One of the most critical pieces of legislation related to equity in the workplace in decades is about to go into effect—and companies worldwide need to take note, experts say.
EU-operating organizations have until June 7 to comply with the provisions of the EU Pay Transparency Directive, a comprehensive approach to narrowing the pay gap between men and women in EU-operating organizations, which was adopted about three years ago. Organizations in EU member states will soon need to ensure they can demonstrate that they provide equal pay for equal work, and give applicants easy access to pay information or pay ranges and pay progression criteria, while complying with regular reporting requirements.
See also: Pay transparency laws surge: how to turn compliance into strategy
With the enactment of the EU Pay Transparency Directive weeks away, employers should spend this time doing a deep audit of policies and processes to ensure compliance with the new requirements, says Louise Skinner, labor, employment & benefits partner at Morgan Lewis.
“Multinationals with European operations should assess whether current recruitment processes are compliant with the new requirements that apply during the hiring process, in particular making available certain pay-related data in advance of employment being confirmed, and refraining from asking for detail of an employee’s prior pay levels in other roles,” Skinner says.
A particular shift is the stated right of employees to request information on how their pay compares to that of other employees—broken down by gender—who perform equal work or work of equal value.
Creating processes now to handle such requests, Skinner notes, can help reduce friction and streamline information-sharing when such questions arise.
While the enhanced focus on employees’ rights to such data will undoubtedly reshape the power dynamic in the employee-employer relationship, organizations that engage in good faith efforts to close pay gaps can use the new regulation to enhance employee trust, Skinner says.
“Employers who take the time to analyze pay levels and communicate information to employees in a meaningful and informative way should find that the Directive provides a helpful platform for engaging in effective discussion regarding pay,” she says.
Movement in the U.S.
The EU Pay Transparency Directive is coming to life at the same time as state and local pay transparency laws in the U.S. continue to evolve quickly. They have moved so fast, and vary so widely, that the nation now has a patchwork of regulations that multi-state organizations need to be cognizant of, says Margaret McDowell, associate in the Labor and Employment practice at Morgan Lewis.
“Some of the most consequential differences that we have seen be overlooked include which roles are covered (including out-of-state or remote roles), when the disclosure obligation is triggered and what information must be disclosed,” McDowell says.
Laws often consider remote and out-of-state work differently, as well as whether disclosure extends to internal promotions and transfers, she adds. That complexity is making compliance an increasing challenge.
“The cost of getting this wrong can be significant,” McDowell says.
Many employers that operate across the country are pursuing a uniform approach to pay transparency to reduce the risk of compliance gaps. Assess which laws apply, she advises, and the extent of their provisions to establish a “standardized template disclosure inclusive of all covered information to then tailor based on the job posting at issue.”
HR should bring compensation and benefits closely together to develop “good faith” pay ranges for every role, decisions that should leverage a consistent methodology, McDowell says. Carefully document such processes, she adds, and create plans for when pay ranges should be updated.
HR and hiring managers will be the lynchpin to ensure pay transparency comes to life in q compliant matter, so their training should be comprehensive, entailing both how to consistently use ranges in hiring practices and how to respond to candidate and employee inquiries.
As the push toward transparency continues—and gains particular momentum as the EU Pay Transparency Directive goes into effect—Skinner predicts employers that create consistent, compliant processes will be better situated to compete in today’s market.
“Many employers have reported that, as pay transparency requirements have been introduced over recent years across several countries, they have found benefits in terms of attracting talent and enabling more open discussions regarding pay and benefits,” she says.”
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