I. The New EU Legislation on Pay Transparency (effective from 2026)
1. Introduction and Policy Context
With Directive (EU) 2023/970, the European Union aims to make the principle of “equal pay for equal work or work of equal value” concrete and enforceable. The lack of pay transparency was identified by the European institutions as one of the main reasons inequalities remain hidden and are difficult to challenge. The directive builds on existing treaty obligations (including Article 157 TFEU) and on evaluations showing that current instruments deliver insufficient results without more transparency and stronger enforcement mechanisms.
2. Objectives of the Directive
The central goals are to:
- promote pay transparency within organizations;
- facilitate the detection and prosecution of gender-based pay differences;
- strengthen legal remedies for victims;
- encourage labor market practices that eliminate inequalities (e.g., gender-neutral job evaluations).
These goals should lead to a reduction of the gender pay gap and to structural measures by employers to prevent unjustified pay disparities.
3. Key Provisions of the Directive
3.1 Right to Information for Employees and Job Applicants
Employees (individually or via representatives) have the right to request information about:
- their own pay level;
- the average pay, broken down by gender, for categories of workers performing the same work or work of equal value.
Employers must provide such information within a “reasonable period” — no longer than two months. Job applicants are also entitled to information about the proposed pay or pay range prior to or during the interview process. Employers are prohibited from asking about salary history or current pay during recruitment. These provisions increase access to comparative data needed to identify (potential) discrimination.
3.2 Reporting Obligations and Timelines
The directive imposes mandatory reporting obligations depending on company size:
- Employers with 250 or more employees must report annually; the first mandatory report is due by 7 June 2027, covering the previous calendar year.
- Employers with 150–249 employees must report by 7 June 2027 and every three years thereafter.
- Employers with 100–149 employees must report by 7 June 2031 and every three years thereafter.
- Smaller employers (<100) are not required, but Member States may still impose national obligations.
Reports must include, among other things, average and median pay differences, variable remuneration, and distribution across pay quartiles. Information must be accessible to employees, trade union representatives, and competent authorities, and may be published.
3.3 Joint Pay Assessment
Where reporting reveals an average gender pay difference of at least 5% within a category of workers, and this difference cannot be justified by objective, gender-neutral criteria, and the employer has not eliminated the gap within six months, the employer and workers’ representatives must carry out a joint pay assessment. The goal is to identify causes and design and implement remedial and preventive measures.
3.4 Burden of Proof, Evidence Gathering, and Limitation Periods
The directive strengthens procedural protections for victims:
- A shift in the burden of proof applies: where a worker establishes facts that give rise to a presumption of discrimination, the employer must prove there was no discrimination. This shift also explicitly applies where the employer fails to meet pay transparency obligations (e.g., refusal to provide information or failure to report), unless the employer proves the breach was manifestly unintentional and minor.
- Member States must set minimum limitation periods (at least three years) and cannot design restrictions or procedures in ways that make access to justice virtually impossible.
- National courts/authorities have the power to require respondents to disclose relevant (including confidential) evidence, subject to appropriate protective measures.
3.5 Remedies and Sanctions
Victims are entitled to full compensation (back pay, bonuses, benefits in kind, and non-material damages). Member States must establish effective, proportionate, and dissuasive sanctions for non-compliance — including fines, and in some cases restrictions on access to public contracts or subsidies. Member States must also designate a monitoring authority (or related body) to collect, publish, and analyze data on pay gaps.
4. Timeline and Implementation Obligations
The directive was formally adopted in May 2023; Member States must adopt and publish the necessary national legislation by 7 June 2026. Reporting obligations begin in phases: large employers (≥250) must report from 7 June 2027 on the previous calendar year; smaller thresholds follow at later fixed dates, as described above. Member States must also establish monitoring mechanisms and submit data to the European Commission every two years (first data collection in 2028 and a Commission evaluation report by 7 June 2033).
5. Implications for Employers and HR Departments
The directive requires adjustments at multiple levels:
- Data collection and management: robust HR databases and methodologies for job classification and pay comparison — including medians and quartile analyses — are necessary. Employers must document methods so that representatives and regulators can review calculations.
- Recruitment policy: ban on salary history questions and obligation to communicate pay ranges to applicants. This requires changes to job postings, interview procedures, and ATS systems.
- Transparency culture: training for HR and managers, communication to staff, and action plans for addressing unjustified pay disparities. Advisory firms highlight proactive audits and legally protected (privileged) assessments before public reporting to identify risks.
- Social dialogue: national consultation structures (works councils, trade union representation) will play a central role in joint pay assessments.
- Legal exposure: stricter evidentiary rules and disclosure obligations may increase claims; companies must prepare procedures and budgets for potential litigation and remediation.
6. Potential Challenges
- Administrative burden: especially medium-sized enterprises must balance the costs of reporting with societal benefits. The phased thresholds mitigate this somewhat, but practical implementation requires resources.
- Methodological issues: assessing “work of equal value” requires objective, gender-neutral criteria. National interpretations may differ, leading to variation across Member States in strictness and enforcement.
- Unintended consequences: some analyses warn that overly rigid pay structures or broad publicity around individual salaries may create perverse incentives (e.g., reduced flexibility in pay or relocation of activities). These effects require careful monitoring (the Commission will review thresholds and the 5% trigger in its evaluation).
7. Conclusion & Action Plan
By starting now with data audits, job classification, process adjustments, and cultural change, HR managers can not only comply with legal obligations from 2026 onward but also strategically position their organization as a modern, inclusive, and transparent employer. The directive thus offers not only legal obligations but also an opportunity to strengthen an organization’s labor market position.
II. Checklist: Implementing the EU Pay Transparency Directive (2026)
1. Awareness & Organization
- Form a project team (HR, Legal, Finance, external advisor).
- Train management and supervisors on objectives & obligations.
- Launch an internal communication campaign to employees.
2. Data & Internal Audit
- Collect pay data (base, variable, bonuses, benefits).
- Establish objective & gender-neutral job classifications.
- Conduct the first internal equal pay audit in 2025.
- Flag unjustified gaps and set up an action plan.
- Use external tools/consultants for benchmarking and ensure methodology aligns with directive requirements.
3. Adapt Recruitment Process
- Remove salary history questions from applications.
- Include pay ranges in vacancies & job interviews.
- Adjust ATS systems to comply with new rules.
- Train recruiters and hiring managers on transparency obligations.
- Publicly communicate pay ranges: prevents inequality and increases transparency toward candidates.
4. Reporting & Monitoring
- Build an internal dashboard for pay data (average, median, quartiles, variable pay).
- Plan reporting cycles (annually ≥250 employees / every 3 years for 100–249 employees).
- Run a pilot report in 2025.
- Set up processes for joint pay assessment if >5% difference occurs.
- Ensure results are shared with employee representatives.
5. Training & Culture
- Train HR and managers in handling transparency requests.
- Link diversity & inclusion policies to pay policy.
- Establish a confidential reporting channel for suspected inequality.
- Use equality and transparency as part of employer branding and talent retention.
6. Legal Preparation
- Draft a protocol for responding to pay information requests (within ≤ 2 months).
- Organize evidence & documentation procedures (audit trail).
- Develop a litigation strategy (budget, workflows, external advisors).
In conclusion:
The implementation of the new pay transparency legislation requires not only legal and administrative adjustments but also the right expertise in Compensation & Benefits (C&B).
Tenos has an extensive network of experienced Interim C&B Professionals who can strengthen your HR department during the critical phases of this transition.
Whether it concerns a short-term project such as an internal equal pay audit, the revision of job classifications, or the establishment of a sustainable reporting system, our HR Professionals provide the necessary practical support and strategic guidance.
This way, your organization can meet the obligations of the new EU directive with confidence and efficiency, while at the same time strengthening its position as a modern and transparent employer.