EU Pay Transparency: What Employers Need to Know

Introduction 

Pay transparency has become a key priority for Human Resources and legal leaders, driven by increasing regulatory attention to equitable pay practices across jurisdictions. The EU Pay Transparency Directive (2023/970) (the "EU Directive") represents a major shift in this area, introducing binding obligations on equal pay, pay reporting, and employee consultation for all EU employers. It applies to both public and private sector organizations and covers not only employees but also job applicants, embedding pay transparency throughout the employment lifecycle. 

The EU Directive must be transposed into national law by EU Member States by 7 June 2026, with reporting obligations introduced gradually from June 2027 onwards, depending on company size. These rules will also affect non-EU multinationals with operations in Europe, requiring consistent and transparent pay frameworks across entities. Although the United Kingdom is not bound by the EU Directive, it was monitoring developments closely, with a government consultation on potential equality law reforms. 

Given the EU Directive's extensive scope, penalties for non-compliance, and the required involvement of works councils and employee representatives, organizations should start preparing now to ensure compliance across all affected jurisdictions. EU Member States may also impose additional national requirements beyond the EU Directive's baseline framework, making early alignment and strategic coordination essential for multinational employers. 

Works Council and Trade Union Involvement 

The EU Directive strengthens employee participation by giving employee representatives a clear role in promoting equal pay. Employers must inform and consult employee representatives, such as the Works Council or trade unions, on its methodology for establishing pay structures and the results of pay transparency reporting.  

The concept of employee representation is not narrowly defined in this context and may be further specified in national implementing legislation. As a result, even small employers may be required to involve their employees' representative(s). Where the pay transparency reporting reveals a gender pay gap of more than 5%, the employer must conduct a pay assessment together with employee representative(s). Employee representatives also will be involved in developing and monitoring measures to correct unjustified pay differences. The EU Directive thus ensures that pay transparency and equality becomes a collaborative process involving both management and labor rather than a purely administrative exercise. 

Single Source Principle 

The EU Directive introduces the concept of a "single source," which requires pay comparisons between equal categories of workers across multiple entities when the remuneration for employees at those entities is determined by the same central body. "Single source" describes pay conditions that are set under a centralized or shared policy between companies, such as by a parent company for its subsidiary or otherwise by collective agreement. The principle does not extend reporting or pay assessment obligations beyond each legal employer, but it can affect how comparability is determined in equal pay claims. This may impact multinational companies and matrix-organizations that use a "single source" pay-approach.  

Timelines  

The EU Directive must be transposed into national law by 7 June 2026. However, many Member States have not yet published draft legislation or indicated that implementation may be delayed, meaning that the transposition deadline is unlikely to be met. Under the EU Directive, reporting obligations will be introduced gradually, although exact dates may vary depending on when each national implementation act takes effect: 

• By 7 June 2027: First reporting for employers with 250 or more employees, and annually thereafter.
• By 7 June 2027: First reporting for employers with 150–249 employees, and every three years thereafter.
• By 7 June 2031: First reporting for employers with 100–149 employees, and every three years thereafter. 

Enforcement and Remedies 

The EU Directive introduces robust remedies and enforcement mechanisms. In cases of alleged pay discrimination, once an employee presents indicative facts to support an equal pay violation, the burden of proof shifts to the employer to demonstrate that no pay discrimination occurred. When merit is found on such claims, employees are entitled to full compensation, restoring them to the position they would have been in had the violation not taken place, including full back pay. 

The EU Directive also provides protection against retaliation, ensuring that employees who exercise their rights or support others in doing so are safeguarded from adverse treatment. In addition, fines will be imposed under national law for non-compliance, reflecting the seriousness of the infringement. Finally, public disclosure of gender pay gap data under the reporting obligations to a designated national authority presents reputational risks to employers.