The EU Pay Transparency Directive

In June 2023, the EU introduced binding and significant measures regarding pay equity, pay transparency, and reporting via the EU Pay Transparency Directive. The Directive introduces a host of new obligations, including broad pay reporting requirements, which will intersect with all aspects of an employer’s recruitment and people processes, including remuneration, pay structures, and job frameworks.

With a local implementation deadline of June 7, 2026 fast approaching – employers need to start preparing now for their global approach. For example, employers with 150 or more workers with gender pay gaps unresolved by January 1, 2026 will have these gaps publicized in the organization’s first mandatory report.

What are the key obligations?

1. Mandatory gender pay gap reporting

• Employers must provide information on their gender pay gap including by categories of workers performing the same work, or work of equal value, to the relevant public authority and to workers, among other stakeholders.
   
• The size of the employer dictates when and how regularly the reporting is required:
   
  

  Number of Workers	Date of First Report	Reporting Period	Frequency of subsequent reporting
  250+	June 7, 2027	Previous calendar year	Every year
  150-249	June 7, 2027	Previous calendar year	Every 3 years
  100-149	June 7, 2031	Previous calendar year	Every 3 years
  <100	Not required by the Directive, but may be required by individual country legislation	Not applicable under the Directive, but may be established by individual country legislation	Not applicable under the Directive, but may be established by individual country legislation

2. Obligations to investigate and remedy gender pay gaps

• Covered employers will be required to undertake a joint pay assessment (essentially an audit) to identify, remedy and prevent unjustified differences in pay. An employer must conduct this assessment where its gender pay gap report demonstrates a difference in the average pay level between female and male workers of at least 5% in any category of workers, which is not justified or remedied as set out in the Directive.
   
• Joint pay assessments cannot be carried out “behind the scenes.” They must be conducted in co-operation with workers’ representatives and be made available to workers, their representatives and the applicable monitoring body.

3. New pay transparency rights for workers

• Certain employers must make the criteria (which must be objective and gender-neutral) used to set workers’ pay, pay levels and pay progression easily accessible to their workers.
   
• Workers will have new rights to request and receive information about their pay and the average pay levels broken down by sex for workers doing the same work or work of equal value.
   
• Employers must not prevent workers from disclosing their pay for the purpose of enforcing the worker's right to equal pay, which includes prohibiting contractual terms that restrict workers from disclosing pay information (such as confidentiality clauses).

4. New pay transparency rights and obligations during hiring

• Employers must provide applicants with information about pay or pay ranges in a manner to ensure a transparent and informed negotiation on pay prior to the job interview or otherwise.
   
• Employers must not ask applicants about their pay history.
   
• Job vacancy notices and job titles must be gender-neutral and recruitment processes conducted in a non-discriminatory manner.

What are the penalties if employers get this wrong?

This is for the individual EU countries to set. However, the Directive requires each country to ensure minimum enforcement mechanisms are available, including the right for workers to bring individual claims, with uncapped compensatory remedies (e.g. recovery of back pay and bonuses), non-victimization provisions, the power for courts or other competent authorities to issue orders for compliance to stop infringement and national penalties.

What should employers do to prepare?

Given the timeframes, it is important to start considering the impacts now!

Remember, employers with 150 or more workers with pay gaps that are unresolved by January 1, 2026 will have these gaps publicized in the organization’s first mandatory report.

Important steps employers can take to prepare include:

1. Making this a C-Suite issue
2. Building the right team, including engaging legal early in the compliance planning process
3. Gathering data
4. Conducting an internal audit, including analysis of job frameworks
5. Reviewing recruitment processes and hiring practices

Timing Suggestions for Compliance Planning

Member state implementation, the size and categorization of the workforce, payroll cycles, and other elements will heavily influence the timing and details of any compliance readiness project. However, we provide some initial guidelines for consideration:

First Quarter 2025:

• Confirm C-Suite support and resourcing
• Create the working group, including engaging legal early on to advise on the compliance planning process, legal privilege and disclosures
• Develop a detailed project plan
• Conduct data gathering exercises related to internal job and remuneration structures

Second Quarter 2025:

• Conduct a trial pay audit on 2024 pay data and analyze the results
• Consider the justification behind any identified pay gaps
• Review recruitment processes and hiring practices to identify gaps with the Directive’s baseline requirements

Third Quarter 2025:

• Develop a plan to:
  1. Remedy risks and gaps identified in the trial pay audit; and
  2. Implement any new recruitment and hiring practices
• Prepare employee communication, internal policies and training related to remedies and new recruitment and hiring practices

Fourth Quarter 2025:

• Implement remedies, employee communications, training and new recruitment and hiring practices

January 2026:

• Depending on member state implementation status, this is likely the beginning of the reporting period for employers with 150 or more workers

How Can Littler Help?

Littler brings deep global, yet local understanding and vital insight to implementation of the Directive. In conjunction with Littler’s team of data analysts, our attorneys focused on this topic are poised to help employers as they navigate the challenges. This support may include conducting pay audits, identifying gaps and advising on solutions, designing pay policies and practices, providing training, and supporting job evaluation assistance.
 

Resources

Pay Transparency Requirements in Spain
Littler Insight – January 10, 2025

Dallas Cowboys Cheerleaders and Equal Pay: What the Hit Netflix Show Tells UK Employers
Littler ASAP – October 16, 2024

Read More