EU wage transparency could trigger a wave of emigration

According to the new EU directive, employers will be required to provide a salary range or a specific minimum salary for the position to be filled in their job advertisements. In addition, every employee can query the average salary data for their own position, broken down by gender, once a year. If an employee’s salary deviates from the average by at least 5% and the company cannot substantiate this with objective criteria, such as performance, different competencies, or responsibilities, the difference must be reduced within 6 months or corrected with other benefits.

“The disclosure of salaries will inevitably lead to wage tension within organizations. Employees will compare their salaries not only with the market, but also with the salaries of their direct colleagues, and will immediately start browsing job portals. This can cause problems especially where long-time employees earn less than a newly hired colleague in the same position. The consequence is expected to be a significant wave of fluctuation, as employees will switch to a better-paying job much more easily and consciously”

– explained Tibor Lovász.

How should companies prepare for the change?

One of the most important elements of the regulation is that in the case of a wage discrimination lawsuit, it is not the plaintiff, but the employer, who must prove that the wage difference is due to objective reasons and is not the result of gender discrimination. This will entail serious administration for the companies concerned. To comply, companies will have to review their entire wage and benefit structure. It is important that the regulation covers the entire remuneration.

In addition to the basic wage, all direct and indirect monetary and in-kind benefits must be taken into account, calculated on an hourly basis, from bonuses and premiums to cafeteria items, travel and housing allowances, training allowances or company cars that are not used as work equipment.

“It is not enough to simply strive for legal compliance, companies must completely rethink their salary and benefits strategy in order to retain their employees. The first and most important step is to create a precise job map that categorizes positions by task type and level of responsibility. Based on this, objective salary ranges and career paths that are transparent to everyone can be created. Companies should start analyzing internal salary conditions and budgeting now so that they are not unprepared for a possible large-scale wage adjustment by 2026. This additional cost must either be managed from profit or passed on to prices, which could lead to an increase in the price of the given services”

– added Dr. Ákos Mendly, group leader attorney and legal expert at ICT Europa.

Hungary is still waiting

Hungarian legislation is still in arrears with the domestic transposition of the Pay Transparency Directive, but the basic rules are expected to be included in the Labor Code. In Hungary, the pay gap between men and women is currently around 17%.

“Although the domestic detailed rules are not yet known, the framework of the EU directive is clear, and Hungarian regulations may establish stricter rules. Experience shows that many companies trust that they will have time to react, but the necessary internal systems, job map and objective wage structure can take months or even a year to develop. Those who leave preparations until the last minute risk not only fines, but also losing their best employees”

– warns the HR expert.