Gender Pay Gap Reporting and Transparency

The September 2018 edition of Employment Flash summarized the requirements of the U.K. Equality Act 2010 Regulations 2017, which went into effect on April 6, 2017. The regulations introduced mandatory gender pay gap reporting by large private and voluntary sector employers to identify the difference between the average pay of men and women in the U.K., with the goal of narrowing that gap.

The regulations should be considered in the context of the European Commission’s focus on combating the gender pay gap within the European Union and ensuring that existing legal rules governing the principle of equal pay between men and women are enforced. This equal pay principle, which compares the pay of men and women in equivalent roles, has been codified in European law (and applied across the EU) since at least 1975.

Though currently there is no Europewide legal framework for gender pay gap reporting, in March 2014, the commission published its “Recommendation on strengthening the principle of equal pay between men and women through transparency.” The recommendation does not impose new legislation on the EU member states, but it does encourage each member to put in place at least one of the recommended action points, including:

  • requirements for large and medium-size employers to regularly report the average remuneration by category of employee or position, broken down by gender;
  • mandatory pay audits of large employers and making such audits available to workers’ representatives and social partners upon request; and
  • inclusion of equal pay issues and pay audits in collective bargaining.

In November 2017, the commission adopted the “EU Action Plan 2017-2019” to address the causes of the gender pay gap. The plan includes a number of action items for the current commission to implement by the end of its current mandate in 2019, including:

  • raising public awareness about the gender pay gap;
  • enhancing partnerships to tackle the gender pay gap;
  • improving the application of the equal pay principle;
  • breaking the “glass ceiling” and addressing vertical segregation (i.e., the overrepresentation of men in higher-status jobs in many sectors of the economy);
  • tackling the “care penalty” for those with caretaker responsibilities; and
  • uncovering gender inequalities and stereotypes.

The regulations have already attempted to address some of these issues in the U.K., most notably by alerting and informing the public about the gender pay gap. Now, other European countries, including France and Germany, are considering similar rules.

France

Despite recent legislative efforts, in 2017 the Organisation for Economic Co-operation and Development found that the median gender pay gap in France is 9.9 percent. In light of this figure, additional measures were implemented to address the gender pay gap. The French government adopted a new law on September 5, 2018 (“Loi Avenir Professionnel”), which went into effect on January 1, 2019, that contains a specific chapter aimed at remediating the gender pay gap and addressing sexual harassment and sexist behavior in the workplace. In particular, the new law created a yearly obligation for businesses with over 50 employees to measure, report and publish their gender pay gap figures and effectively remediate such pay gaps. Companies with more than 1,000 employees will have until March 1, 2019, to report their figures for 2018. Companies with between 250 and 1,000 employees will have until September 1, 2019, to report their figures for 2018. Companies with between 50 and 250 employees will have until March 1, 2020, to report their figures for 2019.

Companies are required to measure the following five metrics over a period of 12 months:

  • actual gender pay gap figure within the company, based on 10-year age groups and socio-professional category, worth up to 40 points;
  • percentage of women whose salary increased after maternity leave, worth up to 15 points;
  • difference in promotions between men and women, worth up to 15 points;
  • difference in pay increase, excluding promotions, between men and women, worth up to 20 points; and
  • number of the least-represented gender among the top 10 paid employees of the company, worth up to 10 points (only for companies with more than 250 employees).

A certain number of points will be attributed depending on how well the company performs in each category. The results of the calculation will be compiled into a report, and if companies fail to obtain the target score of 75 out of 100 points, they will have three years to remedy the failure or face a potential fine of up to 1 percent of their total yearly payroll costs.

A transparency obligation accompanies the new law. This obligation requires companies to publish their overall gender pay gap results and their proposed measures for reducing the pay gap. Each company’s grade must be published on the company’s website or communicated to the employees by another means if the company does not have a website. In addition, the company must communicate its report and the planned corrective measures, if any, to its works council and by electronic filing to the French Ministry of Labor.

The ministry announced in March 2018 that, to ensure compliance with gender equality regulations, Labor inspections are expected to quadruple from 1,730 to 7,000 annual evaluations.

Germany

The June 2017 edition of Employment Flash summarized recent equal pay developments in Germany. German legislators have focused on pay transparency, as opposed to gender pay gap reporting, to enable the enforcement of equal pay laws. The Transparency of Remuneration Act (TRA), which went into effect in Germany on June 1, 2017, applies nationwide in all industry sectors and prohibits unequal pay based on an employee’s sex with respect to employees who perform comparable work. Notably, the TRA provides that employees working in establishments with more than 200 employees can request information about the average remuneration of a group of at least six comparable employees. An employee must show in an application to the employer that the employees in the group to be compared are in fact comparable. The information to be provided by the employer is establishment-specific information. Therefore, higher wages paid by the same employer to employees in other establishments and in other regions of Germany are not relevant for the comparison. The employer is obligated to provide information within three months of an employee’s request. If the employer fails to comply with these requests, a presumption of unequal treatment applies, and the employee is entitled to the higher average remuneration. Furthermore, if the employer complies and the information shows that at least six comparable employees of the opposite sex are paid more on average for performing the same or equivalent work, the employee is entitled to the higher average remuneration. The TRA does not specify any penalties for unequal pay violations.

Each country’s pay gap figures are different, and the reasons for such figures will vary. Accordingly, there is no “one size fits all” remedy to address equal pay issues. What is clear, however, is that similar initiatives are being considered across Europe to address such issues.