EU's New Pay Transparency Directive: What Does It Mean for Recruitment?

While the directive moves towards formal approval before it’s signed into law, employers across the EU are faced with numerous questions. What does this mean for employers? How will this affect recruitment and hiring processes?

Continue reading to find out!

What exactly is the new EU Pay Transparency Directive?

The EU Pay Transparency Directive is designed to level the playing field when it comes to salaries and recruitment. The directive dictates that:

• Job applicants must be provided with clear information about the starting salary or salary range before the interview.
• Employers can’t request an applicant’s salary history.
• Pay structures need to be based on gender-neutral criteria, including gender-neutral job evaluation and classification systems. They also need to be made readily available for employees.
• Open vacancies and job titles need to be gender-neutral.
• Employees will have the right to receive information on individual and average pay levels, broken down by gender.
• Pay secrecy can not be imposed on workers by contractual terms.

Another major change is the reversal of the burden of proof.  Once the new rules come into force, national legislation must require the employer, not the employee, to prove that no discrimination has taken place if cases are taken into court.

The rules above will affect every company in the EU. Additional requirements for reporting on the gender pay gap affect only larger companies. Companies employing 100 or more people need to report on gender pay cap every three years, whereas companies whose payroll exceeds 250 employees should report on an annual basis. 

How will the new directive affect your recruitment and hiring process?

Since you need to inform candidates about the salary range of your open vacancy before any interviews take place, you need to have a better grasp of the going rate for your open position.

The pay transparency directive might affect other HR processes more, but will have a major impact on recruitment as well. 

Since you need to inform candidates about the salary range of your open vacancy before any interviews take place, you need to have a better grasp of the going rate for your open position. If you have previously gauged a candidate’s current or desired pay level during the salary negotiation, you will need to change your strategy. You might end up alienating potential candidates by introducing a salary level that is too low, or on the other hand find yourself paying way over the market price.

Sometimes you might end up in a situation where you want – or need to – offer a salary higher than you had originally planned to. As you aren’t allowed to ask candidates about their salary history you need to implement other tactics during the salary negotiation. 

And about underpaying new hires. Well, it could backfire on you sooner than you think. 

An important factor to keep in mind is your new hire’s right to ask and receive information about the salaries of others working in similar positions at your company. This may very well work the other way around as well: your current personnel might be interested to learn how much new hires are being paid and are their salaries in line.

Some employers may have been using special terms in employment contracts to implement pay secrecy inside their organization. This won’t be an option either in the future, so be sure to assess and correctly align your internal pay structures.

Don’t dread it – make the most of it!

Pay transparency is often associated with forward-looking and fair employers. If you have a clear and equal pay structure, why not flaunt it to prospective talent?

While the new EU directive will level the playing field and force change, you can still find ways to differentiate and utilize pay transparency to your advantage, even if you haven’t been one of the forerunners in it.

Pay transparency is often associated with forward-looking and fair employers. If you have a clear and equal pay structure, why not flaunt it to prospective talent?

One thing is for sure: job seekers want pay transparency. And preferably from the get-go by including it in the job description.

According to a survey by LinkedIn, a whopping 91% of the survey’s respondents said that including salary ranges in a job post would directly affect their decision to apply. Another one of their surveys showed that pay transparency in job postings would give a more positive impression of the company. Duunitori’s 2022 research in Finland echoed this sentiment: including a salary or salary range in a job post was seen as one of the top 5 wishes for employers. Including the salary or salary range in your job ad creates trust among job seekers and could be the factor that tips the scales in favor of applying for your open vacancy.

Pay transparency can be a powerful tool in your recruitment marketing. By answering these wants of the job seekers and employees you improve your employer brand and make sure you don’t miss out on quality applicants.