Why should I read this?
Pay transparency planning will take on a new urgency for many companies during 2025. In accordance with the EU Pay Transparency Directive, employers with 150 workers or more must report prescribed information on their gender pay gap by 7 June 2027. Since this reporting must relate to data from the previous calendar year, this means that companies will need to already have the infrastructure in place to start compiling their data from 1 January 2026 at the latest.
While the requirements of the Pay Transparency Directive have often garnered the most attention globally, it is imperative not to overlook the significance of other concurrent reporting obligations. Notably, some companies may need to disclose gender pay gap data in accordance with the EU Corporate Sustainability Reporting Directive (CSRD), potentially much earlier than the requirements arising from the Pay Transparency Directive.
What do I need to know?
The CSRD is broad in its application, estimated to be applicable to almost 50,000 companies across the EU, plus more beyond the EU. Many companies listed on an EU regulated market will be within the scope of its requirements, as well as large EU companies that are not listed and non-EU undertakings that have significant activity in the EU (subject to prescribed financial and workforce thresholds).
The CSRD requires that in-scope companies produce an annual sustainability report encompassing comprehensive information on environmental, social, and governance (ESG) factors. This report must include details necessary to understand the company’s material impacts on people and the environment and the material effects of sustainability matters on the company’s development, performance and position.
The reporting timeline and the breadth of information required under the CSRD differs between large and small to medium-sized enterprises, with the reporting requirement commencing on 1 January 2025 for some larger companies for the financial year commencing on or after 1 January 2024.
European Sustainability Reporting Standards inform the CSRD reporting requirements, in accordance with which, subject to a “double materiality” assessment, employers may be required to disclose both the percentage pay disparity between female and male employees and the ratio between the pay of the highest-paid individual and the median pay.
Companies should therefore be mindful of the potential concurrent obligations to report on gender pay under the Pay Transparency Directive and the CSRD. Further, despite the Pay Transparency Directive not applying outside the EU, non-EU companies may nonetheless have to report on gender pay gaps due to the CSRD’s extra-territorial scope.
What should I do next?
Companies, especially those without prior experience of reporting gender pay gap data and those operating across a number of jurisdictions, will need to undertake substantial planning throughout 2025 to ensure compliance with the Pay Transparency Directive when the mandatory requirements come into effect. This is not only critical for ensuring that robust infrastructure is in place to report the required data, but also to allow for trial runs to be conducted of data compilation and reporting processes.
It will be critical not to overlook other potential overlapping obligations to report on gender pay gaps, including disclosures prescribed by the CSRD. Evaluating an organization’s legal entity structure will be key to identifying both whether a company is within the scope of the CSRD and the timing of reporting obligations.
All companies should anticipate an increased focus on people risks, policies, KPIs and action plans regarding pay equity.
