Only one annual salary review left before new rules take effect, employers warned
Less than one in five organisations with operations in Europe are ready to meet the requirements of the European Union Pay Transparency Directive (EUTPD) ahead of its implementation next year, according to a new report.
The EUTPD refers to a new set of rules on pay transparency enacted in 2023 to combat pay discrimination and close the gender pay gap in the EU.
The directive is set to take effect by June 2026 for employers across EU member states, including organisations that have employees in the region.
But Trusaic's new poll with Empsight revealed that just 16% of organisations are ready to meet the requirements of the EUTPD using base pay.
These organisations fulfil the pay equity requirements under the directive, namely:
- Analyse base pay
- Use multiple regression to ensure objectivity
- Maintain partial or full transparency with employees
- Conduct pay equity analyses at least annually
- Address pay gaps within a year
This readiness further drops to three per cent when using total cash compensation, and to two per cent with total direct compensation.
"More than 50,000 companies are affected by the Directive, yet this study shows how few are actually ready," said Robert Sheen, CEO and Founder of Trusaic, in a statement.
According to the findings, most organisations are only disclosing pay information with internal leadership or their HR teams.
Only 24% of organisations are also fully transparent with employees about compensation. This means they disclosed all salary ranges on internal or external sites or in job postings.
Drivers, barriers to readiness
The lack of readiness is not rooted in the lack of willingness to comply, according to the report, as 61% of organisations cited mitigation of legal risks as their leading driver of pay equity efforts.
Other reasons include building trust through transparency (57%) and enhancing talent value (55%).
However, nearly two in three (64%) employers also noted that the cost of pay corrections is an obstacle in establishing pay equity programmes.
More than half (51%) also said the accuracy of job postings is a potential barrier.
"The EU Pay Transparency Directive is fast approaching and compliance is mandatory. The reality is for most organisations there is only one annual salary review remaining before it takes effect," Sheen said.
"Organisations must take action immediately to prepare for these changes. Delaying can cost organisations both reputationally and financially."
EU Pay Transparency Directive
The EU Pay Transparency Directive requires employers to share information on salaries and take action if their gender pay gap exceeds five per cent, according to the European Council.
It also includes provisions on compensation for victims of pay discrimination, as well as penalties and fines for employers who break the rules.
"New rules on pay transparency should help tackle pay discrimination at work and contribute to closing the gender pay gap," the council said.
"Pay transparency can support workers' empowerment to enforce their right to equal pay for equal work or work of equal value between men and women through a set of binding measures."
