Navigate a clear path to equal pay with the EU Pay Transparency Directive
Despite decades of legislation promoting equal pay in the European Union, the gender pay gap has remained a persistent challenge—until now. With the introduction of the EU Pay Transparency Directive, companies have clear guidelines on how to resolve gender-based salary disparities. But with new legislation comes increased operational and compliance risks.
Equal pay legislation in the EU
The journey toward equal pay in the European Union began over six decades ago. In 1957, the Treaty of Rome laid the foundation for the European Economic Community (now EU) and what would become a core principle of EU law: equal pay for equal work between men and women. This commitment was formalised in Article 119, marking a significant step toward gender equality in the workplace.
Over the years, the EU reinforced this principle through various legislative efforts—notably the Directive 2006/54/EC, which requires member states to ensure that men and women receive equal pay for the same work or work of equal value.
Despite these legal safeguards, the reality of equal pay has often fallen short of these requirements due to a lack of transparency in pay structures. This obscures discriminatory practices and makes it difficult for workers to challenge unfair treatment.
The persistence of the gender pay gap underscored the need for stronger action. In 2021, the average unadjusted gender pay gap across the EU was 12.7%, with some countries exceeding 15%. Even after accounting for factors like education, sector and seniority, a portion of the pay gap remains unexplained. This is often rooted in structural inequalities, unconscious bias and the undervaluation of work done by women. The disparity extends into retirement, with women receiving pensions that are, on average, 30% lower than men’s, contributing to a greater risk of poverty among women later in life.
Recognising the magnitude of the issue and following a call for concrete measures by the Council in 2019, the European Commission proposed a new directive in March 2021. The aim was to move from voluntary guidelines to binding rules that empower workers, promote transparency and ensure that pay systems are free from gender bias.
This culminated in the adoption of the EU Pay Transparency Directive (officially Directive (EU) 2023/970) in April 2023—a landmark move toward closing the gender pay gap in the EU and fostering fairer, more inclusive labour markets.
EU Pay Transparency Directive overview
The EU Pay Transparency Directive builds on Article 157 of the Treaty on the Functioning of the European Union (TFEU) by introducing stronger transparency and accountability measures. The directive applies to both public and private employers, including non-EU companies with staff based in the EU.
While smaller employers (fewer than 50 workers) may be exempt from some requirements, the directive ensures that all workers under national employment laws have clear and enforceable rights to equal pay for equal work or work of equal value and can access clear information about pay structures. Workers are protected from pay-secrecy clauses and have the right to request information about pay levels for comparable roles. They are also entitled to remedies where unjustified differences are found.
EU Pay Transparency Directive objectives and timelines
The key objectives of Directive 2023/970 include:
- Empowering workers to demand equal pay before and during employment
- Increasing transparency in pay structures to highlight and prevent biases
- Ensuring accessible legal recourse in the case of discrimination
- Addressing intersectional discrimination (eg. gender combined with ethnicity or disability)
EU members must implement Directive 2023/970 into their national laws by 7 June 2026. Starting in 2027, companies with 100 or more employees will be required to submit their first gender pay gap reports. The directive applies to all employers in EU member states, including non-EU headquartered companies with EU operations.
EU Pay Transparency Directive core requirements
There are certain core requirements that all employers under the EU Pay Transparency Directive must follow:
- Salary ranges must be disclosed in job ads or before interviews
- Employers are prohibited from asking candidates about their salary history
- Employees have the right to request information on pay levels, average pay comparisons and progression criteria
- Employers meeting certain thresholds must report on gender pay gaps either annually or every three years
- Unexplained gender pay gaps above 5% require joint pay assessments with worker representatives
- Pay secrecy clauses in employment contracts are prohibited
EU Pay Transparency Directive challenges and risks
While Directive 2023/970 represents a significant step toward closing the gender pay gap, implementation poses certain challenges. One of the most complex aspects is defining “work of equal value.” This requires employers to assess roles not only by title or function, but by the skills, effort, responsibility and working conditions involved—an exercise that can be both subjective and administratively demanding. Without clear benchmarks, companies could struggle to outline this consistently, risking disputes and non-compliance.
Another concern is the potential rigidity in pay practices, which could prevent employers from offering flexible or performance-based compensation. If significant pay gaps are revealed, organisations may face legal consequences and reputational damage, which in turn could affect employee morale.
EU Pay Transparency Directive best practices and recommendations
To effectively align with the directive, companies should begin by immediately conducting privileged pay audits. These audits uncover disparities in compensation and provide a road map for addressing potential issues before reporting obligations take effect. Establishing clear job architectures, pay bands and criteria for pay determination and progression is also critical to ensure that roles are consistently evaluated and compensated.
Building clear and accessible pay policies allows employees to understand how compensation decisions are made, while integrating these with broader CSRD reporting frameworks will help support compliance. Finally, companies should monitor how each EU member state transposes the directive into national law, as local variations may affect timelines and obligations.
How TMF Group can help
With a team of in-country experts in most EU countries, we can help you integrate the EU Pay Transparency Directive requirements seamlessly and efficiently.
We monitor evolving rules across EU countries and keep you informed of changing requirements. We support the implementation by running pay audits and compensation analytics and advising on compliance, payroll and HR processes, as well as assisting with employee communication and change management.
Our global HRP consultancy team helps organisations meet EU Pay Transparency requirements through data-led, practical support that works with local payroll teams. We coordinate data collection and alignment across multiple jurisdictions, and analyse existing pay data in line with directive metrics for a baseline review of recruitment and employee-request policies, helping you maintain transparency and compliance.
Chat with our experts and find out how we can help you navigate Directive 2023/970.
