Salary Transparency: How to Prepare Your Company for What's Next

The European Union has approved a new legal framework on pay transparency, with the aim of reinforcing the principle of equal pay for men and women for equal work or work of equal value.

In this context, Directive (EU) 2023/970 (hereinafter "the Directive") introduces a structural change in the way companies define, substantiate and disclose remuneration, requiring greater transparency.

The Directive must be transposed into Portuguese law by 7 June 2026, and it is expected that, from that date, companies will be subject to a demanding set of new obligations, making it advisable to prepare in good time.

- What obligations will impact your organisation?

1) Wage transparency prior to recruitment: one of the main innovations of the Directive is the regulation of wage transparency in the pre-contractual phase, introducing new obligations for companies in the context of job adverts and recruitment processes, namely:

• Indicating the starting salary or its range in job offers or before the first interview;
• Not asking candidates for their salary history;
• Ensuring that job adverts and job titles are gender neutral, and that recruitment processes are conducted in a non-discriminatory manner.

2. Transparency of internal pay policies: the Directive also introduces obligations for companies in the course of the employment relationship, such as ensuring that employees have easy access to the criteria used to determine pay, levels of pay and pay progression. Member States may exempt employers with fewer than 50 employees from the obligation regarding pay progression.

3. Right to information: workers may request and receive, in writing, information on their level of pay and on average levels of pay, broken down by sex, for categories of workers performing equal work or work of equal value to their own.

4. Obligation to report on pay gaps: the Directive now requires companies to draw up and submit reports on pay gaps, the frequency of which is determined according to the respective number of employees. Specifically:

• Companies with 250 or more employees: annual report
• Companies with 150 to 249 employees: report every three years
• Companies with 100 to 149 employees: report every three years
• Companies with fewer than 100 employees: the Directive does not impose a periodic reporting obligation, although Member States may require these companies to provide information on remuneration.

Phased application of the reporting obligation

With regard to this reporting obligation, the Directive provides for a phased application, so not all companies will be covered at the same time. Specifically, the first reporting will take place:

• Companies with 250 or more employees: by 7 June 2027
• Companies with 150 to 249 employees: by 7 June 2027
• Companies with 100 to 149 employees: by 7 June 2031

5. Joint assessment of remuneration: the Directive establishes that companies subject to the reporting obligation must carry out, in cooperation with employee representatives, a joint assessment of remuneration whenever:

• The reporting of pay reveals a difference between the average pay levels of female and male workers of at least 5 per cent in any category of workers;
• The employer has not justified this difference in average pay levels on the basis of objective and gender-neutral criteria;
• The employer has not corrected this unjustified difference in the average pay level within six months of the date on which the pay information is communicated.

- How can you anticipate and prepare your company?

Adapting to the Directive requires a structured and anticipatory approach, implying the adoption of a series of measures, in the implementation of which our team specialising in labour law is available to assist. Specifically:

• Adapting recruitment processes to the new transparency requirements, ensuring compliance with the Directive;
• Mapping jobs and identifying comparable functions, as well as evaluating them on the basis of objective criteria;
• Identify any pay disparities, namely by carrying out internal audits;
• Ensure that pay differentials are duly substantiated on the basis of objective and gender-neutral criteria;
• Adapting internal information systems, ensuring the ability to determine pay differentials and fulfil reporting obligations;
• Review internal salary policies and contractual documentation, ensuring compliance with the Directive's requirements.

- Penalties and risks of non-compliance with pay transparency

The Directive provides for relevant consequences for non-compliance with pay transparency obligations, including:

• Payment of compensation to aggrieved workers, covering full recovery of back pay and related bonuses or payments in kind, compensation for loss of chance, non-pecuniary damage, any damage caused by other relevant factors which may include intersectional discrimination, as well as interest for late payment.
• Possibility of excluding from public procurement procedures entities that show an unjustified gender pay gap of more than 5 per cent or that fail to comply with pay transparency obligations.
• The imposition of fines, the specific framework of which will be defined in the transposition of the Directive.

In this regard, it should be noted that the ACT is already acting preventively, notifying companies and requesting that they submit evaluation plans to justify any wage differences.

In short, Directive (EU) 2023/970 implies a structured review of remuneration policies, requiring advance preparation to mitigate legal, financial and reputational risks and ensure regulatory compliance.

Our Labour Law team is available to support companies in preparing and implementing the necessary measures, through legal assistance tailored to their specific needs.