EU Pay Transparency Directive FAQ

The EU Pay Transparency Directive requires EU member states and non-EU employers with EU employees to close the gender pay gap through pay transparency and gender pay gap reporting. In this FAQ, Helena Almeida, vice president and managing counsel at ADP, shares insights on what employers need to know.

The EU Pay Transparency Directive requires that EU member states, and non-EU employers that employ individuals in the EU, close the gender pay gap through:

Pay transparency for employees and applicants
Gender pay gap reporting

I sat down with Helena Almeida, vice president and managing counsel at ADP, to get answers to employers' most pressing questions.

1. What is the purpose of the EU Pay Transparency Directive?

According to 2021 Eurostat data, the EU gender pay gap is about 13 percent, with women earning about 87 percent of what men make for the same work. The EU gender pension gap is about 30 percent, meaning the value of women's retirement benefits is 70 percent of men's benefits, due, in part, to women making less than men over the course of their careers.

The EU Universal Declaration of Human Rights includes "the right to equal pay for equal work, to free choice of employment, to just and favourable conditions of work, and to just remuneration ensuring an existence worthy of human dignity."

Read: New Pay Transparency Requirements Coming to the EU

2. What is the difference between an EU regulation and an EU directive?

A "regulation" is a law that each member state is required to comply with as a final law.

A "directive" is a statement of top-level rules and requires each EU member state to enact and implement their own laws to reach the goals of the directive. The laws must provide all of the protections and requirements in the directive, but member states are free to add additional mandates consistent with the policy of the directive.

3. What is the deadline by which member states must pass their pay transparency laws?

EU member states have until June 7, 2026, to implement their pay transparency laws. The timeline for meeting pay gap reporting requirements will depend on employer size.

4. Which employers are covered by the Pay Transparency Directive?

The pay disclosure requirements apply to EU member states and non-EU employers who employ individuals in the EU. Covered employers must provide applicants with an initial pay range based on objective, gender-neutral criteria. Covered employers must also comply with employees' requests for information about pay, raises and promotions.

Gender pay gap reporting requirements apply to EU employers with at least 100 EU employees. The reporting requirements also apply to employers outside of the EU if they have at least 100 employees based in EU member states.

5. Who counts as an employee?

The definition of "employee" encompasses workers who have an employment contract or an employment relationship, which may include part-time workers, contract workers, domestic workers, on-demand workers, intermittent workers, trainees and apprentices. Also included are other workers who qualify as employees based on the work performed, regardless of the parties' description of the relationship.

Independent contractors are not considered employees.

Read: The EU Pay Transparency Directive Is a Gamechanger

6. How does the Pay Transparency Directive define the gender pay gap?

The Directive states that the gender pay gap means the difference in pay between male and female workers. The Directive also provides that gender-based pay discrimination may involve the intersection of discrimination based on other protected characteristics, though employers are not required to gather data related to protected groups other than sex.

7. What is included in "pay" for pay transparency?

Pay is broadly defined and includes all compensation, whether in cash or in kind, which a worker receives directly or indirectly from their employer.

Some reporting requirements apply to variable pay, which is also defined broadly. Variable pay includes bonuses, overtime, travel, housing and food allowances, compensation for training or education, severance pay and all pay required by law or collective bargaining agreements.

8. What does equal pay mean?

The Directive defines equal pay as having "no gender-based pay differences between workers performing the same work or work of equal value that are not justified on the basis of objective, gender-neutral criteria."

The EU Pay Transparency Directive specifies the pay information employers must provide to all employees and prohibits pay secrecy.

9. Explain which details employees are entitled to know about pay.

Employees can ask for and must receive:

Information on their individual pay level and the average pay levels broken, down by sex for categories of employees doing the same work as them or work of equal value.
The criteria used to determine pay, pay levels, salary bands, raises and career progression, which must be objective and gender-neutral. (Member states may exempt employers with fewer than 50 workers from the pay progression requirement.)

9. To what pay information are job applicants entitled?

Before the first interview, employers must provide job applicants with the initial pay or pay range for the role for which the person is applying. In addition, employers cannot ask applicants about their past or current compensation.

10. What else is required regarding information about pay?

Employers cannot keep pay secret. The Directive states that:

Employers cannot include pay confidentiality clauses in employment contracts.
Employees have the right to discuss pay with colleagues.
Employers must give notice annually of workers' rights to pay information.

Assessing and Reporting Pay Gaps

The Pay Transparency Directive requires EU employers with at least 100 EU employees to 1) identify any gender pay gaps and 2) report that information to the implementation body established by each member state.

A pay equity audit requires the employer to compare similar work, then conduct statistical analysis to determine if one gender is generally paid less than the other for the same work.

1. How do employers compare work under the Directive?

Employers must have objective, gender-neutral criteria for comparing the value of different jobs. Accurate, up-to-date job descriptions can help employers compare skills, effort, responsibility, working conditions and any other factor relevant to a specific position to assess work of equal value.

Once the employer determines which jobs are comparable, the employer should conduct a statistical analysis of pay within those jobs to see if there are gender pay gaps.

The Directive requires each member state to determine the tools or methodologies for objectively assessing the relative value of work performance.

2. Who has to report and when does reporting start?

Reporting requirements apply to both public and private employers.

Employers with at least 250 employees begin reporting in June 2027 for 2026 and reports are required annually.
Employers with 150-249 employees begin reporting in June 2027 for 2026 and reports are required every three years.
Employers with 100-149 employees begin reporting in June 2031 for 2030 and will report every three years.
Employers with under 100 employees do not have to report, although they may choose to do so voluntarily.

3. What information is required to be reported?

EU employers with 100 or more employees will be required to report:

Mean and median gender pay gap for base salary
Percentages of men and women receiving complementary or variable pay
Mean and median gender pay gap for complementary or variable pay
Cumulative pay, which includes base salary and other compensation (such as bonuses or other benefits)

4. Is the pay gap data public?

Employers who report will be required to disclose pay gap data to the member state's monitoring body and to their employees. The monitoring body is required to publish certain gender pay gap information subject to data privacy laws. The Directive states that, to the extent any personal data is processed, it should be protected and not used for any purpose other than for determining equal pay.

The Directive also states that employers may publish data on their website or provide it in another publicly available manner. Employers may include explanations of the data and gender pay gaps in their reports.

5. What is required when an employer has a gender pay gap of 5 percent or more?

If an employer's reported gender pay gap is 5 percent or more, it must determine whether the gap can be justified by objective, gender-neutral criteria. If not, it must close the pay gap. If these conditions are not met within six months from reporting, employers must conduct a joint pay assessment and put an action plan in place to close gender pay gaps.

The joint pay assessment must be conducted in cooperation with employee representatives and the results must be available to all employees and communicated to the monitoring body. The assessment should identify the gender pay gap differences and measures to close any gaps that cannot be justified by nondiscriminatory reasons. The employer must also monitor the effectiveness of any remedial measures it takes.

6. What are the remedies for violating the EU Pay Transparency Directive?

Potential remedies include:

Compulsory audits of pay equity;
Court action for back pay, including bonuses, lost opportunities and "moral prejudice;"
Penalties and fines by member states that "are effective, proportionate and dissuasive" for companies that do not comply; and
Attorneys' fees to the employee if they prevail, with discretion to award attorneys' fees to an employee who did not prevail if a claim was brought based on reasonable grounds.

The Directive states that the burden of proof is on the employer to justify its actions, rather than on the employee to establish discrimination. As the EU member states implement new pay transparency laws to comply with the Directive, ADP will be monitoring the new laws to keep employers up-to-date and prepared.