What is the EU Pay Transparency Directive and why is it important?  

The EU Pay Transparency Directive is set to become law across member states in 2026, and the legislation will be significant for many businesses who are active in the EU.  

The legislation is designed to combat the gender pay gap by forcing organisations to adjust their practices and become more transparent around pay.  

The gender pay gap remains a significant issue in Europe. Women in the European Union continue to earn less than men with the average gender pay gap in the EU standing at 13%. This means that for every €1 a man earns, a women will make only €0.87. 

What is the EU Pay Transparency Directive?

The EU Pay Transparency Directive was agreed in June 2023 and is required to be built into the national laws of EU member states by 2026.​ 

Key provisions of the directive include: 

• A right to know the initial pay or pay range for the advertised job​. 

• A right not to be asked about current pay or pay history during the application process​. 

• A right for employees to know the criteria being used for determining pay and what comparable employees are paid on average, broken down by gender. 

• A right to disclose pay to colleagues to enforce equal pay rights​. 

• A requirement to report on the gender pay gap across the company as a whole and within each category of worker who does the same work of equal value​. 

• A requirement to remedy gender pay differences which cannot be justified by objective and gender-neutral factors. 

It’s important to note that this directive sets out the goals that EU countries must achieve. The individual EU member states will then devise their own laws to help them achieve these goals.  

The directive sets out a range of minimum requirements for individual member stats to build into national laws. Some countries may go beyond these requirements, so it’s possible we’ll see some variation between member states. 

Which business will be affected?

The EU Pay Transparency Directive applies to all public and private sector employers in the European Union but isn’t restricted to those with a physical presence in the EU.  

All employers with 100 or more employees must provide detailed pay transparency information to employees, so a UK company with employees based in the EU would be required to comply.  

Pay transparency legislation around the world

Even if your business isn’t operating within the EU, pay transparency is an issue which may affect you anyway, thanks to the growing trend of pay transparency legislation being introduced all around the world.  

The challenge for most organisations is not just how to keep up with the changes, but how to put in mechanisms and processes to ensure compliance globally, managing increasing changes and the nuances of regional variations.  

Pay legislation varies around the world, though one common theme is the increased focus on transparency to address gender pay gaps. 

• In Japan, the Promotion of Women’s Participation and Advancement in the Workforce Act requires the public reporting of gender wage gaps annually and within three months of the end of a company’s fiscal year.  

• New York State’s Pay Transparency law requires employers with four or more staff to disclose a minimum and maximum salary range in job advertisements, including those for internal promotions or transfer opportunities.  

• California requires employers with 15 or more employees to include pay scales in job postings. 

• In France, the Freedom to Choose Your Professional Future Act requires employers to compose and publish an annual report on their ‘Equal Pay Index.’  

Pay transparency legislation has been introduced in more than 25 countries around the world, with more in the pipeline. It’s a trend which will continue, and something organisations will need to have processes in place for, wherever they may operate.  

The lesson here is that, even if your business isn’t directly affected by this new EU directive, the direction of travel is clear, and it’s likely that some form of pay transparency legislation will affect you at some point.  

Challenges for organisations

Organisations face several challenges around compliance, from a lack of consistency around job descriptions to the absence of a centralised job architecture, and levelling frameworks.  

• Lack of centralised job structure. If job data and descriptions are not stored centrally, equal pay assessments take time and effort and can be hampered by inaccurate information.  

• Governance of job content creation. With hiring managers often creating job descriptions, there may be inconsistency around responsibilities and salaries. 

• Lack of accurate and up to date job descriptions. With job content lacking detail and accuracy, businesses would be unable to assess equal pay.  

• No effective job architecture in place. Without the visibility of distinct roles across an organisation, it’s difficult to identify job categories and therefore assess equal pay.  

• Job descriptions not linked to skills. Companies would be unable to justify disparities in pay which may be linked to varied skill sets.  

How to prepare for the EU Pay Transparency Directive

Businesses need to be taking steps to prepare and be proactive to meet the demands of the directive, but many are still yet to do this.  

Research by The Conference Board found that 41% have yet to begin preparing for the directive, so there is plenty of work to do for some organisations.  

The research also found that 55% of senior HR executives say that they are planning a single approach to pay transparency across their international operations, or already have such a process in place.  

Just 30% of respondents will restrict pay transparency processes to their European businesses. 

At the very core of pay transparency, and pay equity, is the ability to look across the organisation at the landscape of jobs, pay and reward, and make comparisons between the compensation for similar roles and dive deep into roles to ensure equal pay for equal work. 
  
For many companies, this landscape is still a very chaotic, with individual teams and departments having their own job structures, titles and pay scales with little governance in place to manage and align. 
  
To prepare for the EU Pay Transparency Directive, an essential first step is to put in place a comprehensive skills-based job architecture with roles organised into job families. 
  
Organisations need the ability to fully analyse their job architecture and pay structures to have confidence in their pay equity position. The underlying structures, job evaluation processes and levelling frameworks must all be in place to support pay decisions. 
  
Innovative organisations are investing in technologies that create automated, flexible, future-proofed job architectures that help govern job creation and pay bandings, manage scope creep, and provide instant access to job and pay inequalities. 

The impact of pay transparency

There are several potential benefits from pay transparency policies, such as improved employee retention, and the ability to attract the best talent.  

Pay transparency is popular with employees and those seeking new roles.  

Given the current war for talent, companies should take notice of findings showing that 60% of US employees and 57% of UK employees would switch companies to one with more pay transparency.  
 
However, research looking at the wage data relating to 100,000 academics in the US over two decades, found that increased pay transparency can result in a 20% reduction in the pay difference between individuals. 

While some organisations may be paying increased attention to this issue thanks to the EU directive and related laws, it's important to think about how pay transparency can benefit your organisation.