Directive (EU) 2023/970: What employers need to know about closing the gender pay gap

On 14 November 2024, it was Equal Pay Day. This day symbolically marks the point from which women in the Netherlands work “for free” for the rest of the year. At least, if you compare their income to that of their male colleagues in similar roles. Under the Gender Equality Act, men and women must be rewarded equally for work of equal value. Yet, a significant pay gap persists: men in the Netherlands earn €300,000 gross more than women over the course of a full working life.

The Pay Transparency Directive (EU) 2023/970, hereafter: the Directive, should change this situation. This article outlines the key elements of the Directive and highlights the importance of employers preparing for its implementation in a timely manner.

The Directive
On 24 April 2023, the European Council adopted the Directive. The European legislator aims to create wage transparency with the Directive. The pay gap largely arises because female employees simply do not know what their male colleagues earn in an equivalent position with a similar number of years of experience.

Information
The Directive regulates a right to information for job applicants and employees. Job applicants have the right to request information from their prospective employer about the starting salary. Employers, on the other hand, are prohibited from asking job applicants about their remuneration with previous employers.

Employers are also required to provide employees with criteria used to determine employees’ pay, pay levels, and pay trends. These criteria should be objective and gender-neutral.

Employees also have a right to information on their pay levels and the gender-disaggregated average pay levels for categories of employees performing equivalent work. Under the Directive, employees can thus gain insight into what different genders earn for the same work.

Reporting requirement
There is a reporting requirement for employers with more than 100 employees. Among other things, employers must report on the pay difference between all male and female employees, and the pay difference in additional or variable components. This information should be shared with employees and the employees’ representatives.

The Labour Inspectorate and the Human Rights Board may also request information subject to the reporting requirements.

Depending on the number of employees, the reporting obligation is regulated as follows:

• Up to 100 employees: voluntary;
• 100 to 249 employees: every three years;
• 250 employees or more: annually.

Employers with at least 150 employees must provide the required reporting information by 7 June 2027. Employers with 100 to 149 employees are required to report no later than 7 June 2031.

If the reports show that the pay gap is at least 5% and cannot be justified based on objective and gender-neutral criteria, and this pay gap is not remedied within six months, the employer is obliged to conduct a pay evaluation. This pay evaluation must be carried out by the employer together with the employees’ representatives. The purpose of this pay evaluation is to identify, remedy and prevent the unjustifiable pay gap. The pay evaluation should be shared with employees, the employees’ representatives and the supervisory body that will monitor compliance with the Directive.

Compensation and burden of proof
In addition, the Directive includes a possibility of compensation for employees who have been victims of pay discrimination. This compensation includes at least back pay, but also non-material damage and damage caused by intersectional discrimination. Intersectional discrimination occurs when discrimination is based on multiple grounds, such as gender and sexual orientation. In addition, Member States must impose sanctions on employers who do not comply with the Directive.

Where an employee establishes sufficient facts to suggest discrimination, the defendant (usually employer) must prove that there is no pay discrimination. This results in a reversal of the burden of proof.

Tips for employers
The Directive must be implemented into national law by 7 June 2026. The implementation process of the Directive has already started in the Netherlands. Despite the fact that this process has not yet been completed and the first reporting obligations do not take effect until 2027, we advise employers to already map the remuneration and pay differences within their company.

If there is a non-justifiable pay gap of at least 5%, the pay gap must be remedied within six months. Otherwise, employers are required to conduct a pay review. In addition, employers must prepare for questions from job applicants and employees on pay transparency.

Employers who analyse the pay gap in their companies only after the implementation of the Directive risk not having enough time to close it. This could lead to claims from employees for wage discrimination.

Want to know more about how to comply with the requirements of the Directive as an employer? Contact us—we are happy to assist you!