Tuesday, 21 October 2025
The European Union’s new Pay Transparency Directive (Directive (EU) 2023/970) will require Member States to adopt stronger reporting, disclosure and legal obligations aimed at reducing gender pay gaps. With national transposition due by 7 June 2026, the Directive sets out new rights for employees, stronger obligations on employers, and more robust enforcement mechanisms.
Under the Directive, employers with 100 or more employees will need to report on average pay by gender for comparable work, broken down into categories such as job roles or “work of equal value.” The Directive also requires employers to disclose criteria used in pay setting, and to enable employees and job applicants to request information on pay, including bonuses, benefits and other allowances.
When gender pay gaps larger than 5 percent are found without objective, gender-neutral justification and not remedied within six months, the employer must undertake a joint pay assessment with representatives of employees to diagnose root causes and agree remedial actions.
Enforcement of the Directive is expected to include dissuasive sanctions. Member States must ensure penalties for non compliance, potentially including fines, exclusion from public procurement and compensation for affected workers. In addition, the burden of proof in pay discrimination cases will shift from the employee to the employer.
Though the Directive takes effect across the EU, it does not apply directly in the UK, which has its own pay gap reporting rules. UK employers with operations in the EU will need to comply with the Directive for their EU-based operations. Meanwhile, UK legislation is also evolving; proposals under the new Employment Rights Bill would require employers with 250 or more employees to publish action plans to address gender pay gaps.
Challenges remain for organizations preparing for implementation. Many companies, especially those below existing thresholds, are uncertain about definitions of “work of equal value,” criteria for pay comparisons, and how to handle variable pay and benefits in reporting. There are also concerns over data privacy and ensuring that reports do not allow identification of individuals in small employee groups.
Legal experts advise firms to audit current pay structures, prepare internal data and reporting systems, engage employee representatives, and monitor national legislation as it is introduced. Several Member States are already drafting or implementing national laws to align with the Directive.
Source: CMS
