Understanding the EU Pay Transparency Directive

A significant directive in the European Union — the EU Pay Transparency Directive — requires employers to carry out a series of measures designed ultimately to close the gender pay gap. The directive went into effect in 2023, and member states have until June 7, 2026, to implement the directive in their local laws.

The directive applies to public and private sector employers in EU member states. It also applies to non-EU employers that have employees in EU member states. The average gender pay gap across the European region stands at 13%, according to tax, accounting, and business advisory firm Blick Rothenberg.

The gender pay gap

The directive mandates pay gap reporting for employers with certain numbers of employees. According to Article 9, paragraph 1 of the directive:

“Member states shall ensure that employers provide the following information concerning their organisation, in accordance with this Article:

1. The gender pay gap;
2. The gender pay gap in complementary or variable components;
3. The median gender pay gap;
4. The median gender pay gap in complementary or variable components;
5. The proportion of female and male workers receiving complementary or variable components;
6. The proportion of female and male workers in each quartile pay band
7. The gender pay gap between workers by categories of workers broken down by ordinary basic wage or salary and complementary or variable components.”

Article 9 also provides the following reporting timeline:

• Employers with 250+ workers must provide this information relating to the previous calendar year by June 7, 2027, and every year thereafter.
• Employers with 150 to 249 workers must provide the required information relating to the previous calendar year by June 7, 2027, and every three years thereafter.
• Employers with 100 to 149 workers must provide the required information relating to the previous calendar year by June 7, 2031, and every three years thereafter.

Article 9 also states: “Member states may, as a matter of national law, require employers with fewer than 100 workers to provide information on pay.”

Employers must implement a reporting process, and if their gender pay gap exceeds 5%, they must take action with the help of employee representatives or work councils. Compulsory audits and penalties can result if unjustified pay discrepancies are detected.

Transparency and communications

To satisfy the directive’s broader requirements around transparency and communications, employers must include salaries in job listings and publish information on how salaries are determined, managed, and progressed. They must also provide salary comparisons for work of equal value. Under the directive, employers cannot ask a candidate about their current salary during an interview.

Specific requirements

The regulations have numerous requirements for employers. Among other things, and in addition to the mandated activities mentioned above, employers need to:

• Introduce a non-discriminatory job evaluation scheme to identify work of equal value if one is not in use.
• Restructure any reward programs that have a significant discriminatory element.
• Ensure the robust, consistent, and defensible use of market data and a performance management approach, if the data and approach will be used to justify pay differences between work of equal value.
• Provide job applicants with a starting salary or pay range for advertised positions.
• Discontinue the use of any contractual clauses that prevent employees from sharing or seeking information about their pay.

If an employee claims their employer is committing pay discrimination, the employer has the burden of proving otherwise. Employees whose equal pay rights have been violated can request compensation or reparation if they have suffered any related damages.

What’s to come

Non-EU employers should note that the EU Pay Transparency Directive is more comprehensive than similar legislation enacted in other parts of the world. According to law firm Jackson Lewis, the directive will likely create expectations of pay transparency across Europe and elsewhere in the world, and it will impact the competition for talent.

Sources: Blick Rothenberg, Jackson Lewis, EUR-Lex

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