The Revolution of Equal Pay and Pay Transparency: How Prepared Is Your Company for the Changes? Let’s make an assessment!

According to the objectives of the European Union, the gender pay gap will soon become outdated. This issue has been a concern for the EU for a long time, and one of its latest initiatives is the EU Directive on equal pay and pay transparency (Directive 2023/970 of 10 May 2023 on strengthening the application of the principle of equal pay for equal work or work of equal value between men and women through pay transparency and enforcement mechanisms). 

The directive aims to reduce the gender pay gap and promote pay transparency. The deadline for implementing the directive is 7 June 2026, by which time Member States must incorporate it into their national legislation. In Hungary, no related legislative proposal has yet been published. The expected news regarding the draft legislation is likely to arrive only next spring, so it is advisable to prepare based on the directive in the meantime.

In our article, we will present, among other things, the key measures of the directive, the rights of job applicants, and the main obligations of employers, as well as how companies can prepare for pay transparency. If you would like to assess your company's level of preparedness, please fill out our questionnaire. 

Please note: the assessment is available in Hungarian only.

The Current State of the Pay Gap

According to Eurostat surveys, the gender pay gap in the EU has only decreased minimally over the past ten years, averaging 12.7%, while in Hungary, this rate has risen to 17.8%.

Several factors contribute to the formation of the pay gap, including gender stereotypes, interruptions in women's career paths (as childcare responsibilities are typically taken on by women after childbirth), and the fact that administrative jobs are predominantly performed by women. Additionally, the proportion of female leaders is low, especially in senior management positions, which complicates the situation. The pay gap is generally lower among entry-level employees but increases proportionally with age and career advancement, particularly in managerial positions.

Scope of the Directive

The scope of the directive extends to all employees and job seekers in EU member states and applies to all monetary payments as well as benefits in kind, regardless of the frequency of payment. This includes various allowances, bonuses, training-related, housing or meal reimbursements, insurances, as well as long-term incentive income (LTI), employer pension benefits, and severance payments.

The aim of the directive is to promote equal pay in the labour market through pay transparency.

Key Measures of the Directive

The EU directive on equal pay and pay transparency includes several key measures, which are as follows:

What Other Obligations Should Employers Pay Attention To?

Before advertising a new position, employers must ensure that:

• A clear job structure has been established, and job titles are gender neutral.
• Recruitment processes have been reviewed and updated.
• A compensation framework has been developed, including the definition of salary ranges.
• Training has been provided for managers and stakeholders involved in recruitment.

In addition to the above, employers must ensure the following:

• The methodological development of the reporting obligations outlined in the directive, which applies to companies with more than 100 employees.
• Conducting a joint pay assessment in cooperation with employee representatives if the pay gap (considering objective factors) reaches or exceeds 5% in any category of employees, or if the discrepancy is not remedied within six months.

Corporate Preparation for Pay Transparency

For companies, equal pay and pay transparency are not only legal compliance obligations but also a competitive advantage.

The following important measures need to be taken for proper preparation:

Maturity Framework – Where Do We Stand Now?

Based on the Maturity Framework, your company may be at one of the following four maturity levels regarding equal pay and pay transparency and can further develop from there. The nature and extent of the actions depend on where you want to go from your starting point.

These levels help companies identify their current situation and determine the necessary steps to achieve pay transparency and equal pay.

The assessment should be presented in the form of a "heat map," which most effectively illustrates the largest discrepancies, whether by business unit or job category, thereby highlighting potential risks. Following this, it is essential to thoroughly investigate the causes of gender pay gaps, as well as to identify discrepancies that are relevant to the directive (justified, but especially unjustified differences).

If you would like to understand your company's current position in preparing for the principles of equal pay and pay transparency, please fill out the questionnaire below.

Please note: the assessment is available in Hungarian only.

Summary

The revolution of equal pay and pay transparency is not just about legal compliance; it is also about enhancing workplace equity, competitiveness, and corporate sustainability. The new guidelines and their implementation at the corporate level create an opportunity to reduce the gender pay gap and make gender equality in the workplace a reality.

The directive, beyond compliance with legal requirements and reporting obligations, provides the company with the opportunity to thoroughly assess its current situation and initiate transformations depending on its maturity. The key to success is to start the preparation and assessment in a timely manner, as well as to ensure smooth collaboration across different areas. Although this topic is typically associated with HR, it is important to understand that it is not solely an HR task, as expertise in technology, labor law, and compensation is also needed, which goes far beyond the HR domain.

HR faces a challenging path, but we believe that if you collaborate with a provider capable of covering all relevant areas and offering support in project management (as EY Hungary does), long-term success is guaranteed.