Practical steps to prepare for the EU Pay Transparency Directive

As the EU PTD is set to unleash significant changes to the workplace, here are some guidelines to help employers get prepared.

The implications of the EU Pay Transparency Directive (PTD) are huge.

Most employers are currently not transparent.

Only only around 20% publish pay, according to the KPMG Reward Trends Study 2023, and publishing pay data will create significant risks of:

Equal pay claims.
Motivation of employees.
Non-compliance with the regulations and the consequences of that.

1. Employers must have reward structures in place which categorize equal work or work of the same value and enables comparison of pay.

In practice this means that you need:

A grading structure underpinned by an analytical job evaluation tool or methodology – so that you make a judgement on work of equal value.
Pay structures aligned to the grading structure – so that you can compare pay.
Job architecture categorizing different types of job that all employees are mapped into – to identify categories of worker but also to enable you to identify if any jobs attract a market pay premium.
A strong governance structure to ensure that structures remain robust.

If you don’t have structures you will need to create them.

If you do have structures, you will need to review them to see if they are fit-for-purpose.

As pay has largely been opaque up to this point, while many larger companies have these structures already they may not have been governed all that closely which can mean a lot of inconsistency.

KPMG reviews have found (for instance):

The same job title mapped to multiple grades (often with the same job description).
A complicated job architecture with the same role mapped to multiple different job families.
A job evaluation methodology or tool that is not analytical.
Absence of job evaluation records for each role profile.
Roles that have been clearly over or under-graded.
Huge pay differentials for incumbents in the same role.
Pay ranges that overlap each other almost completely.
Discretionary reward practices (i.e., discretionary bonus).
Lack of objective criteria to justify pay differences.

While this already created risk, previously it wasn’t visible.

When pay is published any inconsistency will be visible.

Existing structures may need tweaking or a complete re-design.

2. Employers will be required to report on gender pay gap across the whole workforce but also by categories of worker.

This is effectively conducting a compulsory equal (gender) pay audit.

Employers with 250 or more workers will be required to report on their gender pay gap by 7 June 2027 and yearly following.

Those with 100-249 workers will need to report every three years.

Employees will also have the right to request and receive in writing information on their individual pay level and average pay levels, broken down by sex, for categories of workers performing the same work as them or work of equal value to theirs.

Therefore, regardless of organisation size, employers should be prepared for this.

To ensure compliance with the disclosure required by PTD, employers must have:

The ability to categorize workers – robust job evaluation, grading and job architecture enables this.
The ability to conduct an equal pay audit – via spreadsheets or by using a specially built analytical tool which can help significantly improve the reporting efficiency and accuracy, particularly for organisations operating across multiple jurisdictions with multiple payroll providers.

If your reward structures are not robust, however, any calculations done at this stage are likely to be incorrect.

3. Addressing any differences in pay over 5% in a given category of worker between male pay and female pay, which cannot be justified.

Are any differences justified? For this you will need to understand what constitutes a justification. The list of differentiators for pay could include educational, professional, and training requirements, technical and soft skills, effort, and responsibility. Certain roles may also attract market premiums. You will need a data-driven approach to evidence such differentiators.
Where differences cannot be justified you will need plan to address the differences within six months of the date of submission of the pay reporting. Failing that, you may be subject to a joint pay assessment.

As well as adjusting pay for those un-justifiable pay differences, employers should also be focusing on other DE&I strategies to narrow any gender pay gaps (e.g. female focused career development and mentorship, gender-neutral recruitment and hiring practices, flexible work arrangements, inclusive culture etc.)

4. Preparing communications

We recommend taking proactive steps in communication and training, to help leaders and employees understand the changes and remain motivated and engaged.

Develop a clear communication strategy and plan.

Anticipate employee enquiries: As soon as this topic gains prominence in the media, employees are likely to start asking questions. It is essential to be ready for this increase in inquiries.
Train line managers in advance: It is crucial to train your line managers ahead of time so they are well-positioned to answer employee questions, address concerns and provide clear, accurate information.
Launch employee communications: launch a series of communications to reinforce your commitment to equitable and fair pay practices. These should highlight your dedication to transparency and fairness, and provide clear information about the steps you are taking to comply with the new regulations.
By doing this you can create an environment where employees feel informed and valued maintain trust and ensure compliance.