How will the brand new EU guidelines on the gender pay hole have an effect on your startup?

It has been 66 years since the EU first introduced the principle of equal pay for men and women workers for work of equal value. However, the gender pay gap persists in the EU. On average, women earn around 13% less than men, with significant differences between Member States.

To fill this gap, the European Parliament and Council recently adopted a new set of rules setting out binding pay transparency measures. For the first time in the union’s history, this legislation also tackles intersectional discrimination (based on ethnicity, race, religion, etc.) and addresses the rights of non-binary people.

“This legislation makes it clear that we do not accept any gender pay discrimination in the EU,” said Kira Marie Peter-Hansen, rapporteur for the Committee on Employment and Social Affairs.

The policy applies to all workers with a valid employment contract, collective agreement and established practice, and to all employers in the public and private sectors.

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For some companies, this landmark law could simply (and hopefully) mean the normalization of existing practices; for others, it might require a systematic change. But what exactly does it entail?

1. No more wage discrimination

Employers must ensure that their wage structures do not reflect gender differences between workers doing the same work or work of equal value. These are not just salaries, but also all kinds of benefits, such as bonuses and travel expenses.

To help companies (and in particular start-ups and SMEs), Member States should provide employers with training and tools to assess the value of work based on four objective criteria: skills, effort, responsibilities and working conditions.

2. Complete salary transparency

The new rules require companies to provide job seekers with information about the starting salary or salary range of open positions either in the job description or before the interview. However, employers do not have the right to ask for candidates’ salary history.

Employees are also entitled to information about their individual and average wage levels – broken down by gender – for work of equal value. In addition, they have access to the criteria for determining remuneration and career development, which must be objective and gender-neutral.

Member States may exempt employers with fewer than 50 employees from this obligation and allow them to provide these criteria only upon request. However, you should definitely provide ready-made templates to reduce administrative burdens for micro and SMEs.

3. More justice for employees

The burden of proof in wage disputes no longer lies with the employee.

“That is particularly important [this] “has shifted from employee to employer as charges of gender wage discrimination are levied,” Yoko Spirig, co-founder and CEO of Swiss startup Ledgy, told TNW.

“Companies now have to prove that there is no discrimination when challenging, and no longer that the employee has to prove the existence of discriminatory practices.” This step is to be welcomed and sends a clear signal to companies that their payroll data and processes are now in order bring to.”

Employees who have suffered gender pay discrimination can also seek and receive compensation, including full reimbursement of arrears of wages, related bonuses and benefits in kind.

4. Report, report, report

According to the directive, companies with more than 250 employees must report annually on their gender pay gap. This is every three years for employees between 150 and 249, and every eight years for employees between 100 and 149.

Member States can exempt companies with fewer than 100 employees from the tax or oblige them as well.

If the reporting shows a gap of more than 5% that cannot be justified by objective, gender-neutral criteria, a joint salary determination in cooperation with the employee representatives is required.

The aim of the assessment is to identify problems and implement solutions that eliminate gender pay discrimination.

5. Beware of the penalties

Employers who break the rules will face “effective, proportionate and dissuasive penalties” such as fines and even the loss of public benefits.

“I particularly welcome the proposal to penalize companies that fail to address their gender pay gap, as it is imperative for companies to stop resting on their laurels – complacency will get us nowhere,” said Jenny Keisu, CEO of Swedish E- Boat builder X Shore, opposite TNW.

Keisu stressed that all companies should track the gender pay gap “like any other key KPI” even more regularly than required by legislation.

What are the next steps?

The rules will come into force 20 days after their publication in the Official Journal of the EU, which is still pending. They apply to all employers in the union, although smaller companies (micro, start-ups and SMEs) will initially have fewer obligations and more support from Member States.

Because it’s a directive, EU countries have some leeway in how they want to apply the rules and have three years to implement them.

“It is encouraging that the European Parliament is taking a stand and affirming that change needs to happen sooner rather than later,” said Marta Sisí Jiménez, HR manager at Freepik Company, a Malaga-based scale-up.

“[Especially] “For Europe’s growing startups looking to expand, these new rules set out clear guidelines on an issue that was previously unclear,” she told TNW.

But this historic — and imperative — shift may not come without challenges. Jiménez pointed to the potential resistance from founders who are already navigating a difficult environment of falling investment and increasing regulations.

David Perez, vice president of stakeholder relations at Cabify, pointed out another potential challenge: the validity of the required data.

“It has to be taken into account that when analyzing the gender difference, many factors can skew the data, such as the number of women and men in one department compared to another,” Perez told TNW. “That’s why we believe it’s critical to conduct an ad hoc analysis of each job so that a person isn’t being sought based on their gender, but rather what they can bring to the job.”

But whatever challenges may arise, the benefits of ensuring equal pay are large and far-reaching: from creating equality and social justice to increasing business performance and strengthening the economy.

From the point of view of the startup ecosystem in Europe, the new rules promote a level playing field.

“This rule will shape a labor market where big companies and SMEs compete for talent on equal terms and under the same rules,” Perez noted. “A labor market in which this data is reported uniformly and jointly by all companies.”