EU Pay Transparency Directive: What HR leaders need to know

According to the European Commission, women in the EU earn on average 12% less than men, with factors such as a lack of pay transparency and pay secrecy clauses contributing significantly to this gap.

The EU Pay Transparency Directive is a binding legal agreement across all EU member states. All EU countries are required to transfer the directive into national legislation to ensure companies comply with strict obligations such as:

• Mandatory gender pay gap reporting, 
• Transparency on salary disclosure,
• Salary history bans,
• Providing average pay information.

The Directive (EU) 2023/970 Pay Transparency legislation aims to ensure equal pay for equal or equivalent work for both men and women. It introduces extensive transparency rules and minimum standards that all EU countries must adhere to.

The EU Pay Transparency Directive 2026 was put into effect in May 2023. All 27 EU member states have until June 7 2026 to have the directive fully integrated into their national legislation. 

It is each state's individual responsibility to ensure that this is enforced in their country across the board.
 

Salary transparency for job applicants

Under EU Pay Transparency Directive legislation, it is mandatory for all EU companies to provide the salary information such as initial pay or the appropriate salary range when advertising positions. This is to allow for full transparency on the pay conditions offered to both men and women.

In addition, employers will be prohibited from asking employees about their previous salaries from past or current positions.

Employee rights to pay information

Employees will have the right to request average pay data broken down by gender and categories of workers doing the same or similar work of equal value.They can compare their pay and any additional benefits to company data. 

This measure will encourage greater openness around pay structures and help eliminate the silence and stigma surrounding salaries.

Gender pay gap reporting

Gender pay gap reporting will be mandatory for all medium and large companies. All companies above 100 employees will be required to report their gender pay gaps. The frequency of this reporting depends on the size of the company.

Companies must assess and report metrics such as the mean gender pay gap, mean bonus gap, and percentage of women and men across each pay band. Companies will report all pay discrepancies and how they plan to correct and prevent it from occurring.

Joint pay assessments

The joint pay assessment is a detailed audit under the EU Pay Transparency Directive that is triggered when companies report an unjustifiable gender pay discrepancy of 5% or more.

If the gap cannot be justified or resolved within 6 months, the company must work with employee representatives to conduct a joint pay assessment including a rigorous analysis of the differences in pay between male and female workers. Identifying solutions to reduce the gap.  

Ban on pay secrecy clauses

Pay secrecy clauses are contractual terms stating that employees must not disclose their salary with other coworkers. 

The EU Directive Pay Transparency legislation, prohibits the addition of these clauses to contracts allowing employees to discuss their salaries freely fostering transparency and removing the stigma around salaries.

HR process changes

Adopting a centralized platform to contain all payroll data, employee information, requests, and reports is the first step. This enables teams to  access average pay per role and gender while also handling pay requests from employees in one space.

Additionally HR teams should set up clear, gender-neutral criteria for pay progression and promotions. This ensures that employees have clarity on how they can evolve their pay. 

Recruitment adjustments

The recruitment process should also evolve. With the introduction of the EU Pay Transparency Directive, employers are required to provide structured and transparent salary ranges to potential candidates. This shifts from the original case-by-case salary negotiations. 

HR teams will be required to include salary ranges in job advertisements and also remove all questions about salary history from job applications and interview notes.

Pay structure audits

Employers will need a structured method to assess pay gaps and determine whether they are justifiable. There must be a clear system containing a set of justifiable pay differences. This can include the basis of experience, skill set or amount of years serving in the company.

Employers need to implement a system to conduct joint pay assessments for the cases where unjustified gender pay gaps including bonuses and benefits exceed the 5% threshold.

Depending on the size of the company, HR teams will have to conduct gender pay gap analyses and create reports either annually or every three years.

Legal risks

The EU Pay Transparency directive shifts the burden of proof to the employer. In the event of a dispute, it is the employer’s responsibility to prove that discrimination did not occur.

Proven cases of discrimination, can create financial penalties for the company. In addition, pay gap reporting can affect employee trust and create operational strain should gaps exceed the required thresholds.

Therefore, the most actionable step for preventing internal risks is Pay Transparency Directive implementation. This will help to reduce the gender pay gap, fostering trust between employees and employers within companies. 

Conduct a pay audit

Perform a comprehensive pay audit to evaluate areas of disparity in gender pay equality.

1. Map all payroll data of current employees and group each employee into categories of the same or equivalent work. 
2. Analyze all the employee’s wages, benefits, and bonuses, and flag any gender pay gaps.
3. Flag unexplained gaps greater than 5%.
4. Document reasons for justified gaps such as seniority, performance and a larger skillset.
5. Conduct a joint pay assessment with employee representatives to find solutions for unjustified pay gaps.

Standardize job roles and pay bands

After identifying pay gaps, HR teams should create categories and specific pay bands for employees doing the same or equal work. Ensuring to clearly define job roles and assign pay bands for each category while matching the market value of the roles and the level of internal equity.

Employers must also record the method used to establish pay bands to protect the company in the case of discrimination disputes.

Implement transparent hiring practices

In order to ensure completely transparent hiring practices from the beginning, HR teams should develop clear job description templates including starting pay and salary ranges.

In addition, remove salary history questions from application forms and establish a structured process for determining candidate’s salaries based on measurable metrics.

Upgrade reporting and analytics systems

Adopt a centralized HR software that combines payroll data, employee gender information, pay bands, and gender pay gap data in a single system.

The software should integrate with time tracking systems creating a multifunctional database for reporting and analysis.

Employers should schedule reporting for the relevant timelines. In addition, they should build report templates and implement automated systems to streamline gender pay gap assessments.

Train managers and HR teams

Managers and HR teams should receive comprehensive training on the new pay transparency directive requirements. 

Training should cover topics such as how to respond to basic transparency questions, refraining from asking salary history questions and the appropriate communication surrounding salary range requirements.

HR teams should also be trained in how to consistently run pay audits, manage pay gaps, and understand the structural processes surrounding joint pay assessments. 

HR teams should revise all contracts and remove any pay secrecy clauses. Additionally, they must create new procedures within the HRIS for employees to make information requests.

Sweden

Sweden already has advanced pay equity frameworks already in place making the EU Pay Transparency Directive Sweden more straightforward to implement. Rather than introducing entirely new concepts, the directive will just tighten enforcement. 

Many Swedish employers already run regular pay equity analyses and publish internal or external pay equity statements. The introduction of the directive will improve enforcement and reporting obligations will become stricter.

Germany

Germany has an existing pay transparency law (Entgelttransparenzgesetz). With this legislation, employees can request pay information and employers are obligated to report gender pay gaps. 

However it is not strongly enforced across the country. The EU Pay Transparency directive increases accountability by making gender pay gap reporting mandatory and requiring pay information to be fully transparent.

France

France already mandates companies with more than 50 employees to report and publish the Gender Equality Index every year. The EU directive will tighten reporting but also implement additional measures such as pay transparency and ban on secrecy clauses.

Netherlands

It is illegal in the Netherlands to pay people differently for doing the same work since 1980. However, there are few legal processes to enforce this. 

The implementation of the EU directive will add structured reporting and standardized compliance requirements as a minimum to prevent gender pay gaps.

Spain

Spain has one of the strongest gender pay equality focuses. There is an existing register that is required to be updated annually. It breaks down pay and position data by gender.

The EU directive reinforces this by adding mandatory audits for large pay gaps and allowing for increased openness around salary conversations.

Employer branding

Open pay transparency signals fairness and equality to potential candidates which strengthens the organization’s brand. Companies that prioritize pay transparency are better positioned to attract top talent.

Employee trust

Pay transparency fosters trust between employers and employees creating a positive operational environment.

Retention

Clear pay transparency allows for fair pay and establishes clear progression criteria for employees. This reduces frustration and helps minimize employee turnover.

Compliance risk reduction

Implementing effective pay data systems, employers can follow structured processes, reducing the risks of discriminatory disputes. In the event of a dispute, employers can provide accurate data to show evidence of non-discriminatory processes.

Effective EU Pay Transparency Directive Implementation relies on accurate data and comprehensive reporting. Workforce management software provides greater support to employers and HR teams to address the new legislation. 

Protime’s HR software tracks time and attendance data, payroll, and cost data in a centralized system. It allows for automated reporting across all aspects of workforce planning. 

Workforce planning software allows HR teams to identify trends, gaps and discrepancies in the data. Companies can easily comply with the new requirements from the EU directive and encourage fair and clear practices

The EU Pay Transparency directive sets a firm deadline for June 7 2026. The clock is ticking to get effective systems and standards in place to fully comply with the new regulations.

Compliance is not just a mandatory requirement, it is a strategic opportunity to gain trust with employees and foster positive branding for your company. 

Explore how our HR planning solutions can help you comply with the new regulations confidently and strategically position your business as a fair and trustworthy employer.