Time Is Ticking for the EU Pay Transparency Directive

• English

By Andrew Grissom

A new landmark workplace law will reshape pay practices in the EU—and it’s about time. The gender pay gap persists across the EU, remaining 13% on average as of 2022. ¹ Despite the European Union’s 1957 law enshrining equal pay for equal work, efforts to deliver on this promise have fallen short.² But that is going to change.

Recognising the role that pay transparency plays in reducing the pay gap, the European Parliament and Council adopted the EU Pay Transparency Directive in 2023. All EU countries must implement the Directive into their national laws by June 2026.³ This means that employers across the world with workforces in Europe have a short runway, just two annual pay cycles, to prepare for much higher standards of pay equity and transparency than ever before.

A Directive With Teeth

The EU Directive calls on employers to conduct thorough assessments of their compensation—including in-kind benefits, basic pay, bonuses and other incentive pay—and report their results publicly, provide salary transparency to job candidates, and comply with several enforcement mechanisms. At the centre of the Directive is the expectation that workplaces must analyse and refine their job architecture to be able to categorise employees who are performing the same work or work of equal value, and to ensure discriminatory talent management decisions are detected, remedied, and transparent.

Is your organization ahead of the game? The components of the Directive are more complex than you may think.

Gender pay gap reporting. Once fully in effect, all employers with 100 or more employees ⁴ must provide detailed information related to the gender pay gap to employees, employee representatives, local authorities responsible for gathering and publishing the data, and publish this data on their website. The Directive must be implemented by June 2026, with the first reporting cycle concluding in 2027.⁵

Given the specificity of the information they must report,⁶ organisations will must spend considerable time and effort in advance to ensure that their job architecture is fit for purpose to facilitate comparison of roles to assess equal value. This assessment of roles across an organisation, determining whether they are of equal value, will be new to most employers, introducing new methodologies or analytical tools and comparing roles that may not have otherwise been assessed together in the same way.⁷

Ultimately, employers must demonstrate that objective, consistent, and gender-neutral criteria are applied in compensation decisions. This places a significant responsibility on employers to systematically review their criteria, which may have led to longstanding pay disparities that they must now remedy.⁸

Pay transparency. The Directive also requires all employers to communicate salary ranges or starting salaries of all advertised positions to job seekers, either by including them in job postings or informing candidates before the interview stage. Employers are prohibited from asking applicants about their salary history, which has long disadvantaged women and candidates from marginalised racial and ethnic groups and contributed to gender and racial gaps in lifetime earnings.⁹

Enforcement mechanisms. Simply reporting data on the gender pay gap is not enough. Employers bear the burden of proof in establishing that employee rights are not being breached. When the gender pay gap disclosure reveals a gap of at least 5% in any category of employees, and the gap is not explained by objective, gender-neutral, and non-discriminatory factors and has not been corrected within six months, the employer must perform an extensive pay audit, referred to as a joint pay assessment, with oversight by employees’ representatives.¹⁰

Employers that fail to give adequate attention to preparations ahead of the Directive may bear significant costs as they will be forced to rapidly scale up operations to comply with the law, not to mention loss of employee trust. Investing in the time and effort to evaluate your job architecture, pay structure, and any existing pay gaps now, before the Directive comes into effect, may save your organisation from paying even more in remediation and employee damages. EU member states will be required to establish procedures to compensate employees with full back pay, benefits, incentive pay, and damages from lost opportunities when information from the joint pay assessment reveals that their equal pay rights have been violated. Even outside of detecting and remediating pay disparities, organisations must keep employees informed of pay information, including a breakdown of pay by levels and categories of employees performing the same work or work of equal value, and respond to employees’ pay-related inquiries.¹¹

Start Preparing for the Directive Today

Don’t wait until the Directive becomes law in 2026. Take advantage of the next two years to ensure your organisation is fully ready to comply with the Directive in the EU countries in which you operate.

Analyse your job architecture. This step is critical for ensuring that your organisation can comply with the requirements of the Directive. Reviewing and updating your job architecture—and clearly articulating how roles and responsibilities connect with value, skills, and effort—will lay the foundation for a clear and fair pay system.¹²

Conduct pay equity reviews and proactively address disparities. Leading-edge organisations like the Catalyst CEO Champions For Change already conduct regular pay equity reviews and correct employees’ pay when gaps arise.¹³ Build a consistent cadence of pay equity reviews using statistical and technological tools to run complex analyses efficiently. Align your efforts with your broader talent and DEI goals by examining how talent decisions are made, where bias may create barriers for some employee populations, and which solutions you can employ to create systems of accountability and fairness.¹⁴

Guard against silos. Are others in your organization already preparing for the Directive? Find out who those individuals are and build a cross-functional task force or working group, including those with expertise across legal, human resources, total rewards, talent and workforce analytics, DEI, ESG, communications, and information technology.

Compose a communications plan. The Directive will undoubtedly impact many of your organisation’s internal and external stakeholders. Staff may feel overwhelmed with the demands of meeting the new requirements, while employees may have questions about their rights under the upcoming law. Building effective communication strategies will enable your organisation to manage these concerns and address inquiries.

Tailor your efforts by country. Multinational organisations may experience a range of readiness levels when it comes to job architecture, pay equity, and pay transparency practices in each EU country. While some may be accustomed to conducting complex pay analyses and feel “ready” to take on the Directive, they may need to adjust their methodologies to meet the Directive’s detailed reporting requirements or take further action to address the 5% pay disparity threshold that triggers the joint pay assessment. Others may be taking on these tasks for the first time. Evaluate the maturity stage of your operations when it comes to readiness for the Directive in each EU country in which you operate and develop a tailored strategy to set all locations up for success.

The Directive marks an unprecedented shift toward holding employers accountable for equitable pay. Meet the moment by mobilizing your organisation toward action. Leverage this opportunity to build thorough and efficient talent systems, strengthen employee trust, and play your part in closing the gender pay gap.

Want to learn more about how to prepare your organisation for the Directive? Join Catalyst’s upcoming Measuring for Change community conversations by filling out this form.

Read previous posts on the importance of pay transparency and practical tips on how your organisation can get started.

Catalyst Supporters can watch How to Navigate the EU Pay Transparency Directive featuring an expert panel on the law and pay transparency.

Thank you to Deloitte UK, a member of the Catalyst Measuring for Change Community, for sharing their expertise on the Directive with us.

ENDNOTES

1. Gender pay gap statistics. (2024). Eurostat: Statistics Explained.
2. Kurnatowska, M. & Marsh, R. (2023). Pay transparency directive: Lifting the veil. Global Compliance News.
3. Pay transparency in the EU. European Council, Council of the European Union.
4. When the Directives comes into effect, the reporting threshold will be employers with 150 or more employees. By 2030, this will drop to 100 or more employees. EU member states may impose stricter reporting thresholds in their national legislations, making in possible in some countries to require employers with fewer than 100 employees to report on the gender pay gap. Employers with 250 or more employees must report gender pay gap information annually, while other organizations are required to report every three years. Kurnatowska, M. & Marsh, R. (2023). Pay transparency directive: Lifting the veil. Global Compliance News; Heys, T., Lorimer, D., & Rush, S. (2023). Pay transparency directive FAQs. Lewis Silkin
5. Kurnatowska, M. & Marsh, R. (2023). Pay transparency directive: Lifting the veil. Global Compliance News
6. According to Article 9(1) of the Directive, employers must provide the following information: 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, and the gender pay gap between workers by categories of workers broken down by ordinary basic wage or salary and complementary or variable components. Directive (EU) 2023/970 (2023). European Union.
7. Kurnatowska, M. & Marsh, R. (2023). Pay transparency directive: Lifting the veil. Global Compliance News
8. Kurnatowska, M. & Marsh, R. (2023). Pay transparency directive: Lifting the veil. Global Compliance News
9. Gender pay gap: Council adopts new rules on pay transparency. (2023). European Council, Council of the European Union; Nadeau, S. & Shepherd, M. (2021). Why salary history bans matter to securing equal pay. Center for American Progress.
10. Kurnatowska, M. & Marsh, R. (2023). Pay transparency directive: Lifting the veil. Global Compliance News; Directive (EU) 2023/970 (2023). European Union.
11. Kurnatowska, M. & Marsh, R. (2023). Pay transparency directive: Lifting the veil. Global Compliance News
12. Thoma, C. (2023). How to best prepare for the recently adopted EU Directive on Pay Transparency? EY.
13. This CEO community is keeping and advancing their best talent. Are you? (2024). Catalyst.
14. Shaffer, E. & Torrez, B. (2023). Promises vs. progress: 2 keys to keeping employees feeling good and staying put. Catalyst.