In June 2023, the European Union officially signed the EU Pay Transparency Directive into law. The intention of the pay transparency directive is to solidify the principle of equal pay for equal work through enhanced transparency and enforcement. The regulation focuses on the pay differences between men and women. EU Member States must incorporate the directive into national law by 7 June 2026, when the core obligations related to pay transparency and information disclosure take effect. The gender pay gap reporting obligations will come into effect on a phased basis starting on 7 June 2027.
The Pay Transparency Directive applies to all public and private sector employers with relevant workers in the EU, meaning individuals with an employment contract or relationship as defined by national law. Non-EU companies (including those registered in the UK) with more than 100 employees based in an EU member state must comply with the directive’s implementing legislation and reporting requirements in that jurisdiction, despite it not applying outside the EU.
To ensure compliance, businesses should start implementing changes now. Some adjustments could take several months to deliver. It is the firms that are proactive that will see the best results. Below is a detailed breakdown of everything you need to know to ensure your company is ahead of the curve.
Why are changes needed?
Despite some progress, women still receive significantly lower pay than men. In the European Union, women earn an average of 13% less than their male counterparts. To counter such discrepancies, pay transparency regulations are gaining traction all around the world, with California, Japan and the UK just some of the territories undertaking similar initiatives. In a European context, the Pay Transparency Directive aligns with the EU’s recently adopted Corporate Sustainability Reporting Directive (CSRD). Under this regulation, companies will be required to disclose the gender pay gap as a percentage, as well as the ratio of total compensation between the highest-paid individual and the average employee.
Key Provisions of the Directive:
- Pay Transparency for Job Seekers:
Under the new directive, job applicants will be entitled to receive information on the initial salary level or range for any advertised position, and employers will no longer be permitted to ask candidates about their current or previous remuneration.
Organisations must ensure full transparency regarding pay structures, including how salaries are determined, progressed, and managed. Employers will also be required to disclose the criteria governing promotions and career advancement. Any pay differentials must be justified by objective, gender-neutral factors such as performance or market-driven considerations, rather than gender.
To facilitate fair pay comparisons, employers must adopt gender-neutral job evaluation and classification systems. For organisations that do not currently operate within a structured job architecture supported by a recognised analytical job evaluation methodology, this may require significant changes.
While many countries already have pay equity frameworks in place, they will be required to certify compliance with the directive, which is expected to necessitate further adjustments. For those without established pay equity measures, implementing these requirements will represent a substantial shift in policy and practice.
- Employee Right to Information:
Under the directive, workers and their representatives will have the right to request and receive written information regarding their individual pay level, as well as the average pay levels for employees performing the same or equivalent work, broken down by gender.
To promote transparency, employers must provide employees with clear and accessible information on the criteria used to determine salary levels and pay progression. These criteria must be entirely gender-neutral.
Additionally, employers will be required to inform all employees annually of their right to access this pay information. Any requests must be fulfilled within a reasonable timeframe, and no later than two months from the date of submission.
Furthermore, employers must ensure that job titles and vacancy announcements are gender-neutral, reinforcing a commitment to fairness and inclusivity in recruitment and remuneration practices.
- Reporting Obligations:
Companies will be required to publish gender pay gap (GPG) reports detailing key pay disparities between male and female employees. These reports must include data on the mean and median gender pay gap, differences in bonus payments, the percentage of each gender receiving bonuses or other variable pay, and the proportion of men to women in each quartile pay band.
Employers with at least 250 employees will report every year, and employers with between 150 and 249 employees will report every three years.
- Joint Pay Assessments:
If a gender pay gap of 5% or more is identified and cannot be objectively justified, employers will have to take corrective action within six months. If they fail to do so, they will be required to conduct a joint pay assessment (JPA) in collaboration with worker representatives. This assessment will not be limited to the specific category of workers where the disparity was identified but will extend to the entire workforce.
- Ban on Pay Secrecy and Salary History Inquiries:
The directive prohibits pay secrecy clauses that prevent employees from disclosing their pay. Additionally, employers are barred from inquiring about a candidate’s salary history during the recruitment process. These measures aim to prevent the perpetuation of existing pay inequalities.
Implications for Employers:
EU employers have a crucial window to prepare for these changes strategically. The first priority is ensuring leadership is well-informed about the directive, allowing them to evaluate existing pay structures against the new requirements and assess organisational readiness. Rather than adopting short-term fixes, businesses should develop a comprehensive, phased action plan to implement the necessary adjustments over the coming timeframe.
Pay transparency should not be viewed in isolation but integrated into a company’s broader Environmental, Social, and Governance (ESG) and Diversity, Equity, and Inclusion (DE&I) strategies. Aligning these efforts will not only ensure compliance but also support meaningful, long-term workplace transformation, reinforcing the organisation’s commitment to fairness and equality.
Key steps include:
- Reviewing Compensation Structures: Examine your job architecture and pay structure. An accurate and current job architecture forms the cornerstone of a fair and transparent pay system, ensuring that roles and responsibilities are properly defined and aligned with objective criteria. Conduct comprehensive audits to identify and address any existing gender pay gaps. This proactive approach can mitigate potential risks and demonstrate a commitment to pay equity.
- Enhancing Data Collection and Reporting Systems: Establish robust mechanisms to accurately capture and report pay data as required by the directive. This includes ensuring that data is disaggregated by gender and job category.
- Training and Policy Development: Develop and implement training programs to educate HR professionals and management on the new requirements, as well as on DEI policies and unconscious bias policies more broadly to ensure consistent application and promote equal opportunities across the organisation. Revise existing policies to align with the directive’s provisions, particularly concerning pay transparency and the prohibition of salary history inquiries.
Conclusion
The EU Pay Transparency Directive represents a watershed moment for workplace equality, compelling organisations to confront pay disparities head-on through systemic transparency and accountability. For employers, compliance is not merely a legal obligation but an opportunity to reinforce trust, enhance employer branding, and align with broader ESG and DE&I goals. As Madeleine Catzaras of Aon aptly notes, pay equity is no longer a “nice-to-have” but a cornerstone of sustainable business practice. By integrating transparency into organisational DNA, companies can turn regulatory mandates into catalysts for cultural and operational transformation.
The directive’s requirements demand a proactive approach. With the deadline for transposition into national law set for June 2026 and reporting obligations phasing in from June 2027, the time for action is now.
Sources
Aon. (2023). Navigating the new EU directive on pay transparency. Retrieved from https://www.aon.com/en/insights/articles/navigating-the-new-eu-directive-on-pay-transparency
European Commission. (2023). Corporate sustainability reporting. Retrieved from https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en
European Commission. (2023). Equal pay day: Women in the EU still earn 13% less than men. Retrieved from https://commission.europa.eu/news/equal-pay-day-women-eu-still-earn-13-less-men-2023-11-15_en
EUR-Lex. (2023). Directive (EU) 2023/970 of the European Parliament and of the Council on pay transparency. Retrieved from https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32023L0970
Gov.uk. (2023). Government launches pay transparency pilot to break down barriers for women. Retrieved from https://www.gov.uk/government/news/government-launches-pay-transparency-pilot-to-break-down-barriers-for-women
Littler. (2023). Japan addresses wage gap, requiring gender pay gap disclosure. Retrieved from https://www.littler.com/publication-press/publication/japan-addresses-wage-gap-requiring-gender-pay-gap-disclosure
Rippling. (2023). California pay transparency law: What employers need to know. Retrieved from https://www.rippling.com/blog/california-pay-transparency-law
