A transparent pay policy is no longer optional: employers must take action
The legislative framework: five steps for employers
The legislative proposal implementing the Directive in the Netherlands introduces a structured five‑step framework:
Step 1: Pay structures
Every employer must have pay structures in place that ensure equal pay for equal work or work of equal value. This obligation applies to all employers, not only to organisations with a works council or a reporting obligation. Small employers must also structure their job architecture and remuneration system in such a way that jobs can be objectively compared and pay differentials can be explained.
The law does not provide an exact definition of “pay structures”, but requires them to include all relevant criteria. These must in any event include skills, effort, responsibility and working conditions. If the organisation has a works council, the establishment or amendment of the remuneration structure is subject to the works council’s right of consent.
Step 2: Categorising groups of employees
Employers must establish categories of employees performing equal work or work of equal value. To do so, job descriptions must be complete and jobs must be evaluated on the basis of all relevant criteria, including skills, effort, responsibility and working conditions. Each job is assigned a score for each of these criteria.
Jobs with approximately the same overall score are regarded as work of equal value. This therefore goes beyond job titles or existing job groups: different types of work may also be of equal value. The first question must therefore always be: “Is this work of equal value? And are there objective, gender-neutral criteria that justify any pay differentials?”
Step 3: Information for applicants and employees
Employers will be subject to transparency obligations towards job applicants, including in relation to remuneration and the criteria on which remuneration is based. Employers will also no longer be permitted to ask what an applicant earned with their previous employer. Employees may furthermore request information about their own pay and the average pay within their category of employees, broken down by sex.
Employers must actively inform employees, at least annually, of their right to make such requests.
These obligations also apply to small employers. An employee of a small employer can therefore also submit a transparency request. If the pay structure, job classification and underlying data are not in order, the employer will already be at a disadvantage when it begins processing the request, while still being required to respond within the relatively short statutory time limit.
Step 4: Reporting obligations for employers with more than 100 employees
These employers must periodically report on the gender pay gap within their organisation. This includes identifying and publishing the pay gap per employee category, the justification for any differences, and additional pay‑related data.
Step 5: Mandatory pay evaluation for unjustified pay gaps ≥ 5%
If a pay gap greater than 5% cannot be justified by objective, gender‑neutral criteria, a joint pay evaluation must be carried out together with employee representatives.
The role of the Works Council (OR)
The Works Council plays a key role in the processes related to equal pay obligations by:
- Safeguarding against discrimination and promoting equal treatment
- Holding approval rights regarding pay structures and job evaluation
- Actively working with the employer to develop an action plan where unjustified pay differences exist
- Reviewing employment‑related information per job group
- Monitoring the implementation and evaluation of measures aimed at preventing inequality
Financial risks of unequal pay
Failure to comply with the new obligations may have significant consequences. A single successful equal pay claim may have a domino effect and result in upward pay adjustments for groups of employees. Pay claims may furthermore have retroactive effect for up to five years. This may result in back payments of salary, bonuses and holiday allowance, in addition to possible compensation for non-material damage and statutory interest.
In addition, the supervisory authority may impose fines of up to €10,300 per employee.
Importantly, the burden of proof lies with the employer. Whereas employees previously had to demonstrate that there was an unjustified difference in pay, the employer will now have to demonstrate that there is no such unjustified difference. In the absence of transparent pay structures, complete documentation and objective criteria, it will automatically be assumed that the employer is not paying employees correctly. In practical terms, the employer will therefore already be in a huge disadvantage.
Not just an obligation for large employers
The reporting obligation and the formal role of the works council receive considerable attention in the media, but the core of the legislation applies to every employer. Organisations with fewer than 100 employees or even fewer than 50 employees must also have an appropriate pay structure, complete job descriptions and a job architecture that meets the statutory criteria. They must provide applicants with the correct information, inform employees of their transparency rights and be able to respond to requests for information.
Smaller employers in particular may be vulnerable if they have not yet put these fundamentals in place. Without complete job descriptions, an objective job evaluation system, appropriate salary scales and documented remuneration criteria, it is difficult to explain why employees are paid differently. In the event of a request for information or an equal pay claim, the employer will immediately be at a disadvantage. After all, the burden of proof lies with the employer, which must be able to demonstrate that remuneration has been determined correctly and objectively.
Following a collective labour agreement is not a free pass
Where an employer applies a collective labour agreement, it remains responsible for ensuring that its pay structure complies with the statutory requirements. A collective labour agreement containing a comprehensive remuneration structure is a good starting point, but does not automatically meet all requirements. For example, jobs are not always evaluated based on the four mandatory criteria: skills, effort, responsibilities and working conditions.
In some cases, a collective labour agreement primarily contains job descriptions to which a salary or salary scale is linked, without clearly substantiating why a particular job has been classified at a certain level. If the collective labour agreement does not, or does not fully, meet the statutory requirements, the employer will need to supplement the job architecture for its own organisation. This could include, for example, expanding job descriptions, adding information on the four criteria, or objectively evaluating and scoring jobs.
A collective labour agreement is therefore a good basis, but not a free pass.
What employers should do now
- Complete the job descriptions. For each job, describe at least the skills, effort, responsibilities and working conditions. Also include other relevant aspects of the job, such as creativity, communication skills or empathy. Complete job descriptions form the basis of the mandatory pay structure.
- Establish pay structures:
a) Implement a job evaluation system. Assign all jobs a score based on the mandatory criteria and any additional criteria.
b) Translate the job evaluation into salary scales. Jobs of equal value should, in principle, be linked to the same salary scale. - Document the choices made in a remuneration policy. This should describe not only the job categories and salary scales, but also the objective criteria for performance assessment, salary increases and progression. Employees must be able to understand how their remuneration is determined and how they can progress within the structure.
- Document HR processes and train employees. Determine how and where employees are informed of their rights, through which channel requests for information must be submitted, who handles those requests, where the necessary data is stored and how the information is presented. If these matters only have to be established after a request has been received, the statutory response period may quickly become tight.
- Employers with more than 100 employees: prepare for the new gender pay gap reporting requirements
Start in good time
A legally robust job architecture and an appropriate pay structure cannot be established through a single policy document. Jobs must be described in full, objectively evaluated, classified into categories and linked to salary scales. The choices made must subsequently be documented in policies and translated into workable HR processes. This takes time and coordination and may sometimes require correcting choices that prove not to work properly in practice.
Waiting until the legislation enters into force or until an employee submits a transparency request is therefore risky. This applies to both large and small employers. Employers that start now still have the opportunity to carefully establish their pay structure, investigate disparities and prepare the organisation in practical terms.
Would you like to know more?
Would you like to know where your organisation currently stands, start the process described above or obtain support with one of the individual steps? Please contact Britta Kuppens of Pellicaan Advocaten at britta.kuppens@pellicaan.nl or +31 (0) 6 25 31 33 83. She can assist with the entire process, provide flexible support with specific aspects or carry out a final legal review.