What is the Pay Transparency Directive?
The EU Pay Transparency Directive will introduce gender pay gap reporting obligations across the EU. It also introduces pay assessments, as well as other measures to increase pay transparency in recruitment and in the workplace. The Directive aims to ensure equal pay between men and women for equal work or work of equal value. The Directive applies to people working in the EU, irrespective of where their organisation is headquartered.
When does it come into effect?
EU countries must implement the Directive through local laws by 7 June 2026.
Which employers are affected?
The timing and frequency of the reporting requirements depends on the size of the employer:
- employers with 250 or more workers will be required to report gender pay gap figures from 2027 and annually thereafter;
- employers with 150-249 workers will be required to report from 2027 and every three years thereafter;
- employers with 100-149 workers will be required to report from no later than 2031 and every three years thereafter.
Individual EU countries may choose to extend the requirement to smaller employers.
What should be reported?
Employers in scope must report on:
- the gender pay gap i.e. the difference in average pay levels between male and female workers
- the gender bonus gap
- the median gender pay gap and the median gender bonus gap
- the proportion of male and female workers who receive a bonus
- the proportion of male and female workers in each quartile pay band
- the gender pay gap for different categories of workers in relation to both ordinary pay and bonus.
'Pay' is widely defined and includes basic pay, bonus and any other variable pay, as well as cash and non-cash benefits.
It is significant that the figures must cover not only the workforce as a whole but must also be broken down into 'categories' of workers. The comparison is of workers who perform the same work or work of equal value. It is for employers to decide what the appropriate categories are.
The report must be provided to all workers and the relevant local authority which will compile and publish pay data. Employers may choose to publish the report on their website but are not required to do so.
Our experience of rolling out gender pay gap reporting in other jurisdictions is that the biggest focus on reports will come from an organisation's employees, albeit there is often some press reporting on the issue, especially where there are also other related people-related issues to cover about that organisation.
What are the rules on pay assessments?
If there is a pay gap of 5% or more in relation to any of the worker categories and it is not justified, the employer is required to carry out a pay assessment, in conjunction with worker representatives (such as a trade union or works council). Our experience suggests that most organisations will be caught by this requirement. The pay assessment must include analysis of the reasons for the pay difference, and measures to address the difference (unless it can be objectively justified). The completed pay assessment has to be shared with all workers and the local equality monitoring authority.
What about pay transparency in recruitment?
All employers, regardless of their size, will be required to provide job applicants with details of pay, or the range of pay, in advance, such as in the job advertisement or prior to the interview. Employers will not be permitted to ask candidates about their salary history.
What information rights do workers have?
Workers in all organisations (regardless of size) will have the right to request information about their individual pay level and the average pay levels, broken down by sex, for workers doing the same work or work of equal value. Employers will have to inform all workers annually of their right to this information. Employers will also have to share with workers the criteria they use to determine pay levels and pay progression (although some EU countries may choose to exempt employers with fewer than 50 employees from this requirement). Workers must be permitted to discuss pay with their colleagues, and any contractual provision which attempts to restrict this will be void.
What can you do to prepare?
- Consider whether caught: Employers with EU operations will need to assess whether the Directive applies to them and in which countries.
- Scope national requirements: Employers will likely need to take local law advice on the specific rules for the countries in which they operate. We have extensive experience working on similar cross boarder projects with our network of international law firms.
- Consider worker categories and job descriptions: One critical step will be to split workers into categories for the purpose of reporting. This will involve an evaluation of roles and the extent to which they are of equal value, and may require updating of job descriptions.
- Consider pay gaps and measures to reduce them: Employers should begin analysing their pay gap figures, interrogating the reasons for any gaps and considering measures for addressing any gaps. Employers may also wish to review their pay structures and bonus and incentive schemes to ensure objectivity and consistency. Consideration should be given to trying to maintain legal privilege over the output of this exercise if possible – our team would be happy to explain ways to seek to achieve this.
- Consider harmonisation of terms and conditions: Employers may wish to review pay and benefits to ensure employees doing the same or similar work are on the same or comparable terms and conditions. Such projects may take time and involve consultation with workers and worker representatives.
- Update recruitment practices: Any recruitment policies and associated practices should be updated in light of the new transparency requirements. Managers involved in recruitment must be made aware of the new requirements, e.g. through training.
- Engage with worker representatives: Employers may wish to engage with worker representatives ahead of implementation to establish a constructive dialogue.
- Prepare for pay assessments: Plan for how you will handle pay assessments with worker representatives and requests for information, consider how you will handle these as part of wider industrial / employee relations issues.
- Communication strategy: People managers and legal teams will want to update their boards or management committees on the new requirements, flagging the risks of non-compliance and potential for an increase in challenges around pay equality. Employers should also consider their communication strategy for the broader workforce, to explain the reasons for any pay gaps and what the organisation is doing about them.
