5 Reasons to Start EU Pay Transparency Prep in 2025
Starting in June 2026, workers will have the right to access data and negotiate their pay to within 5% of others doing similar work for similar value. This reminds me of the impact of GDPR, where every department had to participate to improve privacy processes.
EU Pay will impact HR operational processes, reward strategy and philosophy, talent acquisition, career mobility, as well as IT and corporate compliance teams. Most significantly, it has the potential to affect millions of workers.
The Complexity of Implementation
Each EU member state may implement the directive differently, with the EU directive being a minimum standard. For example, Sweden's proposed legislation suggests it will go further than EU Pay, such as pay progression reporting. This may result in slightly different reporting by EU country, increasing the workload for employers.
Who is in Scope?
All European workers, whether full-time, part-time, fixed-term, or agency, are included if their employer has more than 100 European employees. Millions of job applicants also have the right to transparency.
Candidates will be required to receive information on starting salary or ranges for advertised roles, and employers will not be permitted to ask about candidates' salary history.
What Does Equal Work of Equal Value Mean?
Gender-neutral job classifications will need to be in place to allow for a comparator of equal work. These will be used to determine equal work on the basis of skills, effort, responsibility, and working conditions.
Employees will be able to request information on individual and average pay levels for workers (by gender) performing the same work as them according to their job classification scheme. Designing these job classifications early should be a priority for employers, especially if they differ from currently used job classifications.
What Constitutes as Pay?
Pay in the directive is a wide definition that goes well beyond base salary. It includes bonus, overtime pay, housing, food, travel, training, dismissal, sick pay, and employer pensions. Most organisations will need to collate this data from different systems, with the responsibility on employers to bring these disparate datasets together to allow analysis.
This will be a significant data engineering challenge for many organisations, requiring preparation, design, and testing.
Is This Just an Annual Report?
Employers will have to publish reports on gender pay gaps, including variable pay, to their Equality Ombudsman annually or every three years (depending on organisation size). But EU Pay is not like other disclosures that just need to be completed once a year. It is operational all year round and must allow employers to respond to workers' and candidates' requests at any time, with a formal response provided within two months.
Key Points to Consider
There are risks to employer brand, employee retention, and financial penalties. It will also spike the workload for HR teams. Employers are required to conduct a joint pay assessment with employee reps and develop an appropriate action plan where the gender pay gap is above 5%.
Also, employers have the burden of proof to explain the gender pay gap if they do not show transparency. The risk to company brand will increase with greater transparency across job boards, social media, and employee networks.
Top 5 Actions to Get Ahead in 2025 |
1. Develop Job Classifications: HR needs to develop job classifications, with job architecture and grading being the most common challenge and taking more time than many organisations expect, a minimum of 6 months depending on organisation size.
2. Integrate Data: IT needs to integrate data to support a single view of compensation, bringing all the disparate salary and compensation details into one place. This will need to be merged with the new job classifications and allow HR practitioners to analyse and evaluate “like or equal work”.
You may need to procure new IT systems or suppliers to help you manage the process and system changes. This could take months to complete.
3. Prepare Early: It's operational in 2027, but you'll need months to prepare. Your data and systems need to be correct from the start of the reporting period in June 2026.
4. Workload: Workload could increase significantly, and if you don’t map processes and test early, combined with the pressures of employee and candidate requests for pay data, your teams could quickly become overwhelmed.
5. Avoid Delays: Delaying or avoiding implementation will increase your risk. Financial risk due to penalties that apply (including back pay), but more costly is the risk to employer brand, impacting talent acquisition and employee engagement.
How We Can Help
1. Automating Your Classifications: Understanding how to classify your workers is only half the battle. Kainos can provide out-of-the-box transformation tools to apply the required changes and make meaningful connections to compensation.
2. Data Analysis: Knowing what you don’t know is crucial. Our Data, AI, and Analytics teams can assist in building out a data governance structure that will highlight where your data currently is and, critically, where you don’t have the data that’s needed.
3. Integrating Your Data: Kainos has delivered thousands of complex integrations for companies across the globe, bringing all kinds of data from disparate systems together on a single data source to give companies the complete picture.
4. Continuous Monitoring: Tools for ongoing monitoring and compliance, ensuring companies stay compliant and address issues promptly.