Ready, Set, Comply: Accelerating Your EU Directive Response

Speaker A: Hello to all the listeners and welcome to HRBytes. I'm Aditi Jagannathan, uh, and I'm a partner and I lead the UK anemia talent, uh, advisory practice within human capital at Aon. I've been at Aon for coming up to about 18 years now in various different roles in human capital. Our talent advisory team at AON is leading our response on supporting clients with pay transparency across Europe. I'm joined today by Jackie Wohler from AON and John Ford from trusaic. Jackie, would you like to introduce yourself?

Speaker B: Hi everyone. Yes, I'm Jackie Waller. I'm an associate partner at Aon. I've been with Aon for nearly 30 years and of late I've been spending an awful lot of my time advising organizations on pay transparency, its implications and how best to think about implementation. Over to you, John.

Speaker C: Thanks, Jackie. And thanks, Jackie, for having me up here on the podcast. Really thrilled to be here with you and the group at aon. Um, I'm John Ford, Chief Product and Revenue Officer at prusaic. Uh, TRUSAIC is a comp and rewards technology firm and we offer a pay equity transparency and pay data reporting platform that helps customers to ensure that their meeting the rapidly evolving regulatory requirements globally. Um, and so in my role@ uh, Truzaic, I have the opportunity to lead our product strategy and product roadmap as well as have conversations daily with uh, customers in the business landscape at large. So, looking forward to our conversation today.

Speaker A: John and Jackie, thank you very much for joining me today. Uh, as you've already heard, today we're going to dive into a topic that's really making waves not just across Europe, but globally. But specifically today, we're going to talk about the EU Pay Transparency Directive. The EU Pay Transparency Directive really focuses on closing the persistent gender pay gap. Currently, the gender pay gap is averaging around 13% across the EU, as per Aon's latest research. Uh, but the EU Pay Transparency Directive is really focusing on closing this gap and getting employers to focus on workplace equity. Uh, the directive, which was first launched in 2023, requires employers of all size to become far more transparent about how they pay their employees. From right to information to mandatory reporting, equal pay assessments. The directive is really set to have a significant impact on the way employers employees see the future of pay and pay equity. While the directive came in 23, employers have had three years to put it into sort of practice. And so we're looking at June 2026, which means we're less than 1 pay cycle away from this pay directive going live. As per Aeon's latest research, only 13% of organizations felt they were fully ready for this. And that's frankly, from our perspective, a real wake up call. Because if you haven't already started acting, now is really the time to get,

Speaker C: um.

Speaker A: Legislation will require that employers of all size become more transparent about their pay policies, their pay progression, as well as how they pay their employees across gender. The Directive is going to have a significant impact on the future of pay equity, not just in Europe, but globally. I'm going to just talk about the key features of the directive here. Firstly, employers have to publish pay ranges for roles when advertising positions, both internally and externally. A key aspect of the directive is a formal right to information for employees, which means an employee can request data about their own pay level as well as average pay levels for work of equal value and the criteria that an organization is using to make those decisions. Uh, to be able to report this, employers need to organize their workforce into very clear categories of workers, which is the phrase used quite often in the directive which refers to work of equal value. And we'll spend some time on this podcast talking about how to define categories of workers. What is the most practical way of doing so, because this is really the core to the Directive in terms of reporting. There's an obligation to identify and report gender pay gaps of more than 5%. If the gap cannot be objectively or neutrally justified, corrective action is expected jointly with works councils, unions or anyone else that might be involved. So, as you can see, this will have far reaching effects on how organizations have to manage their pay going forward and will give employees rights, specifically right to information on their pay. So if I just kick off this conversation, um, Jackie, you've had a lot of experience with helping organizations on this topic of, of pay transparency, but specifically when it comes to defining categories of workers, how would you advise organizations to look and assess their jobs for work of equal value?

Speaker B: Thanks, Aditi. Um, and there has been a lot of discussion and some confusion around what equal value really means under the Directive, especially because equal value is critical to how we define the category of worker, which is a fundamental concept under the Directive requirements. And I think it's important to remember there is no one European wide, um, definition of equal value, actually. But it is important to recognise that whilst we might not have the details of how every EU country is going to implement these requirements and there may be some differences by location, I think it's important to focus on preparing really for the minimum standards set by the Directive when it comes to category of worker and taking in a kind of pragmatic approach to interpreting, um, some of this, if you remain unclear, and I think focusing on equal value, the Directive does ask companies to assess jobs not just by title or function, but by the value they deliver. And that's the equal value concept. It's not just comparing jobs that are the same, but jobs that may be very different indeed. Um, and so, for example, roles in very different departments, and we've seen examples here of comparison between retail staff in stores and warehouse staff in, um, logistics depots, which may be compared to work of equal value when you look into the specific value and demands of the job. So when we think about that assessment of the role, the Directive does outline four key criteria which you need to look at. Um, and those criteria are skills, effort, responsibility and working conditions. Now, these aren't necessarily the only factors you need to look at, but a minimum. They should be your starting point for assessing how you level or grade roles in your organisation. And I think organisations should really be ready to demonstrate through documentation, through their job levelling approach, how they've used these criteria to group roles into appropriate worker categories. And the key here is not to define those categories too narrowly. A, uh, broad objective view across the organisation of how roles compare will definitely be closer to what the Directive intends when it comes to work of equal value rather than just equal work. And, you know, I've been an expert witness in one of the UK's largest private sector equal pay cases and I can say, uh, my own experience, jobs that seem worlds apart can be deemed to have equal value when looking at these kind of criteria. So it's crucial to use a robust levelling methodology and keeping clear records of your approach and rationale. I would say if you want to dive deeper into best practices as well around EU guidance on gender neutral job evaluation, there are some excellent guidelines that can be found, um, online from the EU regarding how to consider gender neutral job evaluation. I would absolutely recommend reviewing those. I hope that clarifies things a bit, Aditi. Especially how organisations should be thinking about defining and documenting categories of work.

Speaker A: Absolutely. Thanks, Jackie. And, ah, this is, like I said, very core to the Directive and almost the first thing we would advise organizations to look at. And so once the organization has identified work of equal value and has defined its category of worker, the next step is obviously looking at the actual pay gap. And, you know, what is the pay gap look like for that category of workers? The Directive itself has reference to total pay, which Includes all fixed elements of pay, salary allowances, bonus, includes long term incentives and also benefits and pensions. And so the scope of pay is really all encompassing here. And uh, there's very, very strict reference to total pay all across the directive. And if I just touch on this John, you and TRUZAIC do a lot of work with organizations, the data analytics side and how you would define total pay for the purpose of pay equity calculations. What advice would you have for organizations on that topic?

Speaker C: Yes, great, great question. So you know, once you've laid that foundation with respect to the grouping of employees and the categorization of workers into, you know, worker categories, then you have like you said, the data and analytics. And so we can split that into the two sides. One is the data and one is the analytics. And when it comes to the data, uh, the critical work stream that should be underway and if you haven't kicked off, you know, it's not too late, but you do need to get started as soon as possible is on the inventory in your data. Right. So um, when you think about data, uh, you can think about uh, some subcategories around the pay elements. Number one, uh, around the, and around also statistical controls or what we sometimes call wage influencing factors, number two, um, and then other pass through data fields. But with respect to the pay elements, uh, one of the, one of the things that is unique about ah, the directive is that it does expand the manner in which many organizations have historically been approaching, you know, pay equity, pay transparency and reporting. Because historically many organizations have limited their analysis to rates of pay, um, and targets, you know, information around what the current employee is expected to make. But what the directive does is it's clear that it will actually ask employers to report on actual earnings. And because of that expansion of uh, the pay data, uh, element reporting requirement, organizations are going to need to corral data, uh, across a much broader set of systems. Uh, and those systems may exist in different geographies, they may have different data ontologies and data validation schema. And so it's important to just get started on number one, understanding what pay elements the organization uh, pays for in different member states and then where that data is, how ready it is to be consolidated together, uh, to ultimately form the basis to then perform analytics. So data inventory is critical, uh, and moving into the analytics piece, you know, the high level organizations at uh, one level, the, the directive, all it asks you to do is report on the unadjusted pay gap. But most organizations have a desire to move beyond that to be able to Actually explain and understand what is causing these raw pay gaps. Meaning, uh, if there are differences in remuneration, is that coming from, for example, differences in tenure or differences in position or differences in level or different job families? To what extent are these different organizational and individual level factors contributing to that pay gap? The ability to quantify that empirically is a critical use case for employers as they mobilize around preparedness.

Speaker A: Thanks, John. That's really useful, especially I think what you're mentioning for multinational organizations or organizations that have data, uh, in different geographies. We all know how complicated it can get with respect to benefits, even variable pay plans, bonus plans, incentive plans in different geographies. So particularly if you're a multinational, if you have, uh, data sitting and reporting requirements in different European locations, I think John's advice, get started, get your data ready, start doing some analytics and really think about how you can explain some of your data, uh, and look at your pay gaps well in advance. Uh, I think many organizations are waiting for country level transpositions as well to look at how each EU nation implements the Directive, and that will make compliance more complicated and a real maze. But the key here, I think if I hear you, John, is to get started. Um, obviously we're doing this because the crux of the directive is to avoid any gender bias when it comes to pay and to avoid any equal pay claim cases. Um, and Jackie, I think you mentioned that you've been an expert witness in some high profile UK equal pay cases and you know, the UK will pretty much set the benchmark for some of this because we've, we've seen it happening in the UK over the past few years already. And so what lessons would you say EU employers could learn looking at what's already happening in the uk? And could you walk us through maybe some examples?

Speaker B: Thanks, Aditi. Yes, I mean, I think we have to recognise the risks are real and can be very sizable. Um, you know, we've seen the high profile equal pay claims recently in the UK with the major UK supermarkets, for example. Um, and this may be what's coming in the eu, because the concept of equal pay for work of equal value is something the UK actually initially took from EU legislation. So the issues we're seeing play out now in the UK in terms of some of these claims could, um, well be an indicator of what may happen, um, for organisations in the EU if they're not well prepared. And, you know, I think we have to recognise the EU Pay Transparency Directive, designed to make it easier for employees to access Pay information with a clear intention of enabling these sort of claims if someone feels they're not being paid fairly. And I think one really important thing to note in terms of the directive is that it does shift the burden of proof around, um, pay inequity. So previously, both in the EU and the uk, the onus was on the employee really to prove a pay disparity in order to move on with the claim. But now when an employee brings a claim, it's up to the employer to show that actually there's a fair and justifiable reason for a pay difference. So this means that employers could be much more exposed, especially if they don't have a clear explanation or detail of why there may be differences in pay for roles doing work of equal value. And I think some of the biggest risks for these kind of organizations which have large blue collar around administrative workforce, where jobs that seem very different may actually be seen as having equal value under the terms of the directive. And so, for example, um, school support workers like dinner ladies and teaching assistants versus refuge collectors and street cleaners may end up being compared. And a dramatic real life example is Birmingham City Council, which many of us may be aware of, um, that was essentially pushed into bankruptcy because of the financial exposure, um, created by an equal pay claim for those very roles. So it's absolutely important, um, to be very aware of the potential exposure of roles which may be very different. And we are seeing related developments in the UK supermarket cases as well, where we're seeing organisations, you know, attempting to say, look, roles in supermarkets and roles in our distribution centres are very different, they're under very different terms and conditions. But actually the EU court actually decided under the view of a single source employer that they're paid by the same overall entity, therefore they can be compared. And um, you know, this is leading to claims that could cost these organizations billions, literally. And so I think my best advice for employers is, you know, be pragmatic and be proactive about this. Make sure you're really clear about your worker categories and why you've assessed roles into the same category. And if you are paying differently within category, which is absolutely fine, you just need to be able to document why, be clear and make sure those reasons are gender neutral, auditable and objective. And then having this documentation lined up is absolutely your best defence should you find yourself in a claim. And you'll be much better positioned to avoid these kind of costly and reputation damaging situations that have been unfolding in cases, you know, that we've seen in the uk, such as the councils or the supermarkets. And I think thinking about things like performance, experience, specialised skills, specific responsibilities, they can absolutely justify legitimate pay differences. The key is you must be able to just explain and evidence those reasons with thorough documentation, regular auditing. As John mentioned earlier, I think it's essential just to be able to demonstrate the differences in pay, if they exist, are just due to, you know, good reasons that are gender neutral. And hopefully if you have a high level of transparency and record keeping, you'll be able to avoid these kind of claims, um, and at least it will put you on the front foot should employees start to question these things. So absolutely be robust, methodological in your approach and you should be in a good position to um, steer clear of some of the costly um, and high risk equal pay disputes we've seen um, play out in the uk.

Speaker A: Thanks Jackie. And I think some of those real life examples are really useful and has given the listeners quite a lot to think about, but also a lot of just really practical advice on how they can get started and how they can really establish a stronger baseline before this. A lot of these reporting and transparency requirements kick in in June 26, uh, shifting the focus a little back to Europe and the EU Directive. Um, John, we were just talking about employers that operate in multiple European countries. And we know, and just a reminder to all our lead listeners, transparency requirements are applicable even if you have one employee in some of these countries. Reporting requirements are different and differ by size but could also get really complicated and confusing for organizations again, that have employees in different European locations. So John, practically, when organizations are dealing with multiple European countries, what is your advice to them on how they can stay compliant and how does technology help make this more manageable for them?

Speaker C: Yes, great question Aditi. And really I think the key is to position the organization to be able to manage the responsibility that this Directive imposes at scale, um, in a manner that's administratively efficient. And to do so, technology will play a critical role in this puzzle. And that's true whether you have, you know, a, uh, workforce in one member state or in multiple. Um, and so if you think about from a technology perspective the things that you want to be doing as an organization, you can think of four core, um, analytical workflows. So number one is the reporting itself. So the ability to capture the data that's required to generate the metrics that are specified by the Directive. Number two is to explain and to fix any pay gaps that may exist. Um, and so what's going to be critical, there is technology that enables Statistical multiple linear regression analysis modeling to be able to understand the extent to which the factors that are a, uh, function of the organization's compensation philosophy and policies are actually driving pay, and understand any gaps that remain that should be remediated to ensure that the employer can drive the explained pay gap below the 5% threshold that both you and Jackie mentioned earlier. Number three is communications and explanation. So think about the RTI request, the right to information request. Uh, beginning June of next year, organizations will begin to receive dozens, hundreds or even thousands of uh, requests, depending on the size of the organization. Uh, and organizations want to be able to know that they have, uh, complied in a timely fashion. In general, employers must respond within 60 days to these requests, um, and they will want to know when that request was initiated, what was generated as a function of that request, when that was delivered to the employee, and have that all captured and logged in some form that allows them to easily prove that they've complied with their statutory requirement. And fourthly, I think another key use case is to proactively prevent, um, you know, pay equity, pay transparency issues, uh, at the point of higher promotion or transition. And that is one of the most exciting opportunities where technology can actually enable both compensation and talent acquisition and recruiting teams to have the insights available, uh, that they need at the right time to prevent pay equity issues. So, um, you know, you should, you should be asking yourself, if we zoom out, does the technology that you're looking to leverage, does it have an underlying intelligent regulatory knowledge base that is infused throughout the data formats and the analytics? Does the system allow you to bring in data from multiple sources and formats in an easy manner and can it quickly and easily transform that data, uh, in a manner that's intelligent and that intelligently maps against your geographic locations and the regulatory requirements that are present there? And so, you know, as was called out earlier, uh, there is certainly the federal floor and it does appear to this point that most member states are not really engaging in gold plating, uh, or you know, adding standards that go too far beyond that threshold established by the federal level. But to the extent that that does take place as the remaining member states transpose the requirements, you want to make sure that the technology solution has that intelligent regulatory knowledge base that underpins it, uh, to set you up for success, uh, to ensure that you are meeting those different member state granular nuances and differences, uh, that may exist. So I think that all of this being captured in a workflow that's audit ready, it's straightforward to review. Those are the keys to prepare organizations so that they have confidence and assurance that they're meeting their compliance and legal requirements. Aditi?

Speaker A: Thank you, John. And, you know, I think that really leaves organizations with some, um, ways to get started and really think about what they need to do to get in line for especially reporting requirements as it comes in. And building on what you said, I'd add that, you know, it's not just having the right systems and audit trails in place, but one thing organizations need to start thinking carefully about is also stakeholder management as well as leadership manager awareness, manager training, um, because a lot of these employee queries may be directed to managers and leaders in first instance. Um, so it's important to prepare your people, managers and your leaders to understand how to handle these requests. It might mean running workshops, training sessions, something that Aon is already doing for lots of organizations, to help managers and leaders anticipate the kind of questions they might receive and also to put some process and guide governance around the workflows and the responses that are required under the new regulations. Um, so, you know, I think from my perspective, the real success here is how you balance the regulatory requirements, the technology requirements, with the human side, with, you know, teaching leaders and managers how to respond consistently and confidently to some of these queries and requests, uh, coming through from employees. And much of the conversation today or otherwise around pay transparency has focused around compliance. But I think one really important thing to keep in mind is that the organizations that use this as an opportunity and go beyond compliance and really shift their mindset towards being more transparent, fair and equitable will be the ones probably have a strategic advantage when it comes to attracting and retaining the best talent. And so I'd probably leave organizations with a thought saying, how are you going to look at this directive? Are you going to look at it as an obligation or an opportunity? And having heard both Jackie and John's insights today, I'd probably like to leave you with two main takeaways. First of all, be pragmatic, but don't wait. Start preparing now. Don't wait for every country to finalize its specific legislation, because much of what's in the EU Directive, which has been out there for some time now, will be required. There might be variations across countries, but the core principles around pay equity and work of equal value will remain the same. Secondly, take time to really understand what the regulations, uh, are, how you're going to respond to it, and how it will impact your organization. Look at your size, your structure, your scope, your geographic footprint, and find out what is the best way for you to respond. So those are my two tips. John and Jackie, any key takeaways from your side for our audience? Jackie, I'll start with you.

Speaker B: Yes, I mean, I think for me, I'd absolutely just reiterate what you've said. Don't wait. Take an educated view on some of the aspects of the directive. If you're not 100% sure there's enough information there, and if you take advice from external providers such as AON or Trusec, they can absolutely help that transition. So don't let uncertainty slow you down. Now definitely is the time to act. Um, and there, there are some pragmatic and sensible positions you can take on some of these things. So, um, get going now. My primary message there, John, over to you.

Speaker C: Absolutely 100% agree with that. And, you know, we just close with in areas and environments of ambiguity, take a good faith, reasonable approach, be proactive and document like Jackie mentioned. Um, and be flexible. Prepare for different potential future states as well. Um, and also be cognizant of the fact that this is going to be a journey. There is no just one. Check the box and you're done. This is an ongoing new, uh, landscape for employers in Europe and more broadly, globally. Uh, and so the important thing is to get started today, realize that it will be a journey, it will be reflective, and that employers will take approaches, regulatory bodies, um, will issue up additional guidance, uh, and the space will evolve over the next decade. Uh, but pragmatism and documentation, to your point, Jackie, are critical.

Speaker A: Thank you so much for your time, John and Jackie, and I hope that our listeners found this useful and informative. Uh, there's a lot of complexities in the directive, so if you require any further information on how you navigate these, feel free to reach out to, uh, us at AON Orzake. You can also check out our latest pay transparency guide in the bio. Thank you so much for your time and hope you enjoyed this.