Let’s Prepare Together for the Pay Transparency Directive!

The Treaty on the European Union names the promotion of equality between men and women as one of the fundamental values of the Union. The Treaty on the Functioning of the European Union also clearly sets out that the Union is obliged, in its policies and activities, to strive to reduce inequalities and to promote equality between men and women, and furthermore to act against any discrimination based on sex.
In order to fulfil this obligation, in May 2023 the European Parliament and the Council adopted the Directive, the aim of which is the elimination of gender pay differences and the making of pay practices transparent. The Directive must be transposed into national law by the Member States no later than June 2026, and from June 2027 reporting obligations will apply to employers.

Pay transparency – already from job applications

Employers are obliged to create pay structures that ensure that every employee receives equal pay for equal work or work of equal value. For this purpose, every employer must operate job evaluation and classification systems that are gender-neutral and exclude all pay discrimination based on sex.

Even jobseekers must be provided with pay transparency before entering into employment – if possible, already in the job advertisement or before the job interview – and job advertisements and job titles must also be gender-neutral. It is important that during the selection process employers may not ask applicants about either their current or their previous remuneration.

Employees’ rights

Pay transparency must also be provided to existing employees. Employers are obliged to provide continuous information to employees about their own remuneration and pay level, and, if the given organisation employs more than 50 people, also about the principles used for determining their pay increases. These principles must not be based, directly or indirectly, on the gender of the employee.

A significant administrative burden will fall on the employer due to the fact that information relating to pay and remuneration must be defined in writing and precisely. In doing so, not only the individual pay level of the employee must be indicated, but also the average pay levels for the given employee categories, broken down by gender – in particular for those employees performing the same or work of equal value. Unjustified differences based on gender must be explained by the employer.

Employees may at any time request information about their own remuneration and about the average pay data of those working in the same or equal position. This request may be submitted either directly or through their workplace representative, and the employer must reply within 2 months.

In the future employees cannot be obliged to keep their remuneration confidential, therefore all such provisions must be removed from employment contracts.

Reporting obligations for employers

The above regulation applies to every employer and employee; however, employers employing at least 100 people must also submit a separate report, depending on their size, either annually or every three years:

• Employers employing at least 250 employees must report by 7 June 2027 and then every year thereafter;
• Employers employing 150–249 employees must report by 7 June 2027 and then every three years thereafter;
• Employers employing 100–149 employees must report by 7 June 2031 and then every three years thereafter, providing information for the previous calendar year concerning possible gender pay differences.

Member States may also require in their national law that employers employing fewer than 100 employees provide information about remuneration. Since no legislation has yet been enacted in this area, the Hungarian regulatory plan is currently not known, therefore it is uncertain under what conditions reporting obligations will be introduced in Hungary.

What is pay assessment?

Employers subject to the reporting obligation must carry out a joint pay assessment, during which several conditions must be examined. The joint pay assessment must be carried out in order to identify, and remedy pay differences, as well as to prevent differences in pay between female and male employees which cannot be justified by objective and gender-neutral criteria. The average gender pay gap in each employee category must not exceed 5%. If this difference exceeds the prescribed level, the employer is obliged to justify it and to eliminate the unjustified difference. The pay assessment must also cover why the employer did not eliminate the unjustified differences within 6 months.

The additional burdens placed on courts

Member States must ensure that, following the possible use of conciliation procedures, easily accessible court procedures are available to all employees for the enforcement of rights and obligations relating to the principle of equal pay. In cases of pay discrimination, legal action may be brought not only by the affected employees but also by associations, organizations, equality bodies, employee representatives or other legal entities that have a legitimate interest in doing so.

The particularity of such actions is that under the Directive, the employee is entitled to full compensation in case of breach of the principle of equal pay – without an upper compensation limit. Furthermore, a reversed burden of proof applies in such proceedings, meaning that the employer must prove that no discrimination occurred with respect to remuneration. Consequently, the disadvantaged party only needs to refer to the fact of discrimination, and it will be for the employer to prove during the proceedings that it did not violate the principle of equal pay.

Tasks to be carried out, where we can be of assistance:

• Reviewing internal employer policies and ensuring their alignment with the Directive
• Preparing for the possible management of pay tensions arising as a result of the Directive
• Developing the “new rules” of recruitment
• Introducing and organizing regular reviews
• Identifying possible pay differences, eliminating them, and establishing objective criteria for pay decisions.