New EU rules will make pay structures significantly more transparent – and more accountable.
From June 2026, all Member States must implement Directive (EU) 2023/970 on pay transparency, which aims to strengthen the principle of equal pay for equal work or work of equal value.
The directive applies to both private and public employers and will affect the entire HR lifecycle – from recruitment to internal pay setting and external reporting.
What does this mean for companies – and hiring managers?
The rules introduce new transparency principles before, during and after employment:
- During recruitment, job titles and job advertisements must be gender-neutral, and recruitment processes must be conducted in a non-discriminatory manner.
- Employers will be prohibited from asking candidates about their salary history.
- Before employment, employers must disclose the expected starting salary or a salary range for the position to ensure transparency and support informed pay negotiations.
- Internally, employees must have access to the criteria used to determine pay, pay levels and pay progression, and these criteria must be objective and gender-neutral.
- Employees will have the right, within two months of making a request, to receive written information about their own pay level and the average pay levels – broken down by gender – for categories of employees performing the same work or work of equal value.
In general, pay criteria must be objective and gender-neutral. At the same time, employees will gain significantly greater insight into both their own pay and that of their colleagues.
New reporting requirements – and a five per cent threshold with real impact
The reporting obligation – meaning when companies must report pay data – depends on the size of the organisation.
Only employers with 100 or more employees are covered. Larger organisations must report more frequently, while smaller companies will have longer reporting intervals.
Reporting frequency and the first reporting year are as follows:
- 250+ employees: Annual reporting – first deadline 7 June 2027 (typically based on 2026 data).
- 150–249 employees: Reporting every three years – first deadline 7 June 2027.
- 100–149 employees: Reporting every three years – first deadline 7 June 2031.
For companies with fewer than 100 employees, there is no reporting obligation under the directive’s minimum requirements (subject to stricter national legislation).
Reports must include, at a minimum, data on:
- The overall average pay gap between women and men.
- The median pay gap (total remuneration).
- Pay gaps in complementary or variable components (average and median).
- Distribution across pay quartiles (share of women and men in each pay quartile).
If a company reports a pay gap of 5% or more within a category of employees – and the difference cannot be objectively justified and corrected within six months – the employer and employee representatives must carry out a joint pay assessment.
Stricter consequences for non-compliance with pay transparency rules
The directive introduces significantly stricter consequences for breaches of the rules. Sanctions must be effective, proportionate and dissuasive, and Member States must introduce appropriate penalties and legal remedies.
- Reversal of the burden of proof: In equal pay disputes, the burden of proof will effectively shift to the employer, who must demonstrate that no gender-based pay discrimination has occurred – particularly where transparency requirements have not been met.
- Full compensation for affected employees: Employees may be entitled to back pay and related benefits (such as bonuses and benefits in kind) as well as compensation for both financial and non-financial damage, without a predefined cap on compensation.
- Administrative sanctions: Fines and other measures will be determined at national level and may be increased in cases of repeated violations.
- Public procurement: Exclusion from public contracts may be introduced nationally as a sanction in serious or repeated cases of non-compliance. However, exceeding the 5% threshold alone triggers a joint pay assessment – not automatic exclusion from public tenders.
Why is the EU taking action now?
Equal pay has long been a principle within the EU. In 2020, the European Commission presented a strategy aimed at closing the gender pay gap.
Despite decades of equal pay legislation, the gender pay gap has remained persistent and has only declined slowly. A lack of transparency, unclear definitions and weak enforcement have hindered progress. The COVID-19 years further exacerbated the challenge, particularly in sectors dominated by women.
The directive therefore clarifies both definitions and minimum requirements and obliges Member States to collect and publish pay data in a way that enables comparison across companies.
What should companies do now?
Start preparing now – particularly if your company falls within the category required to have reporting structures in place before June 2027.
Companies must ensure that pay data, employee categories and documentation are properly structured. Otherwise, they risk falling behind once the rules take effect. The directive effectively turns pay transparency into a competitive factor that customers, employees and regulators will be able to scrutinise.
Do you need help getting started?
At Grant Thornton, our ESG advisory team can help you prepare for the new reporting requirements.
Contact us today for an informal discussion.
