Understanding the EU Pay Transparency Directive

If you have employees in the European Union, or even some working remotely in an EU member state, then there’s a new law you need on your radar. It’s the EU Pay Transparency Directive. It was adopted in April 2023 with an objective to close the gender pay gap by requiring pay transparency, a structured reporting process, and employee access to compensation data.  

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What is the European Union Pay Transparency Directive 

A little background on what a Directive is. The EU uses different terminology for its laws than the United States does. A “Directive” is the equivalent of a statute in the United States. It’s a binding law passed by the legislature (the European Parliament and the Council of the EU). A “Directive” is one of two types of statutes in the EU. The other is a “Regulation.” In the United States, a regulation refers to a sub-statutory rule promulgated by an executive branch agency to implement details of a statute passed by Congress. In the EU, Directives and Regulations are the statutes themselves. They carry the same weight that a statute does in the United States.   

The difference between a Directive and Regulation in the EU is that Directive provides mandates for laws that each member state must pass. The laws passed by the member states must meet the requirements of the Directive, but can have additional requirements and unique implementation mechanisms for the individual member state. A Regulation automatically becomes the law of each member state as is.   

The term Directive sounds informal to the ears of someone in the United States. An EU Directive is not informal at all. It’s the equivalent of a United States statute, with a mandate that each member state implement their own statute that, at a minimum, meets the requirements of the Directive. 

So, why does this Directive matter? Because even if your company headquarters are in the U.S., U.K., or another non-EU country, the Directive applies to any employer with employees working in the EU. Because member states are required to implement it by June 7, 2026, HR needs to prepare now, especially if your company operates overseas. 

Many in HR are asking the same questions right now, like  

• What exactly does this directive require?  
• Who’s included?  
• How do we start building systems that comply?  

Let’s get these questions answered. 

What the EU Directive Requires 

At the end of the day, the EU Pay Directive strengthens employees’ rights to know how pay is determined and whether it’s applied fairly, regardless of gender. It’s not just about publishing salary ranges, though that’s part of it. It’s really about changing how companies think about pay equity and transparency. 

Here’s what the Directive introduces: 

• Salary transparency during recruitment: Employers must disclose the salary range or pay level for a position in job postings or before interviews. The pay range must be based on objective, gender-neutral criteria. For example, let’s say your team in Germany is hiring for a Software Engineer. Under these new rules, you’ll need to include the pay range for the role in the job posting, saying 70,000 to 85,000, or share it before the interview.  
• Asking candidates about their pay history is prohibited. If a candidate asks, “Can you match my current salary?” your recruiter or interviewer can’t ask what their current salary is. Instead, they can explain how the salary range was determined, based on level, experience, and internal equity. It’s a relatively small change overall, but it means rewriting job templates and training recruiters and interviewers on how to have more transparent conversations with candidates.  
• Employee access to pay data: Employees have the right to request information about their own pay level and the average pay levels for other employees performing the same or similar work, broken down by gender. 
• Mandatory gender pay gap reporting: Employers with at least 100 employees have to report on their gender pay gaps, including overall mean and median pay differences, mean and median pay differences in bonus/variable pay (“complimentary and variable component”), and pay differences for each separate “category of workers” both for basic wages/salaries and bonus/variable pay. Employers also must report the proportion of female and male employees who receive bonuses/variable pay and the proportion of female and male employees in each pay quartile. 
• Joint pay assessments: If an employer’s report reveals a pay gap of 5% or more for a category of workers that can’t be justified by objective gender-neutral factors and that it doesn’t remedy within six months of the date of the pay reporting submission, it must conduct a joint pay assessment with employee representatives to identify and remedy the causes. 

That last point is a “handful” and it’s worth focusing on. The Directive isn’t just about data collection, but about accountability. If a pay gap can’t be explained, then employers must act. 

Who Is Covered & Thresholds 

The Directive applies to all employers operating in EU member states, as well as non-EU companies with employees based in the EU. That includes subsidiaries, branches, or even remote workers residing in an EU country. 

The reporting obligations kick in based on company size. Here is the breakdown: 

• Employers with 250+ employees: Annual gender pay gap reporting, starting in 2027 
• Employers with 150–249 employees: Reporting every three years, starting in 2027 
• Employers with 100–149 employees: Reporting every three years, starting in 2031 
• Employers with fewer than 100 employees: No mandatory reporting (for now), but pay transparency obligations still apply during hiring and for internal pay communications 

Each EU member state will transpose the Directive into national law by June 7, 2026. While the Directive is EU-wide, specific details, like reporting templates or penalties, may differ by country. HR teams with employees in multiple EU countries will need to track variations closely. 

Key Deadlines and Implementation Timeline 

Timing is everything, so you need to be aware of the following key dates and actions so you can proactively prepare: 

The 2027 date may sound far off, but preparing your company for compliance will take time. Many companies are discovering that they’ll need to update HR systems, standardize data reporting across regions, and refine job classification structures, before formal reporting even begins. 

Think of 2025 and 2026 as your “window of opportunity” for preparation. HR teams that wait until local laws are finalized may find themselves scrambling to update pay systems or conduct rushed audits. Building or updating your foundation now will make reporting smoother and more accurate later. 

What Employers Need to Do to Prepare 

If you’re wondering where to start, you’re not alone. Here’s a 6-step plan for HR and compensation teams to prepare: 

1. Identify Member States Where Your Organization’s Employee Headcount Triggers Directive Obligations: Determine your organization’s headcount in each EU member state to determine whether the law will apply. 
2. Track National Developments: Each EU country may implement the Directive slightly differently. Designate someone, perhaps within legal or HR Compliance, to monitor and track national guidance for updates for member states where the Directive might apply to your organization.  
3. Perform Valuation of Your Jobs Using the EU Pay Directive Criteria to Ensure that Similarly Paid Jobs Within Your Existing Compensation Structure Have “Equal Value”: Employers are required to report and correct pay gaps by “categories of workers.” Employees belong in the same category if their jobs have the same value based on skills, effort, responsibility, and working conditions. Jobs of ‘equal value” should be paid the same regardless of the employees’ gender. Employers therefore want to ensure that jobs that are compensated similarly also are valued similarly using the Directive’s four categories. This will ensure that their categories of workers for EU Pay Transparency reporting and pay gap corrections align with their existing compensation structure. 
4. Audit Current Pay Practices: Be proactive about auditing pay. Begin by reviewing how pay decisions are made today. Are your salary structures consistent across regions? Do job descriptions align with how employees are actually paid? Identifying inconsistencies now helps you correct them before they become compliance issues later. 
5. Review Job Descriptions and Hiring Materials: The Directive bans wage/salary history questions and requires salary ranges or pay bands to be shared with job candidates. If your recruiting templates still include “current salary” fields, now is the time to eliminate them. 
6. Build a Reporting Framework: Start collecting the data you’ll eventually need to disclose, such as mean and median pay gaps, variable pay components and pay quartiles. This may require coordination between HR, payroll, and IT to help ensure data accuracy. OutSolve recommends that you run a draft report in 2026 to make sure you have everything set up correctly. 
7. Proactively Identify and Correct Pay Gaps: If your analysis reveals pay gaps of 5% or more for one of more categories of workers within an individual EU member state that can’t be justified by factors like performance or experience, then take action early. Waiting until reporting deadlines may expose your company to additional scrutiny or employee claims.  
   
   Pay gaps of 5% or more that can’t be explained by objective, gender-neutral criteria will need to be remedied within six months of the pay reporting submission date. A joint pay assessment with employee representatives is required for pay gaps of 5% that can’t be justified and haven’t been corrected. That’s a big change for most companies. 
8. Train Key Teams: HR, payroll, and hiring managers should understand the new rules and what “pay transparency” really means in daily practice. Training builds awareness and sets the tone for a culture shift toward openness and fairness. 

Implications & Risks 

Let’s talk about the “what ifs.” What happens if a company doesn’t comply? 

Non-compliance can trigger fines, reputational damage, and even mandatory joint pay assessments involving employee representatives. Even more concerning for HR leaders, non-compliance can fuel employee distrust. Once pay information becomes public, or even partially shared, word gets out and employees may start comparing, questioning, and challenging compensation decisions. 

For global employers, the EU Pay Directive could also reshape compensation governance across borders. Many multinationals are already using EU compliance as a model to strengthen transparency in non-EU markets. Standardizing pay frameworks globally not only reduces administrative burden, but it signals a genuine commitment to fairness. 

The shift can be uncomfortable at first. Transparent pay discussions tend to spark difficult questions and discussions. With that said, HR leaders who approach this as an opportunity to strengthen culture, not just a compliance task, often see long-term positive impacts in engagement and trust. 

What the EU Pay Directive Means for Your Organization 

The EU Pay Transparency Directive represents one of the most significant shifts in European employment law in recent years. This post gave you an overview of the Directive.  

Here’s the bottom line for HR: 

• The Directive is in motion, and member states must implement it by June 7, 2026. 
• Reporting for large employers will begin as early as 2027, based on 2026 data. 
• Preparing now means valuing your jobs, aligning job values to your compensation structure, updating hiring practices, and training teams well ahead of time. 
• Early compliance not only minimizes risk, but it also strengthens your company’s credibility and employee trust. 

Companies that act early can help with a smoother rollout and a stronger “story” to tell. Again, pay transparency isn’t just about compliance. It’s about demonstrating that fairness is built into your culture from the start.