pay progression. As a rule of thumb, differences in treatment between male and female employees performing work of equal value must be justifiable based on objective and gender-neutral criteria, such as objectively measured performance, ability, seniority or competence.

2. Transarency requirements

Companies will moreover need to be transparent about their gender-neutral functions and pay structures:

• During recruitment:
  • applicants will have several information rights prior to employment. In this framework, applicants will have the right to receive – prior to the job interview – information regarding the starting salary or salary bandwidth on objective, gender-neutral criteria in a manner such as to ensure an informed and transparent negotiation on pay.
  • employers will no longer be permitted to ask the candidates about current and previous pay. It however remains to be seen whether employers could still ask questions about a candidate's "pay expectations".

• During employment:
  • employees will have the right to request further information in writing about his or her own individual remuneration level or gender-disaggregated average pay levels.
  • employees should have access to the criteria that are used to determine pay, pay levels and pay progression, which must be objective and gender-neutral.
  • The employer will also have the obligation for employer to pro-actively inform employees annually about this right and possible steps to obtain information.
    
    Some employers will have several external reporting obligations. The frequency of this reporting obligation will depend on the employee headcount. However, this obligation will only apply to companies with at least 100 employees (or fewer as indicated by national law).

• When a gender pay gap of more than 5% is identified, without justification on objective and gender-neutral factors, and the gap is not resolved within 6 months, a second and stricter reporting obligation applies, called a ‘joint pay assessment’.
  
  The joint pay assessment must be executed "in cooperation with" the employee representatives, and must include (amongst others) an analysis of the  workforce composition, details on average pay levels and any complementary or variable components, any differences in average pay levels between female and male workers in each category, measures to address unjustified pay differences, etc.

These enhanced transparency requirements will undoubtedly have a substantial impact on a company's strategy to attract talent and avoid attrition.

They will also affect social relations with the employees and their representatives, as employers will need to (be able to) justify the gender-neutral criteria on which, for example, compensation packages or performance management processes are based. Also, a joint pay assessment definitely has the potential of putting social relations with the employee representatives on edge.   

In light of the above, it is clear that the Directive will change the social dynamics between an employer and its employees.

This is yet another reason why employers must be fully ready to apply the gender-neutral requirements of the Directive as of the first day of their application in Belgium.

Authors: Pierre Dion and Toon Smets