The EU Pay Transparency Directive (2023/970) must be implemented by all EU Member States by 7 June 2026 on the principle but situation will differ from country to country. It introduces mandatory transparency measures including salary ranges in job postings, bans on salary-history questions, employee rights to pay information, and structured gender pay-gap reporting for companies with 100+ employees. Before examining its implications, it is essential to understand why this directive is being introduced, the benefits it offers, and the risks it creates for employers.
What are the benefits of the this directive?
Strengthens fairness and gender equality
The directive aims to ensure equal pay for equal work or work of equal value, addressing persistent unexplained pay gaps in Europe. By making pay structures visible, companies can reduce hidden inequalities and improve internal trust.
Enhances employer brand and talent attraction
Transparent salary ranges increase candidate confidence and reduce negotiation biases. They respond directly to workers’ demands for fairness and clear information.
Drives better HR governance and data quality
The reporting obligations force companies to clarify job architecture, harmonize pay structures, define objective compensation criteria. This aligns with the directive’s obligations for companies to provide employees with objective, non-gendered pay criteria.
Reduces legal exposure through proactive compliance
Clear, documented criteria reduce the risk of discrimination claims particularly important because the directive shifts the burden of proof to the employer in pay-dispute cases.
What are the Risks and Operational Drawbacks ?
Risk of employee relations tension
Once pay information becomes transparent, employees may compare their compensation and challenge perceived inequities. Many companies are not yet structurally ready: in December 2025, 93.8% of companies were not prepared to meet key requirements.
Potential for increased payroll costs
If unexplained gaps exceed 5%, companies must justify or correct them through structural adjustments. This may lead to unplanned compensation increases.
High administrative and data-quality burden
Companies must generate detailed pay indicators, maintain consistent job classification structures, and provide annual employee notifications of their pay-information rights.
Complexity of multi-country compliance
The directive sets minimum standards, but implementation varies widely by Member State in terms of reporting formats, pay-gap thresholds, data submission processes, enforcement mechanisms. Countries progress at different speeds, as highlighted in EU transposition monitoring.
Impact on HR Organization (Operating Model & Capabilities)
Implementing the Directive impacts structure, processes, tech, and skills across HR:
- Compensation & Benefits (C&B) as a control tower:
C&B will own the compensation philosophy, objective pay criteria, salary-range governance, and remediation plans for gaps >5%. All documented and auditable.
- Talent Acquisition (TA) enablement:
TA must embed salary ranges in all job postings across channels, standardize recruiter guidance, and ensure no salary-history questions with periodic audits. - HR Operations & Employee Relations:
HR Ops will manage annual employee notifications about pay-information rights, handle employee requests for pay data, and maintain response SLAs, templates, and escalation paths. - People Analytics / Reward Analytics:
Build recurring pay-gap dashboards aligned to EU indicators, explain variance drivers, and model corrective scenarios foundational for compliance reports. - Job Architecture / Org Design:
Establish/refresh job families, levels, and “work of equal value” comparators; this is critical for lawful comparisons and for explaining pay decisions. - Policies & Documentation:
Update Compensation Policy, TA Policy, and Employee-Information Policy to codify objective criteria and transparent processes accessible to employees. - HRIS & Data Governance:
Ensure HR systems can generate size-based reports (e.g., 100–249 employees every 3 years; 250+ annually) and retain evidence supporting objective decisions.
How to Work with Works Councils / Employee Representatives
For companies with works councils or employee representatives, proactive social dialogue is essential:
- Early information & consultation:
Brief representatives on the legal obligations, indicators, timelines, and the company’s approach before rollout. This reduces resistance and creates shared ownership. (The Directive reinforces employees’ rights to pay information; several national approaches rely on social dialogue to implement/monitor.) - Co-design of objective criteria & transparency measures:
Involve representatives in validating job evaluation criteria, the comparators for “equal value”, and the communication plan for employees. This supports acceptance and defensibility. - Handling gaps and remediation:
Where >5% gaps persist without objective justification, some national frameworks foresee joint reviews or audits with employee representatives. Planning a formal joint-review protocol (scope, data room, timelines) helps resolve issues quickly. - Governance & monitoring:
Set a joint monitoring cadence (e.g., quarterly) to review indicators, employee requests volumes, and remediation progress; align on change controls for salary-range updates and policy revisions. - Communication guardrails:
Agree messaging to prevent misinterpretation (e.g., differences explained by objective, non-gendered factors such as skills, performance, or market rate). This aligns with the Directive’s emphasis on objective criteria.
A Single Directive, but Different National Implementations
While the Directive creates a common European standard, Member States are implementing it differently because some already have strong equality laws (e.g., France, Spain, Germany’s existing frameworks),others need to build new mechanisms from scratch, some countries will impose stricter thresholds (e.g., 50 employees instead of 100).
However, once transposition is complete, every company operating in the EU regardless of size, sector, or country will fall under the scope of at least part of the directive.
What applies to all companies (even below 100 employees): salary ranges in job advertisements, ban on salary-history questions, transparency of pay-setting criteria, right for employees to request pay information.
What applies depending on company size mainly around reporting: 100–249 employees: reporting every 3 years, 250+ employees: annual reporting. Some national laws will reduce thresholds to 50 employees.
What Companies Should Do Now to Prepare
Regardless of where they operate, companies should take proactive steps ahead of the 2026 deadline.
Build or refine your job architecture
The ability to justify pay relies on clear definitions of job families, levels, skills and responsibility criteria, work-of-equal-value comparisons. This directly supports the directive’s requirement for objective, non-gendered criteria.
Conduct an internal pay-gap analysis which might have been done already proactively as part of ESG initiative for example
Ahead of mandatory reporting, companies should analyze current gender pay gaps, identify >5% unexplained gaps, document legitimate factors (experience, skills, performance), plan corrective actions. This is important because gaps above 5% must be justified or corrected under the directive.
Review and update compensation policies
Policies must standardize pay progression criteria, articulate how decisions are made, be accessible to employees (as required by the directive).
Prepare to publish salary ranges
Companies must ensure market benchmarks are up-to-date, ranges are consistent across countries and job families, recruitment teams are trained to use and communicate ranges. This requirement applies to all employers.
Strengthen HR information systems and data quality
Large parts of the compliance process rely on accurate data. Companies should ensure their HRIS can produce at minimum: gender pay-gap indicators, compensation distributions by job category, pay-progression reporting.
Train leaders and HR teams
Managers and HR business partners must be ready to explain pay decisions transparently respond to employee requests for information, manage internal tensions resulting from transparency. This is essential given the directive’s expanded employee rights.
Conclusion
The EU Pay Transparency Directive represents one of the most significant shifts in compensation governance in decades .Although implementation differs from country to country and thresholds may vary, the end result is the same. All EU employers will have to adopt transparent pay practices. Companies that prepare now with the right HR operating model, robust data, and constructive social dialogue will reduce legal risk, avoid cost shocks, and strengthen their employer brand.
