The EU Pay Transparency Directive requires employers with at least 100 employees (and in Belgium possibly as many as 50 employees) to report the gender pay gap. Although we already have pay gap reporting in Belgium, things will change quite a bit and will be more strictly enforced. Even though reporting is only due for the first time in 2027, employers really have no time to waste.

Why companies can't wait and prepare now, you can read in this blog post.

‍

Brief Situation

Europe's regulatory action on closing the gender pay gap is not at all new. In European regulation, the principle of equal pay for men and women already appeared in the 1957 Treaty of Rome.

Despite this being a point of principle from the founding of the EU, we have to conclude that current measures do not sufficiently close the gender pay gap. The gender pay gap (specifically the unadjusted gender pay gap) in Europe is still 12.7%(Eurostat). So there is a need for a more effective legal framework.

One of the spearheads for closing the wage gap is to require companies to report on it and provide transparency in pay policies. After all, how else could women workers find out at all whether they are paid at least equally for equal(er) work as their male colleagues?

In addition to reporting obligations, the EU Pay Transparency Directive includes rights for employees, a prohibition on employers asking prospective employees about their previous pay package, protection of employees from corporate retaliation, etc.

In this blog post, however, we focus primarily on the reporting requirements for employers.

For the sake of completeness, we also note that the CSRD (Corporate Sustainability Reporting Directive) includes reporting requirements regarding the gender pay gap. In this blog post we only briefly address this issue.

‍

For which employers?

The EU Pay Transparency Directive stipulates that every employer with at least 100 employees will have to report on the gender pay gap. For Belgium, this limit may be set at 50 employees for reporting to the works council.

Incidentally, the EU Pay Transparency Directive applies to both the private and public sectors (think local governments such as cities and towns, PCSWs, etc.).

The CSRD builds on the Non-Financial Reporting Directive (NFRD), which already applied to public interest enterprises (e.g., banks, insurers, listed companies) with at least 500 employees. The CSRD extends the material scope in a phased manner to all large companies and small listed companies, excluding micro companies.

For the purposes of the CSRD, companies that meet at least two of the following criteria are considered a large company:

• average of 250 employees during the year to be reported;
• balance sheet total of at least EUR 20 m;
• net sales of 40 mio EUR.

Whether a company must report pursuant to the CSRD also depends on its legal form. For Belgium, these include: public limited companies (nv/sa), private limited companies (bv/srl) and cooperative companies (cv/sc). NPOs, for example, are not covered by the CSRD.

‍

From when does the EU Pay Transparency Directive apply?

Employers with 150 employees must report on the pay gap under the EU Pay Transparency Directive by June 7, 2027.

Employers with at least 100 employees (although there is a real chance that for Belgium the limit will be 50 employees, given current legislation) will not have to report on the pay gap for the first time until 2031, based on the EU Pay Transparency Directive.

Now, since that European directive stipulates that the earliest date for reporting is June 7, 2027, this does not seem to be a priority today.

But is it?

For completeness, let us add that for those employers who must comply with the CSRD, the new reporting requirements are coming even faster:

• Employers previously covered by the scope of the NFRD will already have to report, by 2025 (!), on, among other things, the average gender pay gap and the wage stress between the best earner (presumably the CEO) and the median wage without the CEO.
  
  For the purposes of the CSRD, we are talking about the unadjusted gender pay gap, which is the difference in average gross wage levels between the entire male and female population divided by the average wage of the male population. The pay gap is thus expressed as a percentage.

• Large companies must report in accordance with the CSRD for the first time in 2026 for the year 2025.

‍

Are you ready for the EU Pay Transparency Directive yet?

A lot of companies will not have to report on the pay gap for the first time until 2027 under the EU Pay Transparency Directive.

This could give the impression that companies still have some respite, making this not urgent.

But appearances can be deceiving. For let us calculate backwards for a moment.

In 2027, 2026 figures must be reported for the first time. So in 2026 you will have to have the necessary data available already.

So before 2026, you will need to have worked out your strategy regarding what data you will need to collect and how.

As a result, by 2025, you will already have to work on that pay transparency strategy and in particular the gender pay gap within your company.

And 2025 is already upon us.

Because in the fall of 2024, you may already have to budget the projects for 2025.

(And as mentioned, when you also have to report under the CSRD, the new pay gap reporting is (at least in part) even sooner.)

Moreover, you don't want to report on this for the first time in 2027. As an employer, you want the necessary insight into the current wage gap in advance so that you can make timely adjustments.

‍

What will the EU Pay Transparency Directive change in terms of reporting?

In Belgium, companies already have to report on the so-called unadjusted pay gap via the social balance sheet or on the adjusted pay gap to the works council. So what does the EU Pay Transparency Directive mean in concrete terms?

‍

The percentage wage gap should be made explicit

Through the social balance sheet that must be added to the financial statements, employers already report the number of employees, the number of FTEs, the gross wage bill and that in each case broken down between men and women.

So while you could do some math on that, nowhere in the social balance sheet do you find a percentage of the overall wage gap. That will change in 2027. All those who want to know can look at a company's financial statements and find out what a company's unadjusted gender pay gap is.

‍

Expanding what should be reported

Moreover, through the social balance sheet, not only the average wage gap will have to be reported, but also:

• The average pay gap in additional or variable components (think supplementary pension, shares (options), smartphone, company car, mobility budget, etc.);
• the median wage gap;
• The median wage gap in additional or variable components;
• The proportion of female and male employees receiving supplemental or variable pay components;
• The proportion of female and male employees by quartile pay scale.

To the works council, the average wage gap will have to be reported by employee category. That categorization will depend on the job classification used by the company.

‍

Commitment to action

Now suppose there is a wage gap in a category of employees of at least 5%, then the employer will have to conduct a joint pay review with the employee representatives, IF:

• the employer can justify the wage gap based on objective, gender-neutral criteria; OR
• the employer has remedied the unjustified wage gap within six months of the date of submission of the report to the works council.

If, as an employer, you have to report a wage gap of at least 5% in a category of employees, you will have to be able to argue, based on objective, gender-neutral criteria, what has led to men, on average, earning more than women, where appropriate.

In other words, as an employer, you will need to conduct a statistical analysis, weighing the impact and significance of each variable.

‍

Sanctions

The EU Pay Transparency Directive requires European member states to implement effective, proportionate and dissuasive sanctions in the national legal order that are (or can be) effectively enforced.

Currently, failure to report fully on the wage gap via the social balance sheet is sanctioned with a Level 1 sanction, which amounts to an administrative fine of up to EUR 800. Here we assume that the social balance sheet was drawn up, but that it was incomplete. Failure to draw up the social balance sheet, especially when done knowingly and intentionally, and failure to communicate the social balance sheet to the works council or trade union delegation, incur more severe sanctions.

Failure to report (properly) the wage gap by employee category to the works council (or the union delegation, if there is no works council) is not currently subject to any sanction.

Thus, enforcement of reporting will change as a result of the EU Pay Transparency Directive. Employers who are not compliant will be exposed.

‍

Equal pay for equal or equivalent work ("work of equal value")

Arguably the most important concept in the EU Pay Transparency Directive is the concept ofwork of equal value. When men and women perform work of equal value, they should be paid equally. But from when is work of equal value? Until before the EU Pay Transparency Directive, its interpretation was left to the European Court of Justice.

Determining what is (not) equivalent work requires consideration of skills, effort, responsibility and working conditions and, where applicable, all other factors relevant to that particular job or position. And, the guideline states, "particularly relevant soft skills are not undervalued."

This has two important implications.

‍

Implication 1: companies must use job classification

A first implication is that companies will have to have a framework for classifying jobs, read: a job classification.

Setting the very criteria for categorizing jobs to be observed will be left to the Member States. Those Member States, in turn, will no doubt leave this to the employers and social partners - which is logical, by the way. After all, it must be possible to take into account the company and sector-specific context.

Now, any methodology to weigh or categorize jobs (think Berenschot, Hay, ORBA, ...) takes into account anyway at least the criteria mentioned in the European directive.

‍

Implication 2: do away with horizontal segregation

There is also a second implication, and it is all the more far-reaching. One will have to compare employees across functions and statutes, insofar as those functions and statutes are given equal weighting.

We give two examples to illustrate this.

Example 1

Within the sales department, we generally find more men who typically have higher salaries (they are sales AND they are men - who tend to (1) overestimate themselves and (2) strongly negotiate their pay package). Within the marketing department, we tend to find more women who tend to have lower salaries.

This is horizontal segregation at the job level: overrepresentation of men and women respectively across different jobs with often different pay and working conditions. There is also horizontal segregation at the sector level (e.g., overrepresentation of women in education, health sector, etc.).

A male employee within sales and a female employee within marketing who both fall under category E3 must have equal pay. Based on the category, the work is equivalent. In a lot of companies, men and women within a category will be paid equally, at least in terms of base pay.

But as soon as we include bonuses and other benefits, this picture threatens to change and there may well be a (unjustified) wage gap.

Justifying this difference by pointing to market practices (after all, one earns better in sales than in marketing anywhere in the market) will in principle not pass the test of the EU Pay Transparency Directive. The directive does not aim to combat all forms of segregation, but it does aim to combat horizontal segregation at job level.

Example 2

A male worker within the construction industry (who does physically demanding work) and a female clerk within the construction industry (who does mentally demanding work) who both fall under category B2 should also have equal pay (unless there would be reasons, why it would not be equivalent work after all - but that is not obvious).

This will have serious repercussions in Belgium, where blue-collar workers within PC124 typically have a better pay package than female white-collar workers within PC200. For Belgium, the EU Pay Transparency Directive may result in a real move towards a unitary status for blue and white collar workers.

In any case, of all sectors, the construction industry will be one of the most heavily impacted under the EU Pay Transparency Directive.

‍

Pay gap across legal entities

In certain cases, the pay gap must be analyzed and reported across different legal entities to the extent that the same pay policy ("single source") applies to employees across legal entities. This is in line with the case law of the European Court of Justice.

What situation is intended by this?

Well, if a company has multiple legal entities where the same wage policy is applied across those legal entities, then the average wage of male and female employees should be compared across those different legal entities.

For example, it aims to combat segregation of male and female employees across different legal entities.

‍

Also applicable to the public sector

Finally, the EU Pay Transparency Directive also applies to the public sector, both in terms of the rights of civil servants (statutory and contractual) and reporting obligations.

The public sector (think of local governments such as cities and municipalities, PCSWs, etc.) in Belgium does not yet have reporting obligations regarding pay gap as we know them in the private sector.

This means that the EU Pay Transparency Directive will be potentially far-reaching for the public sector as for the construction sector.