New obligations resulting from the European directive on pay transparency that companies will have to face

EU Directive 2023/970 of the European Parliament and of the Council of May 10, 2023, reinforcing the application of the principle of equal pay for equal work or work of equal value for men and women, has yet to be transposed into Spanish law (the deadline set by the directive for doing so is June 7, 2026).

To help organizations prepare for this moment, as part of the Sustainable Garrigues Dialogues, Cecilia Pérez, Labor partner at Garrigues, and Berta Pérez Oleaga, director of Work & Rewards at WTW Spain, reviewed the principles and measures for pay transparency in the directive and analyzed its possible impact on Spanish legislation, in a hybrid event moderated by Eduardo Gómez de Salazar, HCS partner at Garrigues.

Foreseeing new obligations and changes

At the beginning of the event, Gómez de Salazar pointed out the challenge that the directive will represent for human resources professionals and the questions it raises for those responsible for compensation, culture, human resources and labor relations in companies.

Cecilia Pérez mentioned that Spanish legislation contemplates the remuneration register, the salary audit (and, as part of this, the job evaluation) and the right of the workforce to information on certain aspects of remuneration as instruments for applying the principle of transparency of remuneration, understood as that which makes it possible to obtain sufficient and significant information on the value attributed to remuneration. However, the new directive contains significant innovations with respect to this legislation.

Among the most novel changes, Cecilia Pérez highlighted that, on the one hand, pre-employment pay transparency will be regulated: companies will have to provide job applicants with information on the starting salary or salary band that will apply to them. In addition, companies will not be allowed to ask candidates what their current salary is. Moreover, there will also be changes to pay transparency during employment: (i) companies will have to make available to their personnel the criteria (objective and gender-neutral) used to determine pay, pay levels and pay progression; and (ii) employees will be able to request companies to provide information on their individual pay level and on average pay levels, broken down by gender, for categories of employees performing the same or equal work.

The Garrigues partner also noted that, according to the new directive, the information relating to the pay gap (measured in up to seven different ways) will have to be transmitted to a body or authority, after consultation with the employees’ representatives, and with a periodicity determined by the number of employees in the company's workforce. It is expected that the determination of the authority competent to receive this information for publication will be determined in the transposition into Spanish law.

On the other hand, companies with more than 100 employees that have detected a gender pay gap of at least 5%, those that have not justified such gap on the basis of objective and gender-neutral criteria, or those that, having such a gap, have not corrected it within six months following the submission of the information will have to carry out a joint assessment with the employees' representatives in order to correct and avoid pay differences between men and women that are not justified on the basis of such criteria.

Possible sanctions

As regards possible penalties for non-compliance, Cecilia Pérez explained that the directive provides that Member States must establish effective, proportionate and dissuasive penalty systems applicable to infringements of the rights and obligations relating to the principle of equal pay. In addition, they will also have to ensure that there are remedies in their legislation for such infringements and provide for the right of any employee who has suffered prejudice from such infringements to full, dissuasive and proportionate compensation (without a predetermined maximum limit).

What can companies do?

Berta Pérez mentioned that the transposition of the directive will entail far-reaching changes and will mean a change in the way compensation policy is managed in companies. She emphasized that, therefore, it is important for companies to anticipate and reflect on their compensation strategy to ensure that it is correctly designed, articulated, solid and aligned with the values and strategy of the business. This means, for example, ensuring that the current job evaluation system is consistent, that the job architecture model is linked to the salary structures, verifying how employees and new hires are going to be paid, etc.

In addition, Berta Pérez flagged, with the new directive, the importance of having quality data that allows calculations related to pay gaps to be done correctly. For example, some companies are already making previous calculations to know if there are some groups of employees or levels at risk, identify areas of improvement to subsequently establish an action plan and arrive at 2026 better prepared.

If you want to know more about this new directive, you can consult this executive summary.