Pay transparency in the EU: it’s time to prepare

15 November is European Equal Pay Day. To mark the occasion, we take a look at the EU’s Pay Transparency Directive, passed earlier this year. What will it mean for businesses? And what can employers do now to prepare for implementation in 2026?

Background

On 10 May 2023, the EU adopted a new Directive 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 (the Pay Transparency Directive). The principle of equal pay was the first human rights principle to be included in the EU Treaties, since its inclusion in the Treaty of Rome in 1957. Despite its long history, however, pay discrimination remains a reality in the EU. According to Eurostat, the gender pay gap in the EU was still 12.7% in 2021. That is why the Pay Transparency Directive introduces new rights and obligations for employees and employers to ensure pay equality. This article explores what these new rights and obligations are, their impact on the existing pay transparency framework and what employers can do to prepare for the transposition of the Directive in 2026.

The Pay Transparency Directive aims to combat pay discrimination and close the gender pay gap by defining key concepts, introducing individual rights to pay transparency, introducing reporting obligations, providing for joint pay assessments in some cases and strengthening enforcement mechanisms.

Defining key concepts

The Directive harmonises key pay transparency concepts at the EU level. For the purpose of the Directive:

• ‘pay’ means the ordinary basic or minimum wage or salary and any other consideration, whether in cash or in kind, which an employee receives directly or indirectly (complementary or variable components)
• ‘pay level’ means gross annual pay and the corresponding gross hourly pay
• ‘category of workers’ means employees performing the same work or work of equal value
• ‘work of equal value’ means work that is determined to be of equal value in accordance with non-discriminatory and objective gender-neutral criteria, such as skills, effort, responsibility and working conditions (without undervaluing relevant soft skills)

Individual pay transparency rights

A number of new individual pay transparency rights will be introduced, which will affect recruitment, compensation and benefits, and performance management processes.

Prior to employment, applicants will be entitled:

• to receive information about initial pay (or a range) ahead of a job interview
• not to be asked about their previous salary
• to a non-discriminatory recruitment process
• to gender-neutral vacancies and job titles

During employment, employees will have a right to:

• access the criteria that are used to determine pay, pay levels and pay progression, which must be objective and gender-neutral
• request and receive (within a reasonable period of time and within two months at the latest) information on their individual pay level and the average pay levels per category of workers broken down by sex, and to be informed of this right on an annual basis
• disclose pay to colleagues for the purposes of enforcing equal pay rights

Pay gap reporting obligations

The Pay Transparency Directive will require employers throughout the EU to implement gender pay gap reporting. This obligation will apply to employers with at least 100 employees (or fewer as per national law).

These employers will need to report, either on an annual (250 or more employees) or triennial (100-249 employees) basis:

• the gender pay gap
• the gender pay gap in complementary or variable components
• the median gender pay gap
• the median gender pay gap in complementary or variable components
• the proportion of female and male workers receiving complementary or variable components
• the proportion of female and male workers in each quartile pay band
• the gender pay gap between workers by categories of workers broken down by ordinary basic wage or salary and complementary or variable components

This information will need to be reported to national authorities, which will, in turn, publish it. Employers must also provide information on ‘the gender pay gap between workers by categories of workers broken down by ordinary basic wage or salary and complementary or variable components’ to all their workers and to their workers’ representatives, as well as, upon request, to the labour inspectorate and the national equality body.

Joint pay assessments

When certain conditions are met, employers may be faced with a second and stricter limb of the Directive’s pay gap reporting obligation, called a ‘joint pay assessment’.

A joint pay assessment will be mandatory if:

• the pay reporting demonstrates a pay gap of at least 5% in any category of workers
• the employer has not justified this difference
• the employer has not remedied this within six months of the date of submission of the pay report in question

The joint pay assessment must include:

• an analysis of the proportion of female and male employees in each category of workers
• information on average female and male employees’ pay levels and complementary or variable components for each category of workers
• any differences in average pay levels between female and male employees in each category of workers
• the reasons for the differences in average pay levels, on the basis of objective, gender-neutral criteria, if any, as established jointly by the employees’ representatives and the employer
• the proportion of female and male employees who benefited from any improvement in pay following their return from maternity or paternity leave, parental leave or carers’ leave, if any improvement occurred in the relevant category of workers during the period in which the leave was taken
• measures to address differences in pay if these are not justified on the basis of objective, gender-neutral criteria
• an evaluation of the effectiveness of measures from previous joint pay assessments

Employers have to share the joint pay assessment with their employees, their representatives and the dedicated national authority (to which pay must be reported), as well as, upon request, with the labour inspectorate and the national equality body.

Our in-depth treatment of joint pay assessments is available here.

Strengthening enforcement mechanisms

The Directive empowers national equality bodies to act on behalf of, or in support of, an alleged victim of an infringement of any right or obligation relating to the principle of equal pay, including in court. At present, equality bodies in some member states do not have these powers, which have not been required under EU law. The Directive further strengthens enforcement mechanisms by explicitly extending general EU anti-discrimination principles in the area of pay equality. In particular, it reaffirms the EU anti-discrimination law rule, which can also be found in other EU anti-discrimination directives, that sanctions must, as a minimum, be real, effective, dissuasive and proportionate and that complainants must be protected against dismissal or other adverse treatment. It also codifies the gender equality case-law of the Court of Justice of European Union (CJEU).

From the case-law of the CJEU, the Directive codifies the rule that female and male employees do not need to work for the same employer to be in a comparable situation, if the pay conditions can be attributed to a single source. Further, in line with existing European and national case-law, the Directive foresees a shift of the burden of proof to the employer, where an employer has not implemented its pay transparency obligations. In this regard, the CJEU has recognised that if a female worker, in a company totally lacking pay transparency, establishes that the average pay for women is less than that for men, it is for the employer to prove the absence of pay discrimination. Similarly, in Belgium, the Brussels Labour Court ruled that there is a presumption of discrimination within a company when statistics demonstrate a gap in the average pay between women and men with comparable functions.

Impact on the existing pay transparency framework

The Pay Transparency Directive introduces new pay transparency obligations, building upon the existing EU pay transparency framework.

At the EU level, the right to equal pay for the same work or for work of equal value, enshrined in Article 157 of the TFEU and in Article 4 of the EU Gender Equality Directive, was until now accompanied by non-binding pay transparency measures. In particular, the Gender Equality Directive encourages employers to provide employees and their representatives with  ‘an overview of the proportions of men and women at different levels of the organisation; their pay and pay differentials; and possible measures to improve the situation in cooperation with employees’ representatives’. In addition, in 2014, the European Commission adopted a recommendation on how to improve pay equality through transparency.

At the national level, 13 EU member states have already introduced mandatory pay gap reporting obligations. However, the regulatory standards in these member states vary significantly, targeting different companies and establishing different legal requirements. For example, the employee threshold currently applied varies from less than 50 to 250 or more, and in only 2 member states is there currently an obligation to publish a pay gap report.

The new directive significantly strengthens the pay transparency obligations for EU employers. Following its adoption, binding pay transparency measures will need to be introduced in the 14 member states where pay gap reporting is currently absent and the patchwork of existing pay gap reporting obligations in the remaining 13 member states will be harmonised. To track the progress in transposition of the Directive in the EU member states as we approach the 7 June 2026 deadline, check out the Ius Laboris map with existing pay gap reporting obligations in the EU, which will be regularly updated.

What does all this mean for businesses?

The biggest potential risk for employers is the pay gap reporting obligation. If pay reporting demonstrates a difference in the average pay level between female and male workers of at least 5% in any category of workers, employers will be obliged to remedy unjustified differences in pay within a reasonable period of time. Moreover, a pay gap report demonstrating a pay gap of more than 5% may attract pay discrimination claims from employees, who will benefit from a shift of the burden of proof. Without appropriate preparation, therefore, the pay gap reporting obligation may result in costly pay gap remedies and legal claims in 2026, when the Directive needs to be transposed in the EU member states and will be binding on employers. To avoid this, employers should take steps to prepare well before the transposition deadline. Employers who only start calculating their pay gap for the first time after the Directive is implemented risk being faced with immediate liabilities and little time to remedy these.

The message for employers

Employers can take a number of steps already to prepare for 2026:

• Check headcounts: determine which new obligations will apply to your company based on the employee thresholds
• Anticipate the new obligations that will apply to all employers:
  • Consider not asking applicants about pay history
  • Create salary ranges and add them to vacancy notices
  • Ensure vacancy notices and job titles are gender-neutral
  • Check employment contracts, work rules and policies for pay confidentiality clauses
  • Review the criteria used to determine workers’ pay, pay levels, and pay progression
  • Prepare a pay policy with these criteria and the obligations concerning the right to information
  • Review recruitment processes to ensure they are led in a non-discriminatory manner
• Address the new obligations that will apply to employers with 100 or more employees:
  • List different ways of categorising employees
  • Calculate existing pay gaps, at company-level and per possible category of workers
  • Map possible justifications for identified pay gaps
  • Remedy unjustified pay gaps on time
• Consider adopting a Diversity and Inclusion Policy, including measures to ensure compliance with the new directive.

For more information, see Ius Laboris‘ Pay Transparency Directive FAQs.