Wage transparency in the EU: obligations, risks and opportunities for companies

Home » Savings Banks » Salary transparency in the EU: obligations, risks and opportunities for companies

Pay transparency in the European Union has moved beyond a theoretical concept and become a very concrete regulatory change, with deadlines, penalties, and new obligations for all companies, from the largest to SMEs. Directive (EU) 2023/970 on pay transparency requires a review of how salaries are structured, how information is communicated, and how pay differences between women and men performing the same work or work of equal value are justified.

Beyond its legal dimension, this new regulation is shaking the foundations of human resource management : it affects recruitment, promotion, compensation policies, internal communication, and even organizational culture. Companies that merely "comply for the sake of compliance" will be late and ill-prepared; those that get ahead can turn salary transparency into a competitive advantage for attracting and retaining talent, strengthening their employer brand, and reducing legal and reputational risks.

What does the EU Pay Transparency Directive aim to achieve?

Directive (EU) 2023/970 has a clear objective: to strengthen the principle of equal pay for women and men for the same work or for work of equal value. Although this principle already existed in European law and in many national legislations, the reality is that the gender pay gap persists, partly due to pay opacity and the lack of effective monitoring mechanisms.

To close this gap, the law relies on two main levers : transparency (providing more salary information to employees and job applicants) and compliance (requiring the measurement, publication, and correction of salary differences not justified by objective and gender-neutral criteria). The idea is that the light—the data and traceability—will act as a “disinfectant” against inequality.

It is worth noting that, in parallel, the Directive is linked to other European obligations , such as the Corporate Sustainability Reporting Directive (CSRD). Compensation policies, gender equality, and talent management are now also subject to non-financial reporting, which significantly increases the visibility and scrutiny of how each company pays its employees.

The European Commission has been very clear: there will be no significant extensions or relaxations of the deadlines . Member States must transpose the Directive by June 7, 2026, and Brussels has already indicated that, while it will provide guidance and tools, this does not replace the obligation to meet the deadline. In other words: waiting for national legislation to be published before taking action is playing with fire.

Main transparency obligations before and after contracting

The Directive introduces a very specific set of obligations that change how salaries are contracted and reported. It's not about publishing individual payslips , but about providing sufficient data to detect and correct unjustified discrepancies.

First, transparency begins before hiring . Organizations will be required to inform candidates, either before the interview or in the job posting itself, about the starting salary or salary range associated with the position. The typical "salary negotiable based on experience" without further details is no longer sufficient; a clear range must be indicated, and where applicable, references to the relevant collective bargaining agreement.

At the same time, it is prohibited to ask about a candidate's salary history . This common practice reinforces existing inequalities: if someone is underpaid in previous jobs, the new employer benefits from that undervaluation. The Directive puts an end to this dynamic to prevent the gender pay gap from being perpetuated from company to company.

Once inside the organization, employees gain a much stronger individual right to salary information than currently exists in most countries. They will be able to request:

• Their own individual compensation in a clear and detailed manner.
• Average pay levels, differentiated by sex, of the categories of workers who perform the same work or work of equal value.
• The criteria used to set salaries, decide on raises and establish career progressions.

Furthermore, confidentiality clauses regarding salaries become meaningless : the Directive prohibits preventing staff from discussing or sharing information about their pay if they wish. The message is clear: absolute secrecy surrounding salaries is no longer compatible with the European framework.

Job evaluation and the concept of “work of equal value”

For transparency to be meaningful, simply publishing pay scales isn't enough; we must be able to explain why a job is worth what it is . This is where the concept of "equal pay" comes into play, becoming the cornerstone of the system.

The Directive requires companies to implement gender-neutral job evaluation and classification systems . This means methodologies that assess jobs based on objective and auditable criteria such as:

• Skills and knowledge required for the job
• Level of responsibility and decision making.
• Physical and mental effort required.
• Working conditions (for example, night work, shift work, exposure to risks, etc.).

It's not just about "having salary bands," but about ensuring those bands are built on a solid and coherent job structure . Many experts warn of a recurring mistake: designing very wide bands under the assumption that this complies with regulations, when in reality these ranges can mask salary differences that far exceed the limits set by the Directive.

From there, a sound job mapping and evaluation become the technical foundation for developing accurate salary records, performing adjusted pay gap analyses, and, if necessary, conducting in-depth internal audits. Consulting firms such as Korn Ferry, Mercer, and Peoplematters indicate that a large number of companies are already reviewing their valuation methodologies precisely to be able to demonstrate, with data, that two different jobs can have equivalent value even if they belong to different departments.

Obligation to report on the gender pay gap

Another pillar of this regulation is the obligation to measure and report the gender pay gap . It's not enough to feel that "we pay fairly"; we have to prove it with segmented, periodic data.

Companies with 100 or more employees must submit information on the overall gender pay gap, including all salary components: fixed, variable, bonuses, and benefits in kind. This obligation also extends to the pay gap by job category or group of positions performing the same work or work of equal value.

The schedule is staggered according to company size, in accordance with the Directive:

• Companies with 250 or more employeesThey will be required to report annually on their gender pay gap.
• Companies with 150 to 249 peopleThey will have to submit the information every three years.
• Companies with 100 to 149 people: also every three years.

Companies with fewer than 100 employees are not required to formally report this data, although they may do so voluntarily. However, other transparency obligations (such as including salary ranges in job postings or the individual right to information) do apply to all companies, regardless of size.

Several recent studies show that implementation of the Directive is progressing unevenly across Member States. Some countries have already published drafts or introduced partial measures, while others remain in a very preliminary stage. Eurofound has found that structural differences between countries, sectors, and national equal pay frameworks directly influence the pace of progress, creating a heterogeneous landscape for multinational companies.

The “adjusted wage gap” and joint salary assessments

When discussing the gender pay gap, not everything can be explained by direct discrimination . Factors such as seniority, job type, education, part-time work, remote work, and location all play a role. To distinguish which part of the difference is reasonable and which is not, the concept of the "adjusted gender pay gap" comes into play, and indicators such as the Gini index can also be used to measure inequality.

The adjusted gender pay gap is essentially the difference in pay between men and women once objective factors that may explain salary variations have been taken into account. Statistical models, especially regression analysis, are typically used to calculate it. These models quantify the weight of each variable in the final salary and show whether, even controlling for everything else, gender still explains part of the difference.

The Directive establishes a key threshold: when there is an average difference of at least 5% in any category of workers performing the same work or work of equal value, and that difference is not justifiable by objective and gender-neutral criteria, the company must carry out a joint pay assessment together with the workers' representatives.

This joint assessment involves:

• Analyze salary structures in depth of the affected category.
• Review the salary setting criteria, bonuses and progressions.
• Identify potential biases or discriminatory practices, direct or indirect.
• Define an action plan to correct unjustified differences within a reasonable time.

Many advisors recommend simulating these joint valuations before being legally required to do so . This allows for the early detection of which categories are approaching or exceeding the 5% threshold, enabling gradual correction of discrepancies and avoiding the need for last-minute, abrupt increases with significant financial and management repercussions.

Impact on selection, employer branding and talent management

The regulatory change goes far beyond legal or compensation departments. HR and recruitment are at the epicenter of the storm , because the way talent is attracted is fundamentally changing.

To begin with, with the requirement to include salary ranges in job postings, compensation secrecy is no longer the norm . Candidates will be able to compare conditions between companies much more directly and negotiate with accurate information from the very first contact. For many organizations, accustomed to keeping salary information hidden, this represents a significant cultural shift.

Recruitment and employer branding platforms, such as Teamtailor, emphasize that this transparency can become an employer brand asset : offering clear salary ranges increases the application conversion rate, improves the candidate experience, and conveys a straightforward company image. At the same time, a careers page that clearly explains benefits, salary structure, and growth opportunities becomes almost essential.

The Directive will also require a much more professional approach to compensation negotiations . Far from eliminating salary negotiations, it frames them within predefined ranges and criteria, reducing arbitrariness. Industry experts emphasize that well-managed transparency generates more trust and traceability, not less.

On the other hand, there is a foreseeable side effect: upward pressure on wages where unjustified differences are detected. As companies adjust compensation to equalize positions of equal value, some inflationary effect is likely, especially in roles that have historically been underpaid (very often held by women).

Internal challenges: culture, communication and change management

If there's one thing that makes many managers nervous, it's imagining how transparency will affect internal relationships : what will happen when the lines are seen, how will it be explained that a new hire earns the same or more than a veteran, or how will requests for information be handled.

Studies and experience in other countries indicate that opacity is already generating conflicts, albeit latent ones . Less than half of employees in Europe perceive their salary as fair. This feeling translates into distrust, demotivation, absenteeism, and turnover, though not always into formal complaints. Transparency, far from creating the problem, makes it visible, and only what is visible can be fixed.

Many pioneering companies are working on “getting their house in order before showing it .” That includes:

• Review internal inconsistencies in the salary scales and apply gradual adjustments.
• Training managers and supervisors to have difficult conversations about retribution.
• Build a clear narrative about how salaries are set, what "work of equal value" means, and what career progression options are available.
• Design promotional policies linked to competency matricesso that salary increases have an objective and explainable basis.

In organizations that have already adopted "radical transparency" models , where almost all compensation information is internally visible, initial fears are often unfounded when the system is well-designed: offer acceptance rates rise, turnover falls, and the perception of internal fairness improves. However, this does require a high level of consistency and discipline in all human resources decisions.

Timeline, risks and sanctions regime

The Pay Transparency Directive formally entered into force on June 6, 2023 , one day after its publication in the Official Journal of the EU. Member States have until June 7, 2026, to transpose it into their national law.

In practice, this means that, by that date at the latest, all companies within the EU will have to comply with the new obligations . Countries like Spain already have a framework in place, with regulations such as Royal Decree 902/2020 on equal pay, but the Directive goes significantly further: it expands the individual right to information, strengthens pre-employment transparency, and modifies the burden of proof in cases of discrimination.

Ignoring this reality comes at a price. Member States must establish effective, proportionate, and dissuasive sanctioning regimes . In the case of Spain, as a guideline, fines for wage discrimination can range from a few hundred euros to more than 225.000 euros, depending on the severity and frequency of the infringement, in addition to the obligation to compensate those affected for damages, back wages, and unpaid bonuses.

The Directive also introduces a substantial reversal of the burden of proof : when there are indications of pay discrimination, it will be up to the employer to demonstrate that it is not violating the principle of equal pay, and not the employee to prove that they have been discriminated against. This reinforces the need for robust systems and documentation that demonstrate that pay criteria are objective and neutral.

In this context, the risks are no longer just legal: the reputational consequences of publicly displaying unjustified pay gaps, without credible action plans, can be considerable. Transparency, amplified by the media, unions, social networks, and investors, will make compensation policies less and less of an “internal matter.”

How to prepare: practical steps for businesses

With the clock ticking, organizations aiming to be well-prepared by 2026 are opting for proactive and structured planning , rather than waiting until the last minute. Experience with other regulatory changes (such as the first reports on the gender pay gap or sustainability) demonstrates that being ahead of the curve reduces risks and avoids improvised decisions.

Some key lines of action are:

• Define or update the job mapHomogenizing the structure of positions and the way they are valued is essential to be able to group jobs of equal value, build coherent bands and report gaps by category.
• Review the compensation structure: analyze all components (fixed, variable, in kind) to detect where gaps may occur and whether the salary ranges make sense with the market reality and internal policy.
• Adjust selection processes: include salary ranges in job postings, eliminate questions about salary history, and train recruiters to clearly explain the salary bands and criteria for setting starting salaries.
• Implement robust data systems: ensure that payroll information, categories, variables and working conditions are clean, centralized and ready to be used for reporting and regression analysis.
• Simulate gap reports and joint assessments: conduct "dress rehearsals" with current data to see what would appear in an official report today and which categories exceed the 5% threshold without objective explanation.
• Design an internal communication and training strategy: work with middle management and HR teams so that they can respond effectively to requests for information and discussions about pay equity.

Specialized tools, such as those offered by compensation analytics platforms, can help automate the calculation of adjusted gaps , simulate correction scenarios, and properly document the factors that justify differences. At the same time, talent management solutions and Applicant Tracking Systems (ATS) facilitate the systematic publication of salary bands and the recording of information that will later be needed for reporting.

All of this demands a change in approach: salary transparency should not be seen as a one-off legal checklist , but as a continuous improvement process that will impact long-term competitiveness. Companies that integrate these criteria into their people and business strategies will be better positioned to win the battle for talent in a market where equality and pay transparency will increasingly become expected basic conditions.

The new EU pay transparency framework requires a rethink of how each euro of salary is paid, reported, and justified, but it also opens a window of opportunity: those who take advantage of this momentum to build objective, explainable, and consistent salary structures will not only reduce the gender gap and the risk of sanctions, but will also gain internal trust, external reputation, and the ability to attract and retain the people they need to grow.