EUROPEAN COMMISSION Brussels, 4.3.2021 SWD(2021) 41 final COMMISSION STAFF WORKING DOCUMENT



IMPACT ASSESSMENT

Accompanying the document Proposal for a

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL to strengthen 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



































{COM(2021) 93 final} - {SEC(2021) 101 final} - {SWD(2021) 42 final}



Contents Glossary 1.Introduction: Political and legal context 2.Problem definition 2.1.What is the problem? 2.2.What are the problem drivers? 2.3.Why is it a problem? 2.4.How will the problem evolve? 3.Why should the EU act? 3.1.Legal basis 3.2.Subsidiarity: Necessity of EU action 3.3.Subsidiarity: Added value of EU action 4.Objectives: What is to be achieved? 4.1.General objectives 4.2.Specific objectives 4.3.What is the baseline from which options are assessed? 5.SME test 6.Description of the policy options for EU level action

6.1.Options discarded at an early stage 6.2.Option 0: Status Quo 6.3.Option 1: Legislative action to create transparency for individual workers 6.4.Option 2: Legislative action to create transparency at employer level 6.5. Option 3: Legislative action to facilitate the application of and enforce the existing legal framework 6.6. Overview of the policy options 7.What are the impacts of the policy options? 7.1.Option 0: Status Quo 7.2.Option 1: Legislative action to create transparency for individual workers 7.3.Option 2: Legislative action to create transparency at employer level 7.4. Option 3: Legislative action to facilitate and enforce the existing legal framework 8.How do the options compare / preferred option 8.1.Effectiveness 8.2.Efficiency 8.3.Coherence 8.4. Comparison of options 8.5.Possible combination of options 8.6.Preferred Package 8.7.Hypothetical scenario of the potential economic impact of the preferred package of measures 8.8.Choice of legal instrument

9.How will actual impacts be monitored and evaluated? Bibliography Annexes Annex 1: Procedural information Annex 2: Stakeholder consultation Annex 3: Who is affected and how? Annex 4: Analytical methods Annex 5: Initiative specific annex Annex 6: Intervention logic Annex 7: Subsidiarity grid Annex 8: Job evaluation systems Glossary Term or acronym Meaning or definition CJEU Court of Justice of the European Union COVID-19 Severe acute respiratory syndrome coronavirus disease 2019 DG JUST Directorate-General for Justice and Consumers of the European Commission ECSR European Committee of Social Rights of the Council of Europe EIGE European Institute for Gender Equality ETUC European Trade Union Confederation FTE Full-Time Employment FRA European Union Agency for Fundamental Rights GDPR General Data Protection Regulation GPG Gender Pay Gap ILO International Labour Organisation ISCED International Standard Classification of Education ISCO-08 International Standard Classification of Occupations JRC Joint Research Center LFS Labour Force Survey NACE Statistical Classification of Economic Activities in the European Community (Nomenclature statistique des Activités économiques dans la Communauté Européenne) NFRD Non-Financial Reporting Directive RSB Regulatory Scrutiny Board SCM Standard Cost Model SES Structure of Earnings Survey SMEs Small and Medium Enterprises STEM Science, Technology, Engineering and Math TFEU Treaty on the Functioning of the European Union



1.Introduction: Political and legal context The right to equal pay between women and men for equal work or work of equal value has been a founding principle of the European Union since the Treaty of Rome in 1957. The requirement to ensure equal pay is set out in Article 157 TFEU and in Directive 2006/54/EC (the ‘Recast Directive’), as complemented in 2014 by a Commission Recommendation on Pay Transparency (the ‘2014 Recommendation’). Despite this legal framework, the effective implementation and enforcement of this principle in practice remains a major challenge in the European Union. In 2019, the European Committee of Social Rights identified the lack of pay transparency as one of the key obstacles to the implementation of the principle of equal pay . The European Parliament has repeatedly called for more action at EU level to enhance the application of the equal pay provisions. Also the Council has asked for action both on the side of Member States and on the side of the Commission. In June 2019, the Council called on the Commission to develop concrete measures to increase pay transparency. The European Pillar of social rights includes gender equality and the right to equal pay among its 20 principles. The EU Action Plan for 2017-2019 on tackling the gender pay gap specified that the Commission will assess the opportunities for improving pay transparency. Following European Commission’s President von der Leyen’s announcement in her political guidelines to introduce binding pay transparency measures, the Commission reaffirmed its commitment to present this initiative in the Gender Equality Strategy 2020-2025.

The present initiative follows on the Commission’s evaluation of the relevant legal provisions (the ‘2020 evaluation’) and previous Commission work . These assessments concluded that there was limited progress on enforcing the right to equal pay in Member States and evidenced, in particular, vastly distinct and largely inefficient systems operating in most Member States – making equal pay an inert legal provision. The evaluation pointed to a number of problems deterring victims of pay discrimination from enforcing their right and deemed to require further action: despite the 2014 Recommendation, a very limited number of countries put forward measures to improve transparency in pay setting systems within organisations; key legal definitions and concepts are not applied uniformly in practice and are insufficiently implemented across national legislations; victims have difficulties to claim their rights. This initiative aims at tackling the persisting inadequate implementation and enforcement of the fundamental right to equal pay and ensuring the respect of this right across the EU by establishing transparency on pay. It is part of a broader package of measures and initiatives that focus on tackling the root causes of the gender pay gap, such as the adoption and implementation of the Work-Life Balance Directive 2019/1158, sectoral initiatives fighting stereotypes and ensuring better gender balance, and the proposed Directive on improving gender balance on company boards of large EU listed companies. In addition, the initiative is coherent with the initiative aimed at increasing reporting by companies of relevant non-financial information. It is also consistent with and supported by the EU Minimum Wage initiative and the sustainable corporate governance initiative. While addressing the implementation of the principle of equal pay through pay transparency, this initiative takes into account different features of national social dialogue and collective bargaining systems as well as the autonomy of social partners and their contractual freedom. It also recognises the important role of social partners in addressing gender pay inequalities, including through pay transparency. 2.Problem definition 2.1.What is the problem? The problem tackled in this initiative is the failure to realise in the European Union the fundamental right to equal pay for the same work or work of equal value, despite this right being enshrined in EU law for more than 60 years. The information and data presented in the 2020 evaluation and in this chapter show that this failure persists . The failure to realise the right to equal pay means that women and men may still be discriminated either directly or on the basis of pay structures that do not value the work of women and men equally, i.e. according to objective and gender-neutral criteria. In many cases, discrimination or bias is the result not of deliberate discriminatory behaviour but rather of a failure to grasp, both by workers and employers, what it means in practice to pay men and women equally for the same work or for work of equal value. This might not be straightforward, especially when it comes to ‘work of equal value’ since it must first be assessed what is the value of the jobs concerned and second whether the pay received by men and women for jobs of same value is not discriminatory on the basis of sex. It is important to stress at the outset that under the current state of the law in the EU, the concept of ‘work of equal value’ only applies to different occupations defined as of equal value in the same organisation. A number of legal cases illustrate the matter at stake. For instance, in a landmark case in Belgium regarding equal pay for the same work, a female researcher in the European Trade Union Institute did not receive the same automatic promotion going with seniority as her male counterparts. The Labour Court of Appeal of Brussels found the employer’s pay system opaque and, referring to the CJEU’s decision in Case 109/88 Danfoss, concluded that there had been gender-based pay discrimination. In another case, the French Supreme Court was faced with an equal pay claim from a female mushroom packer comparing her work with more highly paid male packers. The Court noted that it was clear that women packers were systematically paid less than their male equivalents and that the employer could not produce any objective reasons for such difference between men and women doing the same work. A UK landmark case from 2018 concerned the right to equal pay for work of equal value. In this case, about 30,000 claimants, mostly women working in ASDA supermarkets as shop-floor staff, brought equal pay claims against their employer on the basis of comparisons with the pay of male workers employed at depots as part of ASDA's distribution operation. The Court of Appeal of England and Wales held that the women were discriminated as the work of the shop-floor staff should be considered of equal value as the work in the distribution center. It was only possible for the claimants in the above cases to claim their right because they had the necessary information on the average pay levels of their male colleagues and because, in the UK case, they were able to group their 30,000 claims. Landmark cases like these only show a small top of a possible iceberg. Many women in the EU having salaries below those of their male colleagues doing the same work or work of equal value, do not necessarily know about it as they do not have the necessary information about average pay levels. This means they cannot enforce their right to equal pay. Lack of transparency thus hinders uncovering pay discrimination and allows discriminatory pay structures to remain in place. Gender pay discrimination and the gender pay gap Individual pay discrimination and systemic bias in pay structures are only one of the root causes of the gender pay gap, besides other causes such as horizontal and vertical segregation. The gender pay gap accumulates to and remains at 14% in the European Union overall. From a policy perspective, it would be useful to know in which sectors/occupations/types of employment gender-based pay discrimination is more widespread or whether pay discrimination affects some groups of workers more than others (e.g. among specific contract types or age groups). However, precisely quantifying the overall size of gender-based pay discrimination at that level is not possible as of today. Indications on the existence of the problem of pay discrimination and gender bias in pay settings can be derived from available EU statistics on the gender pay gap at aggregate national level (e.g. the Structure of Earnings survey (SES) or other national data) and from the analysis of the related SES micro-data. The ‘unadjusted’ gender pay gap can be decomposed into two parts. A first component, the ‘statistically explained’ part, is the gap between male and female average earnings due to the differences in the average characteristics (sector of activity, age, occupation, full time versus part time, etc.) of male and female employees. The second, residual component measures the difference between the financial returns to men and women with identical characteristics. It depends on any other factor for which no observable variable was available, measurable or omitted from the analysis, such as pay discrimination. This second, ‘unexplained part’ includes gender pay discrimination and accounts for 2/3 of the gender pay gap in the EU Member States. It is also the highest portion of the national pay gap in 21 out of 24 countries analysed in the support study. The same study shows that the relevance of the unexplained part is confirmed also at sectoral level. The unexplained part, including pay discrimination, is the largest factor responsible for gender pay differences at sectoral level. It is more important than the ‘occupation’ factor, which is the second largest cause. In other words, even when excluding the statistical impact on the difference in pay related to working in different sectors and occupations (i.e. women work in sectors and occupations which are generally less paid), the analysis of pay gap data still points to a potential problem with respect of equal pay (see Annex 5.2). This finding does not necessarily apply to all employers. The only way to ascertain whether pay discrimination actually exists is to recalculate the unexplained gender pay gap at organisational/employer level and verify whether these differences subsist and why. Moreover, as explained above, under the current case law of the Court of Justice of the European Union, workers can enforce their right to equal pay only in comparison to workers within the establishment in which they work or, beyond such establishment, when the wage setting is derived from a single source (e.g. a parent company in a corporate group) setting the working conditions including pay. As a result, the occurrence and the extent of pay discrimination can only be measured at employer level by comparing categories of workers doing the same work or work of equal value as defined by a given employer.

Other relevant indications of possible pay discrimination to be further explored at employer level, which the statistical analysis from the support study evidences at aggregate level, include: ·Pay penalties in hourly pay for part-time jobs (compared to full-time). Since part-time jobs are predominantly held by women , this indicates indirect discrimination: even if penalties apply in a gender-neutral way, in practice they put women at a particular disadvantage as regards pay. At employer level, it should be checked whether this difference is justified by some factor that cannot be captured at aggregate level (e.g. in case part-time is coupled with exemption from some specific tasks performed instead by the full-time employees in the same category). ·The pay gap is higher in managerial occupations and among graduate workers. The reason for this may be that women in such positions are not aware of the value of their work and do not request, negotiate or obtain their wages in the same way as men do. The peaks in high-pay occupation statistics highlight how much wage negotiation processes influence the gendered pay. At employer level, one should check whether the difference persists when everything else is equal (e.g. task performed, level of responsibilities, quality of deliverables etc.). ·Women earn less and work in lower paid occupations than men do, even if working in the same sector and with otherwise identical observable characteristics; this holds true for 70 out of 72 investigated sectors (see Annex 5.2). This puts into question the notion that women ‘have a preference’ for lower paid occupations and raises instead concerns that they are to some extent constrained into undervalued female-dominated occupations, and not only sectors. At employer level, one can verify whether this is the case by looking into job descriptions/definitions versus attributed responsibilities. In other words, checking whether e.g. the tasks performed are identical (‘same work’), but labelled differently, or require skills that are not properly recognised and valued (e.g. social skills) because of gender bias (‘equal value’). ·With regard to irregular payments (i.e. fringe benefits ), women have a lower participation in job-related cash benefits, with particularly pronounced participation gender gaps in SE and NO and the UK. Moreover, these payments drop sharply in women’s late careers in terms of payment receipts (cash and in-kind benefits) compared to men. For those who receive them, gender gaps in monetary fringe benefits are much higher than gender gaps in (regular) wages. In 22 countries, the magnitude is 1.5 to 10 times higher for fringe gaps than for wage gaps. A large review of research found that employers systematically under-reward women performing relatively similarly to or better than men. Again, the possible reasons for these differences might be found at employer level. To sum up, differences in pay by gender drawn from available statistics, both at EU, national and sectoral level tend to indicate pay discrimination. These same differences might or might not turn out to be perfectly legitimate from an equal pay perspective when verified at an individual employer level. Nevertheless, in countries where pay transparency measures have been introduced, an important number of employers discovered that pay differences could not be explained from an equal pay perspective (see below). Empirical evidence of pay discrimination The empirical analyses also show indications that pay discrimination takes place even in countries with the highest gender equality ratings. Evidence from countries that introduced pay transparency measures suggest that the latter allowed gender bias in pay to come to light (see box below). After pay audits were introduced in Sweden, over 40% of (surveyed) employers identified and corrected unjustified wage differences between women and men. In Iceland, a survey among 76 employers credited with the Equal pay standard certification revealed that the results of wage analyses prompted corrections in salaries of staff and of groups, as well as changes of job titles or reviews of perks and bonuses. According to a preliminary reporting on the evaluation of the Transparency Act in Germany (Federal Republic of Germany, 2019), 43% of the employers surveyed had reviewed their pay structures as a result of assessments under the Transparency Act. In France, the first phase of the implementation of the Equality Index showed that: (i) 1 out of 3 employers did not respect the legal obligation to grant the statutory salary increase to women returning from maternity leave in undertakings of over 1,000 workers which scored below 75/100; whilst (ii) 1 out of 5 employers did not respect this legal obligation in undertakings between 250 and 1,000 workers which scored below 75/100. Without transparency measures such as the Equality Index, workers and employers would not have been aware of unjustified pay differences and no further action would have been taken. Finally, the Institute for Public Policy Research reports that although equal pay cases made up 11% of all labour court cases in the UK in 2017, ‘many more cases on unequal pay go unchallenged’. Public perception of gender pay discrimination Results of recent surveys on pay discrimination show a non negligible perception of gender pay discrimination. The majority of respondents (60%) in the public consultation carried out for this impact assessment, though not a representative sample, reported that they have experienced gender pay discrimination directly or know someone who has. In addition, a significant number of respondents (39%) think that women and men are not paid equally in their organisation. This corresponds to data gathered in surveys on discrimination more generally. For instance, over a third (35%) of respondents across the EU think discrimination based on gender is widespread in their country – ranging from over 50% in France to 16% in Bulgaria. When asked about gender equality in their company, only half of respondents in the EU believe that female and male employees are paid the same for equivalent positions by their employer – ranging from 68% in the Netherlands to 30% in Czechia. A study in Belgium found that three in four women workers have faced at least one form of discrimination, prejudice or issue at work in relation to their pregnancy or maternity; 12% have been discriminated in terms of pay or career. A survey conducted in Ireland showed that ‘women are almost twice as likely as men to experience discrimination at work, in terms of pay and promotion’. Legal cases Successful legal cases equally point to gender pay discrimination. The number of cases concerning pay discrimination is extensive in the UK and France , whilst being relatively rare in other countries. However, case law statistics most probably do not accurately reflect the size of the problem. In many cases, workers are not aware of the fact that they are underpaid on the basis of sex (lack of transparency). In addition, several Member States reported, in the targeted consultation, that these numbers are also under-representative due to procedural obstacles in claimants’ access to justice and to the prevalence of out of court settlements. Among trade unions, the large majority of respondents highlighted that it is ‘difficult’ for their members to enforce equal pay rights in their country for various reasons while one third of employer associations identify that there is difficulty in assessing work of equal value without otherwise reporting difficulties to any significant level (See Annex 2). Other circumstantial evidence In practice, gender norms in the workplace, in particular on work valuation, have been shown to result in labour market discrimination against women , and therefore in differences in pay, in various ways. Not all skills relevant for today’s modern service economy are valued in more traditional job valuations. For instance, an analysis of the retail sector in France showed that occupational skills such as having a sense of human relations and ability to serve with care, skills that are highly relevant in retail, are mostly considered as innate and are therefore not valued in the evaluation of the position of retail workers. Also, the estimation of potential productivity of prospective workers that employers must make in order to take decisions at hiring/evaluation point can be influenced, consciously or unconsciously, by gender bias; lacking specific information, employers may tend to rely on gender biased assumptions or experiences. A bias towards more critical review of women, particularly as for personality aspects, is especially prevalent for jobs traditionally held by men and has obvious consequences in self-perpetuating differences in pay. A gender bias has also been evidenced in wage/rise/bonus negotiations, showing that the frequency and outcomes of pay negotiations are not gender-neutral. Gender norms influence both women employees (who tend to negotiate less and have lower expectations as to salary level) and employers (e.g. expecting that women will accept lower pay offers than men; or perceiving their request differently). Impact of intersectional discrimination Finally, it is worth mentioning that the problem of pay discrimination is likely to be more profound for women incurring also other types of discrimination (intersectionality), for instance for women with a minority racial or ethnic background or a disability. Other groups are also more likely to be affected by pay discrimination such as single parents (of which 85% are women) and LGBTIQ people . Lack of data on the extent of pay discrimination It is hard, at aggregate level, to know whether differences observed on the labour market (e.g. in terms of salary level, bonuses, promotions) result from employers’ discriminatory behaviour or from gender-biased pay setting practices as opposed to legitimate differences stemming from objective factors, e.g. different rewarding of merit . Discriminatory behaviour is rarely openly stated; the reasons for differential treatment are often only in the mind (consciously or unconsciously) of the perpetrators and their victims or they are hidden in pay structures which have not been evaluated for many years. It is therefore difficult to provide specific and extended data about pay discrimination under today’s rules. Promoting and realising pay transparency at employer level will increase the amount of data available and may thus enable to fine-tune the statistical analysis of the gender pay gap, providing a better understanding of the share which is justified by objective factors and the share which is not justified objectively, and thus likely to be linked to gender pay discrimination.

2.2.What are the problem drivers? The intervention logic (see Annex 6) depicts the two key problem drivers, namely i) a market failure linked to the asymmetry of pay information at employer level and persisting gender bias in pay setting mechanisms and valuation of women’s work, ii) a regulatory failure linked to an inconsistent and inadequate application of key legal concepts, in particular the concept of ‘work of equal value’, and procedural obstacles such as a lack of proper remedies and an insufficient victims’ support. Both of these drivers leave room for pay discrimination to appear at individual but also at employer level. 1)Market failure - asymmetries of information on pay and persisting bias in pay Pay discrimination can be viewed as a market failure caused by information asymmetries between worker and employer about market wages. This asymmetry creates a problem for individual workers, as they do not have the information necessary to understand the relative value of their work compared to that of their colleagues of opposite sex and therefore to detect sex-based pay discrimination when they negotiate wages. In many instances, the information may simply not be available, due to a lack of transparency in wages and wage setting. The problem of information asymmetry may be reinforced because of other factors. Workers may be reluctant to ask for such information because of fear of victimisation, or because of a prohibition or cultural reticence to discuss salary levels. Moreover, their own expectations on pay can be gender-biased (i.e. stemming from gender norms). This might happen because women tend to compare their salaries to other women’s salaries and might therefore simply not be aware of a gender wage inequality in their occupation. Furthermore, people tend to compare themselves with workers belonging to the same job category but do not normally question whether the occupation is possibly only labelled differently or is of equal value to their own. Pay differences may therefore look justified while they are not (i.e. they cannot be justified by objective, gender-neutral factors). Finally, as indicated above, gender norms might also discourage women from self-advocacy , lower the likelihood that they negotiate salary offers and raises or lessen the results of such negotiations in comparison to those of their male colleagues . Lack of pay transparency contributes to pay discrimination remaining hidden and its effects accumulate from point of entry into the labour market along the whole career. This implicitly creates a problem also at employers’ level: the fact that discrimination is not known by individuals and therefore rarely challenged in practice masks the problem of discrimination at employer level, even in the case of employers who want to treat their employees equally on the basis of sex. Regulatory failure – lack of legal clarity and difficulty to apply key legal concepts and lack of access to justice The second key problem driver is related to a regulatory failure due to a lack of legal clarity of key legal concepts and the related difficulty to apply them in practice and a lack of access to justice to ensure the enforcement of the right to equal pay. This was clearly illustrated by the 2020 evaluation and other surveys such as a 2019 survey carried out among trade union confederations. Lack of clarity of/difficulty to apply key legal concepts. Even though the concept of ‘pay’ has been clarified by the Court of Justice of the European Union, a number of national legislators (e.g. AT, FI, IT, LV, SE) have not incorporated such clarifications in national law. In a similar vein, despite the Court’s guidance on the concept of ‘work of equal value’, the application of the concept in practice, by employers, social partners, enforcement bodies and courts, remains subject to varied and incoherent interpretations. Stakeholders in the public consultation stressed that the definition of ‘work of equal value’ elaborated by the Court of Justice should be visible in the law and that substantial guidance on how to evaluate work of equal value is needed, even for individual employers. These problems lead to the fact that, at individual level, workers do not know what elements are relevant to assess whether they are paid equally on the basis of sex and to whom they should compare themselves as regards carrying out equal work or work of equal value. This lack of clarity deters victims from bringing claims and makes running a case even more difficult. Without clear criteria for assessing ‘work of equal value’, workers cannot exercise their right to equal pay effectively. The above problems are a problem also at employer level. Employers and business associations still underline the difficulties in applying the concept of work of equal value. This may allow unconscious bias in pay setting and gives room to gender pay discrimination. While gender bias is particularly relevant in the application of the concept of ‘work of equal value’, it also still exists as regards ‘equal work’. A structural undervaluation of female work, related to specific occupations in the organisation or to women’s work in general, could influence wage structures due to institutional inertia: in the absence of an external trigger, a legal obligation, or a very strong commitment at managerial level, there is no incentive for employers to evaluate the gender neutrality of their wage structures and revise them where needed, also because employers might simply not be aware that there could be a problem of gender pay inequality. Lack of access to justice. The existing EU legal framework already makes efforts to support potential victims in bringing their claim, e.g. with protection against victimisation and rules on remedies and sanctions or penalties. However, the 2020 evaluation identified persistent problems with regard to the effective enforcement of the right to equal pay and procedural obstacles to this enforcement, leading to an insufficient protection of victims. It reported major problems related to the costs of litigation, the lack of a proper mandate for equality bodies to help potential victims of sex-based pay discrimination, the lack of possibility of collective action, the practical application of the reversed burden of proof, and the low level of compensation awarded. National experts reported the costs of court proceedings as a barrier to access to justice (AT, BE, EE, FI, HR, HU, LV, NL, PL). While legal aid is only available to (very) low income earners, in most countries the ‘looser pays’ principle is a disincentive for many victims to go to court. Compensation for material damages may be claimed in only 18 Member States and non-material damages may be compensated in 14 Member States. Most national experts consider compensation or reparation of victims as a significant problem as remedies are too low and not dissuasive for defendants while they discourage victims from taking action especially when compared to litigation costs. Nine Member States (AT, DE, DK, EE, HR, NL, PL, PT, SE) foresee no sanctions or penalties in addition to compensation. Symbolically, the absence of sanctions or penalties suggests that society at large would not be concerned by gender pay discrimination. The lack of enforcement and insufficient protection of victims were confirmed by participants in the public consultation. 2.3.Why is it a problem? The Charter of Fundamental Rights of the EU prohibits discrimination, in particular on the basis of sex (Article 21), and states that equality between women and men must be ensured in all areas (Article 23). Equality between women and men is a fundamental value in the European Union (Article 2 TEU). Gender-based pay discrimination and the improper enforcement of the principle of equal pay is therefore first of all a breach of an individual’s fundamental right protected under Union law. Article 23 of the Charter explicitly refers to equality between women and men in employment, work and pay. Article 153 TFEU lists equality between women and men with regard to labour market opportunities and treatment at work as one of the main objectives of the Union’s social policy. Article 157 TFEU calls on Member States to ensure that the principle of equal pay for male and female workers for equal work or work of equal value is applied. In practice this means that employers must have pay structures ensuring that women and men be paid equally for the same work or work of equal value. Gender-based pay discrimination hence breaches individuals’ social rights protected under Union law. Besides violating fundamental and social rights, pay discrimination has negative economic consequences as it entails inefficiencies in how the labour market operates and lowers competitiveness in the internal market. From an individual worker’s viewpoint, insufficient protection from gender pay discrimination, even if only suspected, contributes to lowering personal expectations regarding prospective earnings. As such, it can distort decisions relating to employment and occupation. It also impacts workers’ decisions on time worked and career patterns, in particular when balancing household responsibilities with earnings’ perspectives; the expectation of a potentially lower income may influence women’s apparent own choice to engage in unpaid care rather than paid work. This happens even if the household would equally share housework and care (or have no care responsibilities) due to employers’ possible biased expectations of future caring responsibilities for women or the assumption that they are not the sole or main earners in a family. All this has negative consequences on poverty rates and ultimately on the gender pension gap (which stands at 30% in the EU overall). Finally, personal beliefs regarding different levels of fairness in pay/pay structures may influence workers’ propensity to mobility across sectors or countries. The above elements bring a clear risk of potential loss of productivity, due to suboptimal female labour market participation. Such suboptimal participation increases as a consequence of women’s increasingly higher level of education compared to men. An economy cannot afford such a waste of talents, especially in an ageing society confronted with skills shortages.

For employers, pay discrimination has a hidden cost, as the motivation and productivity of employees may decrease if they are – or suspect being – treated unequally. They may feel undervalued, disrespected, upset or even doubt their capacities and lose self-confidence. Pay discrimination may also result in a loss of talent and investment in people in case workers would decide to move to a different employer. Furthermore, even if the guiding principle of equal pay for the same work or work of equal value is set at EU level, the differences in approach among Member States continue to be an obstacle, not only to workers’ mobility (see above) but also for employers to operate across Member States. Indeed, the very inclusion of the equal pay principle in the EU’s founding treaties (at the time the 1957 Treaty of Rome) explicitly aimed at ensuring a level playing field among employers in the internal market. Ensuring a consistent equal pay between women and men is therefore inherently a market condition to safeguard fair competition among employers across the EU. Finally, without an EU approach there could be no action taken on matters of equal pay as employers might overlook the long term productivity gains and concentrate on a perceived risk of loss of competitiveness due to potential salary adjustments. 2.4.How will the problem evolve? As evidenced in the previous sections, gender pay discrimination is a persisting phenomenon, even if its extent may not be evaluated precisely. Because it is hard to identify and evaluate by Member States, employers, workers, enforcement bodies such as equality bodies and courts, the situation is likely to continue to evolve only very slowly: if not identified, existing discriminations may persist. Without further policy intervention towards more pay transparency, it is likely to remain largely hidden, with workers deprived of tools to have their rights respected, employers lacking the incentive to analyse and revise their pay structures, and governments and policy makers unable to grasp the extent of the problem effectively enough to tackle it. National legislative actions to correct this situation have been scarce and there are no indications that their rate would increase. This hesitation conflicts with an increasing openness and demands for pay transparency from the general public as related to the broader concept of fair pay, even though these have to some extent been embraced by certain employers, notwithstanding potential costs. The shift towards rebalancing the asymmetry of pay information between workers and employers remains, however, very slow overall. The 2014 Recommendation, which is per definition non-binding, received a limited follow up by Member States. As a result, there are no incentives for employers to act. In practice, the situation relies essentially on individual workers’ responsibility to become aware, collect information (if available) and take action against pay discrimination while balancing the cost-opportunity of doing so. This is unlikely to change on its own. The support study carried out in the context of this impact assessment confirms that the unexplained part of the gender pay gap, which includes pay discrimination, is not likely to decline significantly over time without further interventions. The main factor that might shape future trends on the labour market, and therefore potentially impact on gender pay discrimination as part of the gender pay gap, is the impact of the COVID-19 crisis. The latter has already shown a gendered impact and a strong backlash on gender equality. It also reversed the usual pattern of a recession: this time, it is women, rather than men, who experience larger employment losses and higher unemployment. Women are overrepresented in lower paid jobs which are the first and the most affected by redundancies in the crisis, for instance hospitality, retail, care, and personal services. To the extent that these women might not find their way back into the labour market (also because employers might restructure supply chains by recurring to more automation in order to allow for social distancing), the gender pay gap might even decrease and give the illusion that gender pay discrimination will also decrease. In addition, the share of pay discrimination in the overall gender pay gap may reasonably be expected to increase with the recession. An increase of precarious and atypical jobs (e.g. due to more digitalisation) could reinforce this trend. Precarity risks increasing wage discrimination as it further limits negotiating power on the side of workers, which especially affects women. It may further reinforce the drivers mentioned in section 2.2 (market and regulatory failures). While these larger trends on the labour market are out of the scope of this initiative, their possible impact on the problem addressed in this initiative cannot be denied. Besides transparency on wages and wage structures, there is no indication that the other problem drivers would be addressed. Even if the Court of Justice may shed further light on how to assess work of equal value, such guidance is unlikely to reach individual employers if this concept is not encoded in the legal framework and there are no practical tools to implement it in practice. Furthermore, there are no indications that the procedural obstacles to access to justice are addressed at national level, even though they have been known and acknowledged for many years. Section 4.3 on the baseline scenario develops these points further. 3.Why should the EU act? 3.1.Legal basis The Union’s specific right to act in this field is set out in detail in Title X of the TFEU related to social policy. Its right to act on matters of gender equality in employment and occupation follows from Article 157(3) TFEU. The Treaty provides that, although Member States shall ensure the application of the principle of equal pay for male and female workers for equal work or work of equal value (Article 157(1) TFEU), the EU shall adopt measures to ensure the application of the principle of ‘equal opportunities and equal treatment of women and men in matters of employment and occupation, including the principle of equal pay for equal work or work of equal value’ (Article 157(3) TFEU). Article 157(3) TFEU is the legal basis for the Recast Directive and for the 2014 Commission Recommendation on pay transparency. It should therefore also serve as the legal basis for legally binding pay transparency measures, which support the implementation and better enforcement of the principle of equal pay under Article 157 TFEU and the Recast Directive. Unlike for an ‘internal market’ legal basis, the existence of an internal market problem is not a prerequisite to the availability of Article 157(3) as a legal basis: the pursuit of equal treatment is sufficient in that respect. Article 157 TFEU governs a specific subject matter (lex specialis) compared to Article 153 TFEU, which provides a legal basis for all measures implementing the principle of non-discrimination on grounds of sex in the field of ‘equal opportunities’ and in ‘matters of employment and occupation’. The lex specialis prevails over the general norm. Article 157(3) TFEU therefore constitutes the proper legal basis for this initiative. 3.2.Subsidiarity: Necessity of EU action The principle of subsidiarity (Article 5(3) TEU) requires that the Union shall act only and insofar as the objectives of the proposed actions cannot be sufficiently achieved by the Member States, either at central level or at regional and local level, but can rather, by reasons of the scale or effects of the proposed action, be better achieved at Union level. The EU principle of equal pay was established by the founding Treaties as a fundamental support for the functioning of the internal market. Equal pay between women and men for the same work or work of equal value ensures fair competition for companies which have to comply with a similar fundamental social requirement, thus creating a level playing field for companies operating in the internal market. In the words of the Court of Justice (1976): The aim of article 119 [now 157 TFEU] is to avoid a situation in which undertakings established in states which have actually implemented the principle of equal pay suffer a competitive disadvantage in intra-community competition as compared with undertakings established in states which have not yet eliminated discrimination against women workers as regards pay. The Treaty itself thus confirms that harmonised requirements facilitate cross-border operations and create equal conditions for investment in Member States. This objective cannot be achieved by individual Member States as national measures would inevitably distort competition and create market barriers and could not achieve the envisaged level playing field.

While the principle of equal pay initially had primarily an economic function aiming at avoiding distortions to competition, in 1976 the Court of Justice recognised, in addition to its economic goal, the social objective of Article 119 EEC and its horizontal direct effect. The latter effect means that the principle of equal pay may be relied upon before the national courts and that these courts have a duty to ensure the protection of the rights which this provision vests in individuals, even if there are no implementing provisions at EU or national level. Later on, the Court added that the social goal prevails over its economic function and that equal pay is a fundamental right. Articles 2 and 3(3) TEU include the right to equality between women and men as one of the essential values and objectives of the EU. Article 23 of the Charter of Fundamental Rights of the EU confirms that equality between women and men must be ensured in all areas, including employment, work and pay. Articles 8 and 10 TFEU add that the EU shall aim to eliminate inequalities, to promote equality between women and men and to combat discrimination based on sex in all its policies and activities. The TFEU also provides that, although Member States shall ensure application of the principle of equal pay for male and female workers for equal work or work of equal value (Article 157(1) TFEU), the EU shall adopt measures to achieve that aim (Article 157(3) TFEU). It is important to note that Article 157 is mandatory in nature and that the prohibition of discrimination, as confirmed by the Court of Justice, applies not only to the action of public authorities, but extends to all agreements which are intended to regulate paid labour collectively, as well as to contracts between individuals. The EU acted to implement the Treaty principle, in particular, through the 1975 Equal Pay Directive, subsequently merged into the Recast Directive. The evaluation of the Recast Directive showed that further action was needed, in particular in order to create transparency on pay and pay settings. This was done through the 2014 Commission Recommendation on pay transparency. The 2017 evaluation of the Pay Transparency Recommendation showed that it had not brought about the necessary change (see below). This was confirmed by the 2020 evaluation, which reiterated that EU-level action remains necessary to better enforce the right to equal pay through pay transparency. Member States and social partners did not so far take sufficient measures to combat such discrimination. Pay transparency measures as outlined in the 2014 Recommendation were implemented only in some Member States, and the fragmented level of implementation raises doubts on the effectiveness of non-binding measures. The measures introduced by some Member States vary broadly in effectiveness, and many Member States did not take any action in this area. There might be several reasons for this, depending on the perceived relevance of the equal pay issue, that may cause reluctance to impose possible costs on employers that might put them at a competitive disadvantage vis-à-vis foreign employers who are not applying similar norms (yet). Member States are therefore unlikely to be able to address the problem on their own based on the existing non-binding measures. The existing legal framework will therefore not bring about significant improvements in pay equality without a new impetus. 3.3.Subsidiarity: Added value of EU action Action at EU level would ensure that pay equality between women and men, enshrined in Article 157(1) TFEU, is effective and that all citizens can claim their rights according to the harmonised minimum standards applicable in all Member States. EU action does not only create a harmonised minimum standard protecting workers (social objective), it creates equal market conditions for companies operating in the internal market, thus preventing unfair competition (economic objective). Only a coherent and comprehensive European approach can ensure a level playing field for market operators in all Member States and exclude possible unfair competitive advantages that could be derived from pay discrimination (see above). As shown in the report on the evaluation of the 2014 Recommendation, national measures regarding pay transparency are fragmented, scarce and most often set lower thresholds than those proposed by the 2014 Recommendation. Their variety, different levels of ambition, and the progressive nature of the changes bring unnecessary complexity and uncertainty and constitute barriers to operating across Member States. EU action establishing pay transparency and related enforcement mechanisms would ensure that workers across the EU can experience the same level of protection of the equal pay right, and that employers can operate across Member States with lower risks/uncertainties. It would realise a fundamental and social right while preventing businesses from competing on an uneven playing field and therefore improve the operation and competitiveness of the internal market. 4.Objectives: What is to be achieved? 4.1.General objectives The overall objective of the initiative is to improve the implementation and enforcement of the principle of equal pay for equal work or for work of equal value both as a fundamental right and social objective to be achieved in the European Union and as an economic objective linked to the full realisation of gender equal conditions on the internal market. It does so by creating transparency both at the individual worker and at employer level, based on a facilitated implementation of the legal concepts of equal pay for equal work or for work of equal value. It balances the responsibility for taking action between workers claiming their EU right and employers ensuring these rights are respected. 4.2.Specific objectives The initiative more specifically aims at: 1.Empowering workers to enforce their right to equal pay: the initiative aims at bringing instances of pay discrimination to light through transparency, giving workers, especially female workers, the necessary information to act upon them. This objective could be supported by addressing the difficulties relating to the application of the key legal concepts relating to equal pay and the inadequate access to justice. 2.Addressing systemic undervaluation of women’s work at employer level: the initiative aims, through transparency, at correcting biases in pay setting mechanisms that perpetuate the undervaluation of work done by women. Such undervaluation occurs when women’s skills are not or not sufficiently valued in pay structures. This objective could equally be supported by addressing the difficulties relating to the application of the key legal concepts relating to pay and the inadequate access to justice.

At the same time, pay transparency measures will help to collect more information and data on the existence and extent of pay discrimination. 4.3.What is the baseline from which options are assessed? EU action through the 2014 Recommendation and the European Semester. Under the baseline scenario, the 2014 Recommendation would remain the main action at EU level to address the problems set out above. In addition, the Commission could continue to issue Country Specific Recommendations (CSRs) in the context of the European Semester. In principle, CSRs have the potential to address the phenomenon of the gender pay gap but only from a global perspective and highlight its root causes in Member States. In 2019, the pay gap was addressed in the country reports of 11 Member States and a country-specific recommendation on the gender pay gap was issued to one Member State. The CSRs can contribute to tackle some of the root causes of the overall gender pay gap e.g. by supporting measures to strengthen work-life balance policies, counter sectoral segregation, or even suggesting wage transparency. The above actions are, however, unlikely to bring about the desired change and fulfil the objectives set out in sections 4.1 and 4.2. First of all, as shown above, the Recommendation has had limited follow-up in Member States and while a few Member States have recently moved towards more transparency (e.g. PT, ES), most Member States are not undertaking any action or action remains very limited (e.g. only for very large employers, only voluntary, no structural measures) and does not create the necessary level playing field. In regard to action through the European Semester, given the many issues addressed in the European Semester, the CSRs cannot reach the necessary level of detail to address the implementation of the principle of equal pay at employer level nor to reinforce victims’ protection or support. In addition, the European Semester is being reshaped towards a focus on the monitoring of Recovery and Resilience Plans and relevant challenges, in particular in the context of the green and digital transition. Hence, while country specific recommendations could be a useful policy tool, they could only complement legislative measures on pay transparency and, more generally, strengthen a comprehensive approach in tackling the gender pay gap. Trends in the labour market (see Annex 5, section 6). Before the COVID-19 pandemic, women had largely reduced, if not reversed, some differences in the average characteristics relating to pay compared to men: they have surpassed men regarding the level of education and are moving, though slowly, into areas that were traditionally men-dominated such as construction, transport and automotive services. These elements, which were important in explaining differences in average pay in the past, may be expected to contribute less and less in further reducing the relative pay differences. Today, the justified pay gap represents a third of the total gender pay gap; in the future, a further reduction in the gender pay gap may be expected to result mainly from changes in the unexplained component, including gender pay discrimination. At the same time, trends in wage setting – e.g. moving away from collective towards more individualised payments linked to new forms of work – are increasing the scope for discretionary pay and therefore could put women further in disadvantage (as they are more likely victims of pay discrimination) (see section 2.1). As a consequence, it seems unlikely that without any positive intervention through binding measures, the rate of reduction of the unexplained part of the gender pay gap – which covers possible discrimination – could accelerate. 5.SME test The specific impact of all policy measures on SMEs has been screened ex ante for all options. The aim of the analysis was to check whether SMEs would be disproportionately affected and, where relevant, to include mitigating measures in the design of the policy options. The measures envisaged are aimed at protecting a fundamental right. They should therefore in principle apply to all workers, independently from sector, employer size or type of contract. As a large majority of workers work in SMEs, it would not be consistent with the purpose of this initiative to exclude all SMEs from its field of application, as their exclusion would not allow to reach the goals of the initiative and would undermine a fundamental right. Nevertheless, the measures may be designed in such a way as to achieve the objectives of this initiative without imposing a disproportionate burden on SMEs. Consultation of SME stakeholders 82% of respondents from business/employers’ organisations and associations in the targeted consultation agree that pay transparency measures should be tailored to the size of the organisations. At the dedicated hearing, for instance, SMEunited (the association of Crafts and SMEs in Europe) requested the exemption of SMEs from a directive on pay transparency at EU level, especially as regards small and microenterprises (see Annex 2). Assessment of alternative mechanisms and mitigating measures Taking into account the principle of proportionality, concerns expressed by stakeholders, and technical feasibility of some individual measures, it seems advisable to modulate the measures according to the size of the employers. This was also the conclusion of the impact assessment for the 2014 Recommendation and is in line with what is done at Member State level. In addition, specific measures may be added to shield SMEs and in particular micro-enterprises from increased business risk linked e.g. to exposure to legal costs. Furthermore, SMEs will benefit from the guidance and methodologies developed to assess work of equal value. Member States could also provide as mitigating measures ready-made templates with info line support or off-the-shelf software, since these were found to reduce costs for employers (Eurofound, 2020). The definition of the exemption thresholds The thresholds applied to tailor the design of the measures in this initiative are directly derived from the 2014 Recommendation. Similar thresholds are found in national legislation of a number of Member States. The definition of the thresholds is linked to the number of workers. The reason for not referring to other criteria often used to define small and medium sized employers, such as turnover or annual balance sheet (e.g. based on Commission Recommendation 2003/361), is that the focus and scope of the proposed Directive is worker-oriented, based on the enforcement of an individual fundamental right, and it uses statistical methods for the implementation of which only staff headcount is relevant. Moreover, this reference simplifies the implementation by avoiding the complexity and administrative burden in verifying the compliance criteria by Member States and employers. The proposed measures are adapted depending on the size of the employers, to find a balance between the interest of all workers in seeing their right protected and minimising costs and burden on employers, even if the latter would also benefit from an increase in productivity. While a number of considerations are taken into account to define the thresholds, the ultimate decision on the exact threshold to apply in this initiative is a question of political determination and a choice made on this trade-off. Focusing on larger employers also follows a cautious approach. It will allow to collect more data on the extent of gender pay discrimination and therefore bring more arguments for or against extending it further to smaller companies. The details of this tailored design of the measures are explained in the description of the options and analysed further for each measure in Section 7. SMEs could always on a voluntary basis adopt more far-reaching measures than those set out for them in this initiative in order to build a more attractive employer profile. Member States could also decide to extend the scope of the measures envisaged by this initiative. 6.Description of the policy options for EU level action The policy options described in Sections 6.3 through 6.5 below can be broadly described as follows:

-Option 1 aims at creating transparency at the level of individual workers, mainly aiming at empowering workers (first specific objective of this initiative). It includes two possible levels of ambition, with Sub-option 1A presenting a higher level of ambition than Sub-option 1B; -Option 2 aims at creating transparency at employers’ level, mainly aiming at addressing structural undervaluation of women’s work (second specific objective of this initiative). It includes four possible levels of ambition, with Sub-options 2A and 2B presenting a more ambitious level while Sub-options 2C and 2D go for a lower level of ambition; -Option 3 aims at facilitating the implementation and enforcement of the existing legal framework, contributing to both specific objectives of this initiative. The basic work done in terms of data gathering by an employer to create transparency either at individual or at organizational level is the same for most Sub-options under Options 1 and 2 (see Section 8.5). The options differ as to the way in which the information is made transparent. The three options can be effective on their own, depending on the political decision to achieve to a greater or lesser extent the policy objectives of this initiative. 6.1.Options discarded at an early stage Council Recommendation This instrument has been considered as an option aimed at anchoring pay transparency measures at political level and enhancing Member States’ engagement on the matter. It would replace the 2014 Commission Recommendation providing general guidance to Member States on how to address the lack of pay transparency. Given the limited follow-up to the 2014 Recommendation, the involvement of Member States in the decision-making process, even as regards non-binding measures, might constitute a step forward. A Council Recommendation has the advantage of being a flexible instrument that could be adapted to national contexts. Moreover, it could provide a basis towards a level playing field between Member States on how to address the lack of pay transparency, based on a consensus by Member States at Council level endorsing their political commitment. For this reason, it could presumably be more effective than the 2014 Commission Recommendation. This option would, however, present several drawbacks. First of all, providing general guidance to Member States, in nature not binding, is very uncertain in terms of compliance. Furthermore, the scope of such initiative would most likely be limited to pay transparency measures only as this instrument is not suitable to introduce changes to enforcement measures aiming to ensure the effective implementation of the measures and enhance workers’ access to justice that are already at least partly covered by the 2006/54 Directive. Thirdly, implementation would remain uneven, with different modalities corresponding to different levels of ambition, and without ensuring a minimum level of worker protection. Fourthly, there would be no enforcement at EU level allowing to assess and ensure the effectiveness of any measures taken. Finally, the analysis of existing Council recommendations shows that such type of policy instrument is more appropriate to address areas covered by Member States’ exclusive competence with a purpose to undertake political commitments by all Member States supported by existing EU financial instruments and programmes. Conclusion: Since this option is not likely to effectively achieve the general and specific objectives of the initiative, it has not been considered further in this impact assessment. 6.2.Option 0: Status Quo The first possible course of action would be not to undertake further action and let the situation evolve under the current framework (See sections 2.4 and 4.3). 6.3.Option 1: Legislative action to create transparency for individual workers This option aims at realising the specific objective of empowering workers to claim their right to equal pay. Indirectly, by raising awareness among employers when preparing pay information it could affect gender bias in pay setting mechanisms and valuation of women’s work, but such effect would depend on the self-motivation of employers to launch action in that respect. Two alternative sub-options (1A and 1B) are suggested below. They present different levels of ambition, balancing the rights of workers against the cost and burden on employers, especially SMEs. Sub-option 1A: Empower workers by granting a right to receive pay information Measure 1: Transparency of salary information prior to employment This measure aims to ensure that the employer informs prospective workers about the initial salary offer or a reasonable range expected to apply to the position concerned. It would strengthen workers’ bargaining power when it comes to pay setting and their understanding of their paid position compared to other workers carrying out equal work or work of equal value in the organisation. It would also ensure that the employer is not allowed to ask about the applicant’s previous salary or to require them to sign non-disclosure agreements concerning the wages they receive. The measure would be applicable to all employers. Measure 2: Employer’s obligation to provide all workers with individual information on pay compared to their category The existing obligations under the Treaty require employers to have pay structures ensuring that women and men are paid equally for the same work or work of equal value. In order to comply with this existing requirement, employers should group workers in their organisation according to the carrying out of equal work or work of equal value. This measure would require the information on average pay levels in such groupings to be made available to workers insofar as it relates to them. Workers would receive information on average pay levels, broken down by sex, only for their own category of workers doing the same work or work of equal value within the organisation. On the basis of the information received, workers would be able, in line with the requirements set by the Court of Justice, to compare their position and job description against a comparator attributed to the same category; this would enable them to evaluate whether or not they may be victim of pay discrimination based on sex.

The information would be provided by employers to workers periodically (e.g. synchronised with performance evaluation performed usually every year), without any prerequisite request from the worker. Exemption: the measure would exempt employers with less than 50 workers from producing such periodic information in the absence of a worker’s request. This means that workers in such organisations would still be able to obtain the information, however only upon request. To address the possible fear of victimisation, workers would be protected by a strengthening of the existing framework regarding the burden of proof (from the Recast Directive) by adding an additional alleviation of this burden regarding compliance with the pay transparency requirements set out by the initiative. Thus, in case an employer does not comply with its pay transparency obligations under the initiative, the burden of proof would be automatically shifted on the employer in case of a worker’s complaint. In addition, minimum standards on access to evidence would be set. Such alleviated provision would at the same time better reflect the case law of the Court. Sub-option 1B: Empower workers by granting a right to request pay information Measure 1: Transparency of salary information prior to employment Same as measure 1 of Sub-option 1A. Measure 2: Right of worker to receive individual information on pay compared to their category – upon request The right to information would be the same as in Sub-option 1A above, with the difference that the pay information under this Sub-option would be provided by the employer only upon an individual worker’s request (or by workers’ representatives or equality bodies). The measure would apply to all employers without exemption. 6.4. Option 2: Legislative action to create transparency at employer level This option aims at increasing transparency about pay structures of employers and organisations and thus bringing to light any potential structural gender bias. It would have an indirect effect on the problem driver of asymmetries of information on pay as some information would be shared with workers or made public. However, this latter effect would be limited because of exemptions excluding a significant share of the workforce and the potential difficulty of an individual worker to position themselves with the information provided. Four alternative Sub-options are suggested under this option. As in Option 1, they balance, on the one hand, the fundamental right and the need for protection of workers and, on the other hand, the costs and burden on employers, especially SMEs. Sub-option 2A: Equal pay certification This option would introduce the obligation for employers to receive by an accredited certification body the Standard accreditation ‘Equal Pay Standard’ (Standard ÍST 85: 2012 – Equal Pay Management System – Requirements and Guidance), which is the only example existing in the world. The accreditation certifies, ex ante, the gender-neutrality of the employer’s pay structure. The certification ensures that the difference in the average pay of women and men for the same work or work of equal value (assessed by the employer according to the standard) is solely linked to objective factors (including employers’ discretion based on explicit gender-neutral criteria regarding both the position and the performance of the employee). There are four main criteria (expertise/competence, responsibility, strain and working conditions). Each workplace must then define its own sub-criteria. This Sub-option fundamentally differs from the next approaches considered under Option 2, which are limited to ex post actions, aiming at uncovering pay inequalities in ad hoc cases. Exemption: employers with less than 50 workers would be exempted from this measure. Sub-option 2B: Employers’ obligation to carry out a joint pay assessment This option would require employers to carry out an annual pay assessment in cooperation with workers’ representatives. Such joint pay assessment could also be conducted by an external audit firm. It would include an assessment of the employer’s pay structure and any pay differentials based on sex, with the aim of identifying any unjustified gender pay differences. If the assessment brings to light such differences, these would need to be remedied. This option would trigger a systematic evaluation by employers on the extent to which their own policies and practices may be, even unconsciously, biased or discriminatory and how they may thus contribute to the gender pay gap, as opposed to factors justified or outside the employer’s control. This option therefore aims at uncovering the often unconscious systemic undervaluation of women’s work. It will require remedial action. The main difference with Sub-option 2A is that all action would be at organisational, employer level, with no mandatory external or Government involvement/certification. Exemption: employers with less than 50 workers would be exempted from this measure. Sub-option 2C: Basic pay reporting combined with joint pay assessment This Sub-option presents a less ambitious alternative, reserving the joint pay assessment to larger employers (measure 1), combining it with a less demanding requirement of pay reporting on the basis of easily accessible data for medium-sized employers (measure 2). Measure 1: Employers’ obligation to carry out a joint pay assessment

The content of this measure would be similar to the one set out in Sub-option 2B. In light of the annual publication of a pay report (see measure 2), the assessment could be carried out on a less regular basis, every three years. Exemption: employers with less than 250 workers would be exempted from this measure. Measure 2: Employers’ obligation to report on average differences in pay between female and male workers This measure would require employers to publish annually the information on the average difference in pay between female and male workers as a percentage of the average salary of male workers in their organisation. Reporting on average differences in pay between men and women in the organisation permits to see how such differences are distributed among the overall workforce within the employer, whether they are visible in regard to the basic wage or rather/also in regard to other, complementary or variable components such as benefits and bonuses and the proportion of male and female workers receiving such components. The information could be easily processed by employers on the basis of existing data. It would not contain precise information on categories of workers doing the same work or work of equal value; it can therefore only give a rough indication of possible pay inequalities. No remedial action by employers would be required. The information made accessible under this measure would ensure a minimum transparency of easily available information; as such, it would complement the more detailed pay information envisaged under option 1, which would only be available upon request. This measure can still contribute to achieving the policy objectives, since the publicity of the information and the possibility for workers and their representatives, equality bodies and labour inspectorates to ask for an explanation of any differences shown in the report is expected to work as an incentive for employers to analyse further the drivers of pay differences and act upon them. The information provided under this measure is to be shared with the national authorities which could use it for monitoring compliance with the obligation to report, to assess aggregated data, and possibly to tailor further targeted policy measures e.g. by sector or geographical area. Member States could alleviate the impact of this measure on employers by gathering the information by employer on the basis of administrative data, if available and interlinked. Exemption: employers with less than 50 workers would be exempted from this measure. Sub-option 2D: Strengthened pay reporting and joint pay assessment in case of pay differences which cannot be justified by objective, gender-neutral factors This Sub-option further reduces costs and burden for employers by limiting the obligation to carry out a joint pay assessment only to those employers which have a problem of pay inequality in their organisation. Such targeted action would be based on a strengthened pay reporting obligation which gives a more refined view on pay inequalities than the pay reporting under Sub-option 2C above. Measure 1: Employers’ obligation to report on the average difference in pay between female and male workers by worker category This measure would be similar to measure 2 under Sub-option 2C above but would extend the reporting exercise by the calculation of the average difference in pay between female and male employees by categories of workers doing the same work or work of equal value. As such, it would provide for a more refined diagnosis of possible pay inequalities in the organisation. This latter information would only be made available to workers and their representatives (and equality bodies and labour inspectorates upon request). The reason for this is that the categorization of workers performing work of equal value is based on a combination and weight of criteria which are relevant to the specific employer concerned. Such information may more appropriately remain within the employer concerned or be shared only with designated public bodies; it does not have much added value for the general public. The overall average pay gap at employer level would be made public as in Sub-option 2C. Exemption: employers with less than 250 workers would be exempted from this measure. Measure 2: Employers’ obligation to carry out a joint pay assessment if pay reports show pay differences which cannot be justified by objective, gender-neutral factors Under this Sub-option, a joint pay assessment would only be required if the pay report under measure 1 shows a difference of average pay between female and male workers at employer level of 5% in any category of workers doing the same work or work of equal value, unless the employer can justify this difference by objective factors. In case of disagreement between the employer and workers’ representatives on the need to launch a joint pay assessment, this obligation may need to be enforced through the competent enforcement authorities. Exemption: employers with less than 250 workers would be exempted from this measure. 6.5. Option 3: Legislative action to facilitate the application of and enforce the existing legal framework This option consists of a package of 3 measures aimed at facilitating the application of and better enforcing the existing legal framework. It would tackle the regulatory problem driver relating to the inconsistent and inadequate application of key legal concepts relating to the principle of equal pay (measure 1). It also addresses the problems relating to access to justice and deficient enforcement through addressing the procedural obstacles and victims’ support (measures 2 and 3). Measure 1: Facilitate the application of the existing key concepts of ‘pay’ and ‘work of equal value’ This measure especially would ensure a common approach on the application and interpretation of the EU rules on equal pay. It would enshrine the main guidelines and objective criteria set by the CJEU (which is of general nature and authoritative in all Member States) in the law. The application of such criteria would facilitate compliance with the existing obligation to ensure that the pay structures of all employers are designed to uphold equality of pay between women and men doing equal work or work of equal value. The legal concept of ‘pay’ will be clarified to reflect that ‘pay’ comprises not only salary, but also its complementary components whether in cash or in kind, which the workers receive directly or indirectly, in respect of their employment from their employer. This clarification will ensure that the equal pay principle applies to all components constituting pay – not only its fixed amount, but also variable components such as bonuses, overtime compensation, travel facilities, compensation for attending training, payments in case of dismissal, overtime supplements, and gratuities paid at the discretion of an employer, statutory sick pay, statutory required compensation and occupational pensions. The principle of equal pay does not mean that all workers should be paid equally; it means that any pay differences should be based on objective criteria, not related to sex.

In regard to the concept of ‘work of equal value’, the Court stresses that the comparison of jobs should be made in the light of objective criteria, such as education, professional and training requirements, skills, effort and responsibility, work undertaken and the nature of the tasks involved. The existing legislation would benefit from an incorporation of these criteria, as examples, in the law. In practice the application of this concept means that employers have to identify key criteria which are relevant to the organisation and its business model and based on which workers doing the same work or work of equal value get comparable pay. Again, it does not preclude employers to pay workers doing the same work or work of equal value differently, as long as such differences are based on objective, gender-neutral and bias-free criteria as for example performance and competence. In order to comply with the current legal framework, all employers should be able to define which workers in their organisation are carrying out work of equal value. The application of the criteria to assess the value of work also assists workers, both women and men, who may have reason to believe their work is under-valued because of gender based discrimination, to obtain the necessary information to resolve the problem through negotiation or, as a last resort, to bring the matter to the equality body, labour inspectorate or national courts. In situations where human resource management is not formalised or clear criteria are not established by the employer, the evaluation of the categorisation of workers by value of the work within a given employer or organisation may require effort at managerial level. It is important to note that the comparison of ‘work of equal value’, under the existing case law of the Court, has to be done between workers at employer (as opposed to sectoral) level. It does not compare similar jobs at sectoral level nor similar jobs between different employers except in a situation where pay structures are laid down centrally for more than one organisation or business within a holding company or conglomerate. So far, the concept has not been used under EU law to address horizontal gender segregation, i.e. the part of the gender pay gap linked to the fact that women are overrepresented in low paid sectors, or other root-causes of the gender pay gap. This initiative does not aim to change this situation at this stage. Besides clarifying the concept of ‘equal value’ in the law, its implementation in practice would be improved by tools or guidelines developed at EU and national level. At EU level, such guidance would be foreseen as a flanking non-legislative measure under the Communication accompanying the legislative initiative. Flexibility would be left to Member States as to the choice of the tools or guidelines at national level; these could be developed by Governments and/or social partners. The tools to support the application of the concept of work of equal value could consist, for instance, of gender-neutral job evaluation and classification methodologies (see Annex 5, Section 14) or IT tools such as Logib . Job evaluation and classification systems, can be exploited as a basis for an equitable pay structure, though they usually go beyond matters relating to equal pay, including all matters relating to labour relations, such as hiring, training, health and safety, etc. Any disputes related to pay or performance evaluation can be settled conveniently by referring to the existing job evaluation mechanism. For job evaluation mechanisms to be effective in removing gender inequalities in pay structures, they must include criteria relevant to modern job descriptions and be formulated in a gender neutral way , i.e. not influenced e.g. by traditional stereotypes. Measure 2: Improved access to justice for potential victims of pay discrimination This measure includes a set of tools aimed at improving worker’s access to justice in case of alleged pay discrimination, addressing specifically the obstacles raised in the studies and consultations carried out for the 2020 Evaluation and this impact assessment. Victims’ representation (legal standing and representative actions) This measure would strengthen the provisions of the Recast Directive regarding the defence of rights (Article 17) in matters of pay equality. Equality bodies and workers representatives’ organisations would have the capacity to act not only in support but also on behalf of victims in any judicial or administrative procedure. The aim is to relieve the burden of bringing a claim from the individual victim of pay discrimination, who may be in a precarious and vulnerable situation and fear victimisation. The measure would include the possibility for equality bodies or workers’ representatives to join claims of several victims, with the aim of supporting the latter but also possibly address structural discrimination in pay structures. An alternative would be to extend the right of action also to associations, organisations or other legal entities pursuing the enforcement of the right to equal pay. Strengthened and new remedies (compensation and injunction orders) This measure would strengthen the already existing right to compensation under the Recast Directive (Article 18) by requiring Member States to enable victims who have suffered harm caused by unjustified pay differences to obtain full compensation. The CJEU already clarified that measures appropriate to restore genuine equality of opportunity must guarantee real and effective judicial protection and have a genuine deterrent effect on the employer. This measure aims at translating this general requirement into more specific minimum standards applicable to matters covered by the initiative. It would ensure that the worker is placed in the position they would have been in if no unjustified pay difference had taken place (including full recovery of back pay and related bonuses or payments in kind, compensation for lost opportunities, and moral prejudice). Furthermore, under this measure, national courts would have the possibility to stop an infringement or to order the implementation of structural or organisational measures to comply with the obligations foreseen under the proposed initiative. Limitation periods and legal costs One of the obstacles raised in the context of gender pay discrimination claims is the deadlines for claims to be brought before the courts (limitation periods). If they are too short or start running before the victim may actually be aware of the existing discrimination, limitation periods may make it impossible in practice for the victim to exercise their rights. Under this measure, therefore, Member States would be required to comply with minimum standards set out by the initiative and applicable to matters covered by the initiative. Member States will determine when the period starts, its duration and the circumstances under which it is interrupted or suspended. Probably the most important obstacle preventing access to justice is the financial burden of enforcing the equal pay right. Such burden could be alleviated by allowing successful claimants to recover proceedings’ costs while defendants who are successful in rebutting a pay discrimination claim would, on the other hand, not have the right to recover such costs from the claimant. The envisaged rule would be accompanied by an additional safeguard so that the claimant-friendly rule would not apply in case of claims brought in bad faith, claims which are clearly frivolous or when the non-recovery by the defendant would be considered unreasonable under the circumstances. An alternative could be that the claimant would always be allowed to recover proceedings’ costs in an equal pay case from the defendant whether successful or not. Measure 3: Other measures to enhance enforcement and implementation Penalties This measure would require Member States to lay down administrative or criminal sanctions or penalties aimed at enforcing rights and obligations under the initiative. The level of sanctions/penalties should be effective, proportionate and dissuasive. The level of fines should include a minimum level and be set at such a level as to reflect the value of equal pay as a core element of the fundamental right to equality and equal opportunities, ensuring a deterrent effect. Involvement of the social partners

Social partners at all levels (e.g. employer, sectoral, national) play a crucial role in ensuring the proper implementation of the right to equal pay. While the matter is high on the agenda of social partners in some Member States, it is hardly ever discussed in some others . The initiative, with due respect to the autonomy of social partners and in accordance with national law and practice, would require Member States to take appropriate measures ensuring that the implementation of the rights and obligations under this initiative be discussed with social partners. This could be achieved through different policy measures to help develop active social partnership and inclusion of equal pay matters, especially ensuring proper implementation of the right to equal pay for work of equal value as a key element of collective bargaining. The participation of social partners is important, for instance, in case gender-neutral job evaluation and classification methods are established to prevent or identify and tackle possible direct or indirect gender-based pay discrimination. 6.6. Overview of the policy options Option 1: Legislative action to create pay transparency for individual workers Sub-option 1A: Empower workers by granting a right to pay information Measure 1: Transparency of salary information prior to employment (exemption: none) Measure 2: Employers’ obligation to provide all workers with individual information on pay compared to their category doing the same work or work of equal value within the organisation (exemption: <50 workers) Sub-option 1B: Empower workers by granting right to request pay information Measure 1: Transparency of salary information prior to employment (exemption: none) Measure 2: Right of workers to receive individual information on pay compared to their category doing the same work or work of equal value within the organisation - upon request (exemption: none) Option 2: Legislative action to create pay transparency at employer level Sub-option 2A: Equal pay certification (exemption: <50 workers) Sub-option 2B: Joint pay assessment (exemption: <50 workers) Sub-option 2C: Basic pay reporting combined with joint pay assessment Measure 1: Employers’ obligation to carry out a joint pay assessment (exemption: <250 workers) Measure 2: Employers’ obligation to report on average differences in pay between female and male workers at employer level (exemption: <50 workers) Sub-option 2D: Strengthened pay reporting and joint pay assessment if pay report shows pay differences which cannot be justified by objective, gender-neutral factors Measure 1: Employers’ obligation to report on average differences in pay between female and male workers at employer level and by worker category doing the same work or work of equal value within the organisation (exemption: <250 workers) Measure 2: Employers’ obligation to carry out joint pay assessment if pay report shows pay differences which cannot be justified by objective, gender-neutral factors Option 3: Legislative action to facilitate the application of and enforce the existing legal framework Measure 1: Facilitate the application of the existing key concepts of ‘pay’ and ‘work of equal value’ Measure 2: Improved access to justice for potential victims of pay discrimination Measure 3: Other measures to enhance enforcement and implementation 7.What are the impacts of the policy options? 7.1. Option 0: Status Quo See the Baseline (Section 4.3). 7.2.Option 1: Legislative action to create transparency for individual workers The policy sub-options identified in this section primarily address the first specific objective (see Section 4.2) of this initiative, i.e. empowering workers to enforce their right to equal pay. They aim at strengthening workers’ bargaining power when it comes to pay setting and their understanding of their position in regard to pay compared to other workers carrying out equal work or work of equal value in the organisation (not across sectors). Sub-option 1A: Empower workers by granting a right to receive pay information Measure 1: Transparency of salary information prior to employment This measure is likely to reduce the risk of gender bias when salary is set for a newly hired worker. The measure is twofold: first, it provides workers with information on the range of the salary envisaged for the vacancy before starting negotiating their salaries. As such, it strengthens workers’ bargaining position by ensuring they have all relevant information to negotiate on an appropriate basis. Secondly, it prohibits to ask for previous salary, something which has been shown to perpetuate gender gaps in pay over time, especially when changing job. Overall, this measure would ensure that parties to the salary negotiation are on equal footing as regards the information relating to the value (or range) assigned by the employer to that position. It would ensure that salary negotiations are unbiased by possible gendered expectations, which tend to work (more frequently) to the disadvantage of women, with consequences lasting during the entire career. Stakeholders’ views: the targeted consultation with social partners informed that the inclusion of expected salary in job postings is supported by the large majority of trade unions (78%) that participated in the consultation. It is also the most preferred option for action on the side of employer association respondents, though not reaching a majority (41%) among them. As for the prohibition to ask about previous salaries, in the targeted consultation with Member States, seven out of the 13 who replied to the question included this option in their ideal preferred package of measures, five included the prohibition to ask for previous salary and six the prohibition of confidentiality agreements. In the targeted consultation with social partners about 38% supported this option, as the envisaged measures are yet known only in a limited number of Member States (see below). Costs: there are no direct costs related to the right to information on pay before employment, and the prohibition to ask about previous salary. Indirect costs could arise if the measure would lead to a limitation of the negotiating space for both parties, which is not the case. The measure only requires to share/receive information on the starting offer (or reasonable range) and would not constrain the negotiating power of either employer or worker. Employers could be protected from the risk of having prospective candidates ‘poached’ in very competitive job markets by the possibility, in the absence of a vacancy notice, to inform about the initial offer only at the beginning of the interview. While this would to some extent reduce the effectiveness of the measure, it would still enable workers to come better informed at the negotiating table. This measure would only carry an opportunity cost if the employer had intended to benefit from a gender-biased salary offer, which would be discriminatory and therefore illegal. Finally, in general terms, it is also more efficient to avoid having good candidates competing for positions that they would eventually refuse because paid below their minimum expectations. Benefits: Beyond rebalancing the information asymmetry and reducing the risk of gender bias in negotiations , disclosing the pay range offered shows to prospective workers how the skills and job requirements are evaluated and valued (process transparency). It also motivates employers to analyse the pay setting criteria due to be applied when making the offer, and to ensure that these are gender neutral. The measure is expected to have a positive gender effect, as studies show that women negotiate better in transparent environments. Finally, it contributes to building trust between workers and employers therefore promoting a better work environment. It is further reinforced by the prohibition to ask about previous salary that breaks a vicious circle of path dependency in salary setting. The measures envisaged may be expected to gradually benefit an increasing number of workers entering the labour market or changing job. They may lead to an increase in women’s salaries. Estimating such increase cannot, however, be predicted with reliability – it would need to be based on an estimate of the gender biased difference in salary that would have been offered in the absence of measures applied to an also estimated share of job applicants for each employer. This measure may benefit most women in precarious situations, such as single mothers, and women potentially subject to multiple discrimination, two categories which can be expected to face higher gender discrimination (see problem definition). Finally, the consequent increase in women’s salaries may have a negative impact on the profits made by employers, profits which, however, were potentially based on illegal behaviour. Legal change: Transparency of salary information prior to employment is currently available in 4 Member States (AT, LV, PT, SK) and the prohibition to ask about previous salary only exists in PT. No concern has been expressed in the support study that introducing this measure would raise questions of feasibility. Conclusion: This measure entails low costs in comparison to related benefits, remedying the asymmetry of information on pay prior to employment and preventing a perpetuation of an existing unjustified pay difference between women and men. The cost/benefit analysis is therefore positive, even if it entails a change in the majority of Member States. Measure 2: Employers’ obligation to provide all workers with individual information on pay compared to their category In order to be able to meaningfully exercise their right to equal pay, workers must have the information necessary to assess prima facie whether they may be the victim of pay discrimination. This measure would achieve that objective, by making available the information on the average level of pay of their comparators (i.e. workers carrying out the same work or work of equal value). In order to best address a possible fear of victimisation on the part of workers, the information would be provided without workers having to ask for it. To the extent that employers have a firm-specific grouping or classification available, the information to be provided can easily be gathered (see Section 6.3, Sub-option 1A). If no such grouping or classification is available, the employer would need to determine first which workers carry out the same work or work of equal value. The transparent classification of jobs and positions by the employer provides an objective picture of the pay structure and implicitly of the pay setting and progression mechanisms. As such, it brings to light possible biases on which employers could, but would not be obliged to act unless a worker were to show an unjustified gender-based pay difference.

Exemption regarding the automatic provision of information for smaller employers. The grouping of workers into categories based on the content or value of the work they are attributed to do requires a minimum number of observations to be effective. This minimum number is influenced by the specific field, the organisation of work in the organisation and the proportion between women and men. In general, one can expect that smaller employers may have less room for differentiating between categories of workers or may possibly have categories with no possible gender split. In Member States that have such type of measure in place, the threshold varies very widely, between 10 and 500 workers - most often it is set below or at 50 workers. Studying the preparation of measures under national law shows that the applicable threshold is mostly the result of political decision-making. For this initiative, it may reasonably be assumed that the useful headcount making this measure meaningful, also in statistical terms, may be set at least 50 workers. Requiring smaller employers to pro-actively classify their workers and provide regular information may be considered as disproportionate. The ‘50+ workers’ threshold is also the one retained in the 2014 Recommendation. Using such threshold, the right to receive relevant information on pay automatically would apply to 50% of the EU27 workforce and on average 1% of EU27 enterprises. To protect the right of workers in organisations with less than 50 workers, it must be ensured that the latter always have the right to request the information on the comparators that is relevant for them. Nevertheless, additional protection seems to be needed since experience in Member States (e.g. Germany) shows that workers frequently hesitate to request information on their comparators for fear of victimisation (e.g. being perceived as uncollegial or pushy). Although workers would have the right to request pay information, they might be reluctant to do so. Therefore, their right to request is accompanied by a strengthened mechanism regarding the shift of the burden of proof in case of pay discrimination. Under this