The EU pay transparency directive: What businesses need to know

What is the EU pay transparency directive?

The European Union (EU) pay transparency directive, came into force since 6^th June 2023. It introduced measures to promote pay transparency and address gender pay gaps in EU countries. The first reports are due to be published in 2027, covering the 2026 calendar year.

Issued by the European Council of the European Union, the directive aims to uphold ‘the principle of equal pay for equal work or work of equal value’ between men and women.

Why is the EU implementing the pay transparency directive?

The EU is implementing the pay transparency directive with the goals of addressing gender pay gaps, promoting workplace equality and ensuring equal pay for equal work.

The directive prohibits pay secrecy and requires businesses to document and report pay structures to uncover disparities and promote fair practices.

The implementation of this directive aligns with broader EU efforts to advance gender equality, eliminate discrimination and foster inclusivity. By actively working towards reducing gender pay disparities across the EU, the directive aims to create more fair and inclusive work environments.

The gender pay gap across the European Union (EU)

Key Stakeholders and their Interests in pay distribution, transparency and equity

Various stakeholders, both internal and external to the companies, have a keen interest in how organisations distribute pay. These stakeholders include:

• Employees - For transparency and equitable compensation.
• Unions - To ensure fair treatment and wages for their members.
• Work councils - Take part in decision-making processes for pay.
• Stakeholders - To ensure no reputational risk based on pay disparity.
• Journalists - Report on pay transparency and pay disparities to a wider audience.

By actively considering the interests of stakeholders in pay distribution, transparency and equity, organisations can create a harmonious and inclusive work environment, attract and keep top talent and build a positive public image.

Implications of pay disparity

• Can demotivate employees and impact engagement.
• Lack of transparency can hinder recruitment and deter top talent.
• Insufficient transparency limits employees' ability to negotiate fair compensation.
• Can contribute to higher employee turnover.
• Negative publicity can damage brand perception.

Addressing these issues is important to foster a fair and inclusive work environment as well as to attract top talent and portray a positive brand image.

What businesses need to do to prepare for the EU pay transparency directive?

Businesses should start planning and organising early rather than waiting. Early commitment to pay transparency can be a competitive advantage.

Key areas to consider when preparing include:

Understand compliance requirements

• Familiarise yourself with legal obligations and directive requirements.
• Stay informed about national implementation and penalties for non-compliance.

Implement pay transparency

• Optimise HR and payroll models for transparent pay practices.
• Use technology for streamlined reporting and enhanced transparency.

Address gender pay gap and set up equal pay

• Analyse pay gaps and conduct equal pay reviews.
• Implement fair pay strategies to reduce gender disparities.

Transform HR and payroll operating models

• Ensure HR and payroll systems meet directive requirements.
• Invest in the right infrastructure and technology.

Streamlines processes

• Integrate systems and data for exact reporting

The EU pay transparency directive is a significant step towards gender pay equality in Europe. Despite challenges, it will uncover pay discrepancies and pressure employers to close the gap.

Whilst this is an EU directive, there may be a need in the future for multi-national companies to implement this new requirement for all the jurisditions they operate in. The EU directive has the potential to act as a differentatior in the global talent market for all job seekers. 

Employers must understand and follow the directive to drive change, promote pay equity and reduce the gender pay gap. Seek professional legal advice for comprehensive understanding and compliance.