COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT REPORT 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
Date: 2021-03-04
Institutions: Directorate-General for Justice and Consumers, European Commission
Subjects: EU employment policy, economic discrimination, equal pay, equal treatment, gender equality, remuneration of work, sexual discrimination, working conditions

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   EUROPEAN COMMISSION  Brussels, 4.3.2021  SWD(2021) 42 final  COMMISSION STAFF WORKING DOCUMENT  EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT REPORT  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) 41 final}  
 
 
Impact assessment for a proposal  
on strengthening the principle of equal pay between men and women through transparency 

Executive summary sheet 

A. Need for action 

What is the problem and why is it a problem at EU level?  

The effective implementation of the  fundamental right  to  equal pay between women and men for 
equal work or work of equal value, as enshrined in Article 157 TFEU, remains a major challenge in the 
EU. 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. This is a problem at 
the level of both workers and employers. 

Failure  to  implement  this  fundamental  right  affects  women’s  economic  independence  during  their 
working life and thereafter. This is also a problem for the efficient operation of the labour market and 
for competition in the internal market. Expectations on prospective earnings can distort women’s choice 
of  jobs,  decisions  on  time  worked  and  career  patterns,  and  therefore  create  a  clear  risk  of  loss  of 
productivity  in  the  economy  at  large  due  to  suboptimal  female  labour  market  participation.  For 
employers,  this  inefficient  use  of  resources  means  a  loss  of  productivity  and  hidden  costs.  Finally, 
divergences  in  the  treatment  of  women  and  men  with  regard  to  pay  can  also  have  an  impact  on 
employers’  competitiveness  to  the  extent  that  employers  non-compliant  with  the  equal  pay  principle, 
possibly applying diverging rules across countries, can benefit of an unfair (and unlawful) advantage. 

Individual  pay  discrimination  and  gender  bias  in  pay-setting  mechanisms  and  how  women’s  work  is 
valued may be enabled by: 

- a lack of pay transparency at individual worker and employer level; 

  - a deficient application of the concepts of ‘pay’ and ‘work of equal value’; and 
  - inadequate access to justice because of procedural obstacles and insufficient remedies for victims.  

The lack of pay transparency prevents workers from assessing whether their right to equal treatment in 
relation  to  pay  is  being  upheld;  it  also  hides  the  undervaluation  of  women’s  work  due  to  (often 
unconscious) bias in pay structures. Problems with the proper application of key concepts in assessing 
equal ‘pay’ for equal work or ‘work of equal value’ complicate the implementation of the right to equal 
pay  for  both  workers  and  employers.  Insufficient  access  to  justice,  coupled  with  workers’  fear  of 
victimisation, makes the enforcement of their right to equal pay even more difficult. 

What should be achieved?  

The general objective is to improve the implementation and enforcement of the principle of equal pay 
for equal work or work of equal value between men and women, as regulated in Article 157 TFEU and 
Directive 2006/54/EC. The specific objectives of the initiative are to: 

empower  workers  to  fully  enforce  their  right  to  equal  pay  –  bringing  instances  of  pay 
discrimination to light through transparency and giving workers the necessary information and tools to 
act on it; and  

address systemic undervaluation of women’s work at employer level through transparency and 
correcting  biases  in  pay-setting  mechanisms  that  perpetuate  the  undervaluation  of  work  done  by 
women. 

Both of these objectives could be supported by addressing the difficulties affecting the application of the 
key legal concepts relating to equal pay, and access to justice. 

What is the added value of action at EU level (subsidiarity)?  

Action at EU level would ensure effective pay equality between men and women and enable all citizens 
to  claim  their  rights  on  the  basis  of  minimum  standards  applicable  in  all  Member  States.  It  would  not 
only  create  harmonised  minimum  standards  protecting  workers,  but  also  equal  market  conditions  for 
employers  operating  in  the  internal  market,  thus  preventing  unfair  competition.  Only  a  coherent  and 
comprehensive  EU-wide  approach  can  ensure  a  level  playing  field  for  all  Member  States  and  prevent 

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employers from seeking unfair competitive advantages through pay discrimination. Finally, EU action is 
required under the Treaty and would uphold a fundamental principle and right to equal treatment that is 
enshrined  in  the  EU  Charter  of  Fundamental  Rights.  As  demonstrated  in  the  Commission’s  2020 
evaluation  of  the  relevant  EU  equal  pay  legal  provisions,  comparable  efforts  to  promote  pay  equality 
throughout the EU are not likely to come about without a push through an EU-level instrument. 

B. Solutions 

What are the options for achieving the objectives? Is there a preferred option? If not, why?  

The following options have been considered: 

option 0 — status quo; 

option  1  —  legislative  action  to  ensure  transparency  at  workers’  level.  This  includes  transparency  of 
salary information prior to and during employment, on the basis of: 

  the proactive provision of information by employers (sub-option 1A); or  
  a request by workers, their representatives or equality bodies (sub-option 1B); 

option 2 — legislative action to create transparency at employer level. This includes four sub-options 
with varying degrees of ambition: 

sub-option 2A – equal pay certification;  

sub-option 2B – joint pay assessment by employers and workers’ representatives;  

sub-option 2C – pay reporting combined with joint pay assessment; and  

sub-option  2D  –  strengthened  pay  reporting  and  joint  pay  assessment  where  there  are  statistically 
relevant indications of gender pay inequalities; and 

option  3  —  legislative  action  to  facilitate  the  implementation  and  enforcement  of  the  existing  legal 
framework  (without  pay  transparency).  This  includes  clarification  of  the  existing  key  concepts  of  ‘pay’ 
and ‘work of equal value’, improved access to justice and improved enforcement mechanisms. 

The  preferred  package  is a  combination  of  sub-option 1B (empowering  workers  through  salary 
information  prior  to  employment  and  a  right  to  request  information  during  employment), sub-option 
2D (strengthened pay reporting and, in case of statistically relevant indications of pay inequalities, joint 
pay assessment and option 3 in a  single novel initiative.  This is the most proportionate and targeted 
solution: it achieves the overall and specific objectives balancing effectiveness and efficiency and taking 
account  of  the  lack  of  hard  data  on  the  scale  of  the  problem  and  the  current  economic  downturn 
resulting from the COVID-19 pandemic. 

The envisaged set of legislative measures is aimed at creating transparency on pay and pay structures, 
empowering  workers  and  addressing  the  systemic  undervaluation  of  women’s  work.  It  will  secure 
workers’  right  to  access  the  information  they  need  to  assess  whether  they  may  be  the  victim  of  pay 
discrimination based on gender. It will also allow employers to detect and act on discrimination and bias 
in pay structures. The legislative option entails exemptions so as to balance the right to equal pay with 
the  possible  burden  and  cost  of  the  various  measures,  and  to  target  the  measures  where  they  are 
needed  most.  Employers  with  fewer  than  250  employees  would  not  be  obliged  proactively  to  provide 
them with periodical information on pay or to report on pay; nor to carry out joint pay assessments. In 
such  entities,  workers’  rights  would  be  protected  by  the  right  to  request  the  relevant  information  on 
pay, combined with a strengthened reversal of the burden of proof and enhanced access to justice. The 
package also entails better application of the key concepts relating to equal pay. 

What are different stakeholders’ views? Who supports which option?  

Extensive  stakeholder  consultations  were  carried  out  for  this  impact  assessment  and  the  preceding 

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evaluation of the EU’s equal pay legal framework. 

Private  individuals  responding  to  the  consultation  expressed  overall  support.  This  is  consistent  with 
the indications from opinion surveys, e.g. a Eurobarometer carried out in 2017. 

Most  employers  would  prefer  to  prioritise  measures  addressing  other  root  causes  of  the  gender  pay 
gap.  They  consider  this  initiative  less  effective  for  the  purpose  of  reducing  the  gender  pay  gap  and 
therefore unnecessarily costly, particularly for SMEs. They highlighted the difficulties in assessing what 
constitutes ‘work of equal value’, and data protection concerns. They also referred to the autonomy of 
social partners and the need to preserve existing tools for reporting at national level. 

Trade  unions  broadly  support  the  initiative  and  favour  even  more  ambitious  approaches,  although 
some question it on subsidiarity grounds. 

Member States have different positions, but most are in favour (particularly those that have already 
introduced transparency measures). 

C. Impacts of the preferred option 

What are the benefits of the preferred option (if any; otherwise of main ones)?  

Beyond the main purpose of enforcing a fundamental right, pay transparency measures will facilitate a 
cultural shift on gender equality issues and result in  better focused and targeted policy actions in this 
area. For workers, pay transparency improves job satisfaction and engagement. It raises awareness and 
empowers workers, especially women, to seek redress for unjustified pay differences at individual level 
and  gender  bias  in  pay  settings  and  job  evaluation.  For employers,  implementing  pay  transparency 
translates into higher employee retention, increased attractiveness and profitability. Society as a whole 
will benefit  from a  higher level and (also important)  a greater perception of equality. More equality  in 
pay  improves  the  allocation  and  use  of  resources,  reduces  inequality  and  contributes  to  sustainable 
development. Overall, pay transparency measures can bring about significant behavioural change. The 
scale  of  the  benefits  will  depend  on  the  level  of  compliance  with  the  legislation  and  the  extent  of 
employers’ follow-up measures. 

The  potential  impact  of  the  package  of  measures  has  been  hypothetically  estimated  as  involving  an 
overall  3 percentage-point  reduction  in  the  unexplained  part  of  the  gender  pay  gap.  This 
would  lead  to  a  decrease  in  the  ‘at  risk  of  poverty’  rate  in  the  EU  from  16.3%  on  average  to 
around 14.6%, with significant variation across countries and household types. In turn, this would lead 
to  an  overall  6.9%  increase  in  total  earnings  and  an  overall  reduction  of  both  market  and  disposable 
income inequality. The poverty rate is mostly reduced for single-parent households, of which 85% 
are  women.  There  are  also  positive  impacts  on  national  budgets:  government  revenues  from 
direct  taxes  and  social  contributions  would  rise  by  about  7.5%,  while  social  transfers  (cash  benefits) 
would go down, mainly driven by a decline in means-tested benefits, by about 0.4%. 

What are the costs of the preferred option (if any; otherwise of main ones)?  

Member  States’  administrative  costs  (for  transposition  and  enforcement)  are  expected  to  be 
limited, as are costs linked to monitoring compliance. 

The  package  would  involve  one-off  compliance  costs  for  employers  (expected  to  range  from  low  to 
moderate)  and  lower  recurring  costs.  The  total  costs  for  each  employer  were  estimated  on  the 
following basis: 

  providing pay information before hiring – €0;  

  replying  to  an  individual  request  for  pay  information  –  €20  (indicative  -  for  all  sizes  of 

companies);  

  obligatory reporting on average gender pay differences by worker category  – €379-508 to €721-

890 (for companies with 250+ employees); and  

  carrying out an additional assessment (if necessary - for companies with 250+ employees, where 
pay  reporting  detects  a  statistically  significant  pay  gap)  –  €1 180-1 724  to  €1 911-2 266  per 
employer (expected to decrease in any subsequent exercises). 

The  total cost for  the EU would be  €26-50 million for pay reporting, plus any additional costs for a 

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possible joint pay assessment and requests for information on pay, both depending on the scale of pay 
discrimination. 

What are the impacts on SMEs and competitiveness?  

Employers  with  fewer  than  250  employees  are  exempted  from  proactively    providing  workers  with 
information  on  pay,  from  reporting  on  pay  gaps  and  carrying  out  a  conditional  joint  pay  assessment. 
The  pay  reporting  and  assessment  measures  would  apply  to  0.2%  of  EU  companies  (accounting  for 
33% of the EU workforce). However, all workers would have the right to ask for specific pay information 
and all employers would be obliged to provide it. 

This  initiative  primarily  concerns  the  implementation  of  an  EU  fundamental  right  (the  right  to  equal 
pay). Together with the EU’s social objectives, such goals take precedence over the economic dimension 
of  the  right  to  equal  pay1.  Only  a  coherent  and  comprehensive  EU-wide  approach  can  ensure  a  level 
playing field for all Member States and prevent employers from seeking unfair competitive advantages 
through pay discrimination.  

Will there be significant impacts on national budgets and administrations?  

The  preferred  option  is  expected  to  have  limited  implementation  costs,  overall  and  in  particular  for 
national administrations. The costs may vary, depending on the support Member States choose to make 
available, on a voluntary basis, for employers (e.g. dedicated IT infrastructures, replacing pay reporting 
with reporting based on administrative data, guidance and training on gender-neutral job evaluation and 
classification systems). 

At  the  same  time,  positive  impacts  are  to  be  expected  though  it  is  not  possible  to  provide  a  reliable 
overall  estimate.  Higher  wages  for  women  (which  would  depend  on  the  amount  of  pay  discrimination 
corrected as a result of this proposal) could lead to a rise in government revenues (higher collection of 
income taxes and social insurance contributions). On the other hand, gains in average wages for women 
might be compensated by slower growth of men’s salaries with an undetermined overall effect. To the 
extent  that  these  changes  would  apply  more  to  lower  paid  workers,  there  could  also  be  a  decline  in 
social  (cash)  transfers,  mainly  explained  by  a  reduction  of  means-tested  cash  benefits  (see  section 
above on benefits). 

Will there be other significant impacts?  

No potential environmental impacts were detected. 

Proportionality?  

The proportionality principle is fully respected, as the scope of the measures varies according to the size 
of  the  employer,  thus  avoiding  excessive  costs  and  burdens  while  upholding  basic  rights  for  workers. 
The proposal takes account of the lack of hard data on pay discrimination and the economic downturn 
caused by the COVID-19 pandemic. The intended intervention is the minimum necessary to enforce the 
equal pay principle effectively across Member States.  

D. Follow up 

When will the policy be reviewed?  

The Commission intends to review the implementation of the initiative to assess the extent to which the 
policy objectives have been achieved. This evaluation should take place 8 years after the deadline for 
implementing  the  legislation,  possibly  in  coordination  with  the  release  of  the  gender  pay  gap  data 
(SES2), in order to facilitate a meaningful assessment of practices and impacts across all Member States. 

1 Case 50/96, Deutsche Telekom AG v Lilli Schröder, ECLI:EU:C:2000:72, p. 57. 
2 EU Structure of Earnings Survey. 

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