The legislative process related to the EU Directive on Pay Transparency has been completed. Soon, work will begin in the Polish parliament on implementing the provisions of the Directive into Polish labor law. EU member states will have 3 years to implement the Directive's provisions. As a result, 2026 will be the first year in which the Directive will apply to Polish employers.

It may seem like employers have plenty of time, but reading the Directive will dispel any illusions for those who believe that complying with its requirements can be done quickly, easily, and without significant organizational and financial effort. It is worth mentioning the "financial effort" because the intention of the EU legislator is to "equalize" the salaries of women and men. As a result, it can be assumed that there will be organizations for which implementing the new provisions will practically mean the need to increase the salaries of specific groups of employees (usually women) as a matter of principle.

The scale of the gender pay gap is indicated by Eurostat data, which shows that the gender pay gap in the EU is 12.7% (data for 2021). Among the main causes of this situation are: 1) pay discrimination and the perpetuation of cultural and social stereotypes, 2) horizontal segregation, which means the overrepresentation of women in low-paid service sector jobs, and 3) the ratio of full-time to part-time work. It is estimated that two-thirds of the "unexplained" gender pay gap is due to gender-neutral factors. In Poland, according to Eurostat data, the gender pay gap is one of the lowest in Europe and was 4.5% in 2021 (fourth from the bottom). According to the Ministry of Family and Social Policy, this difference is mainly generated by the private sector, where it is 12.9%, while in the public sector, it is only 2.3%.

It is important to emphasize that, so called "raw gender pay gap," i.e., the difference in average salaries between women and men (as presented, for example, by Eurostat statistics mentioned above), overlooks many important aspects. Firstly, the employment structure of women and men is diverse for certain age groups, sectors, or occupations. If certain occupations, such as higher-paying ones, are more frequently performed by men, and others, lower-paying ones, are more feminized, the average differences in salaries will incorrectly suggest the existence of gender-based pay differences. Many studies also confirm the aforementioned difference in the size of the pay gap between employees in the public and private sectors. Lastly, when explaining the size of the pay gap (without justifying its height), it is important to consider that employers' decisions regarding employment and salaries reveal a range of stereotypes that need to be identified and eliminated, such as differences between men and women in terms of risk propensity, self-confidence, or statistically lower financial expectations of women (confirmed by numerous studies). As a result, a certain portion of the gender pay gap may reflect differences in career choices and paths resulting from entrenched social norms and corresponding attitudes of women.

Regarding the essence of the Directive, the following are often mentioned as its most important requirements:

• Obligations related to access to salary information in the recruitment process for new employees.
• Ensuring access to salary information for employees already employed in the company.
• Reporting on pay differences (employers employing more than 100 employees).
• Requirement to explain differences to employee representatives and take actions to eliminate them, unless they are justified by objective criteria.
• Other information obligations, including prohibiting employees from maintaining salary confidentiality.

Regarding the first group of obligations - according to the new regulations, employers will be required to provide candidates with information about the initial salary or its range. Such information can be provided in job advertisements as well as before the interview and recruitment conversation. The provision aims to equalize the bargaining power of the parties involved in the recruitment process and prevent gender-based salary differentiation already at the stage of recruiting new employees.

The above obligation will not only apply to individuals participating in the recruitment process. Employees already working in a company will also have access (upon request) to information about their individual salary level and average salary levels, broken down by gender, for categories of employees performing the same work as them or work of equal value. Each employee will also have the opportunity to receive such information through employee representatives.

The obligations from the third group - reporting on pay differences - are one of the key changes in salary management. Employers employing more than 100 employees will be required to prepare reports and submit them to the state "supervisory authority". Such reports will be prepared annually for companies employing more than 250 employees or every 3 years for other employers. In the reports, employers will be required to provide the supervisory authority with information on the gender pay gap for all elements of remuneration (plus separately for supplementary or variable components). Importantly, employers will be required to "confirm" the accuracy of the information they have prepared by consulting the results with employee representatives. Additionally, employee representatives must have access to information about the methodology used by the employer to calculate the pay gap. It is worth adding that the Directive also requires employers to provide part of the information contained in the mandatory report to all employees.

While the obligation to prepare analyses and reports is relatively clear, the process of eliminating pay differences (the fourth group of changes on the list) will be much more complex. To explain this issue, it is necessary to first clarify what differences the Directive refers to. The Directive introduces the concept of "objectively justified differences" and differences that cannot be explained. The Directive requires employers to compare salaries in terms of the work performed and job groups - thus referring to the concept of "job value" familiar to many employers. It is worth recalling that the Directive addresses the issue of pay differences for employees performing the same work or "work of equal value," i.e., work that is considered to have the same value according to non-discriminatory, objective, and gender-neutral criteria. The objective criteria indicated by the Directive are: 1) skills, 2) effort, 3) level of responsibility, and 4) working conditions, and, where appropriate, 5) any other factors that are relevant to a particular job or position. They must be applied in an objective, gender-neutral manner, excluding any direct or indirect gender discrimination. Assuming that not all factors will be equally relevant to a specific position, the employer should weigh each of the first four factors according to their importance for that particular position. In the event of pay inequality between women and men, it will be necessary to engage in discussions with employee representatives to explain these differences - the so-called "pay assessment." Such discussions will need to be initiated when the difference in the average level of remuneration between female and male employees in any category of employees reaches 5% or more, and when the employer is unable to explain this difference using the objective, gender-neutral criteria presented above. Employers will also be required to provide all employees and their representatives with such a joint pay assessment and submit it to the monitoring body.

Moving on to the last, fifth group of regulations from the above list, in addition to the previously mentioned requirements regarding access to information, it should be emphasized that employers will also be required to provide employees with information about the criteria used to determine salary levels, pay progression, and promotions. These criteria may include defining competency requirements, career paths, criteria for determining fixed and variable components of remuneration, etc. Each employer will have to ensure that employees have access to this information, and most importantly, that access is "easy." Employees, in exercising their rights, will also be able to request additional explanations and supplementary information from the employer. Employees will also have the right to request information about their individual salary level and average salary levels, broken down by gender, for employees performing the same work or work of equal value.

It should also be emphasized that the Directive applies to all employees, including those employed part-time, on fixed-term contracts, employed under employment contracts or through temporary employment agencies, as well as employees in managerial positions. Another important principle defined in the Directive concerns the definition of "remuneration." The Directive defines the concept of "remuneration" broadly, and it includes "ordinary basic or minimum hourly wage or monthly salary, as well as any other monetary or in-kind benefits received by the employee directly or indirectly (supplementary or variable components) from their employer by virtue of their employment."

From the perspective of implementing the provisions of the Directive, one element deserves special emphasis and attention. These are the relations between employers and the social partners (trade unions). The Directive treats the role and rights of "employee representatives" in a special way. In the accompanying documents to the Directive, when justifying the role of employee representatives, concerns about victimization when applying equal pay principles were mentioned in many places, indicating that employees should have the right to be represented by their representatives. Employee representatives can be trade unions or other employee representatives (elected by employees). The Directive devotes a great deal of attention to strengthening the role of employee representation. It can even be argued that after 2026, there will be few significant areas of remuneration decisions that will not require the involvement of employee representation (or unions). This involvement can take various forms - consultative, informational, or even decision-making.

In summary, the Directive introduces many fundamental changes in the field of employee relations and covers a range of HR processes, regulating many key areas of remuneration management and employee relations, from recruitment, promotions, salary increases, goal setting, to bonus calculation and payment. It is also worth noting that most of the provisions of the Directive apply to all employers, not just the largest ones (employing more than 100 employees), as is sometimes mistakenly assumed. In conclusion, the Directive will significantly impact employee relations, introducing a range of new "privileges" for employees and obligations for employers. Implementing the requirements of the Directive will not only involve the preparation of dedicated procedures and policies but will also require planning and preparation for engaging in dialogue with the social partners and providing economic education to employees.

Krzysztof Nowak

Mercer Poland, November 2023