Frequently asked questions
Set out below are some of the most frequent questions we are seeing around the Pay Transparency Directive.
When will the requirements of the Pay Transparency Directive come into force?
Member States have until 7 June 2026 to bring into force laws, regulations and administrative provisions necessary to comply with the Directive. The individual rights set out in the Directive will apply immediately on the local laws coming into effect. The reporting requirements under the Directive will come into force later, with the timing depending on the size of the company.
What is the impact of the Directive on employers in the UK?
Although UK employers could be forgiven for assuming that the EU Directive has no relevance to their UK operations in light of Brexit, a number of implications do arise. In particular, the EU Directive goes further than the UK pay reporting obligations in several respects, meaning that once it is transposed across the EU, the UK obligations will be out of kilter with the rest of Europe. Businesses with European operations looking for consistency of approach to pay reporting and transparency may therefore seek to “level-up” obligations across all operations, resulting in changes to UK practices.
In addition, under the EU Directive where gender pay differences are not justified on the basis of objective, gender-neutral criteria, employers are required to “remedy the situation within a reasonable period of time in close cooperation with workers’ representatives, the labour inspectorate and/or the equality body”. There is no express legal obligation in the UK to take steps to remedy any identified gender pay gap. However, the UK government has pledged to “go further and faster” to close the gender pay gap “once and for all” and changes to the current UK position are therefore anticipated. Included in the government’s manifesto commitments are plans to require employers to implement action plans to close gender pay gaps. If such changes are made in the UK, the differences between the EU and UK positions may narrow.
Does the Directive apply to all employers in all sectors?
Yes, all employers that employ people in the EU, regardless of their size or sector, will need to comply with at least some aspects of the Pay Transparency Directive once implemented locally.
What are the headcount triggers for reporting under the Directive?
The gender pay gap reporting requirements will initially apply in 2027 to all employers with at least 150 workers, dropping to all employers with at least 100 workers in 2031, as follows:
- employers with 250 workers – report by 7 June 2027 and annually thereafter
- employers with 150 to 249 workers – report by 7 June 2027 and every three years thereafter
- employers with 100 to 149 workers – report by 7 June 2031 and every three years thereafter
When counting workers for the purpose of the obligation trigger points under the Directive, do you look at each individual employing company, or the group of companies as a whole?
Our view is that you look at each individual employing company. However, this is not made expressly clear in the Directive and will be subject to clarification in national laws.
What is meant by “workers” under the Directive?
The Directive is stated to apply to all workers who have an employment contract or an employment relationship, as defined by law, collective agreements and/or practice in force in each Member State. There is therefore likely to be some variation by Member State, as local laws define employment relationships differently.
What are the individual employee rights created by the Pay Transparency Directive?
The Pay Transparency Directive creates several new individual rights to pay transparency, namely:
- a right to know the initial pay or pay range for the job before applying
- a right for applicants not to be asked by a prospective employer about current pay or pay history
- a right for workers to know what criteria are used to determine pay, pay levels and pay progression, and what comparable workers are paid, on average, broken down by sex
- a right to disclose pay to colleagues for the purposes of enforcing equal pay rights
Member States may exempt employers with fewer than 50 workers from the obligation to make easily accessible to workers the criteria used to determine pay progression.
What does “pay” mean in the context of the Directive?
‘Pay’ means the ordinary basic or minimum wage or salary and any other consideration, whether in cash or in kind, which a worker receives directly or indirectly (complementary or variable components) in respect of their employment from their employer.
It is anticipated that local equality bodies tasked with providing guidance to employers to assist their compliance will address the elements to include in calculations.
What is the calculation for working out the pay gap?
The gender pay gap means the difference in average pay levels between female and male workers of an employer, expressed as a percentage of the average pay level of male workers. In addition, employers must calculate the median gender pay gap, as well as the gender pay gap and median gender pay gap in complementary or variable components. Further, employers must report on the proportion of female and male workers receiving complementary or variable components; the proportion of female and male workers in each quartile pay band; and the gender pay gap between workers by categories of workers broken down by ordinary basic wage or salary and complementary or variable components. Bear in mind that, as mentioned above, pay for these purposes is broadly defined and wide enough to include a wide range of benefits, including pensions where the median gender pensions gap across the EU is currently in excess of 30%. Careful thought will need to be given to how to assess the pay figure for benefits. Since it is unlikely to be possible to quickly close any pensions pay gap, thought will also need to be given to objectively justifying that gap.
Should employers simply take the approach of paying everyone the same?
The EU Commission has been clear that this is not what the Directive is seeking to achieve, stating that employers are not precluded from paying employees differently “on the basis of objective, gender-neutral and bias-free criteria such as performance and competence”. Motivating employees, rewarding performance and attracting new talent will always demand employer discretion in setting pay. However, ensuring that there are clear justifications that are untainted by unlawful bias will minimise the risk and maintain flexibility in pay strategies.
Will all employers have to do a joint pay assessment?
No. Employers only need to do a joint pay assessment under the Directive if all three of the following conditions are met:
- there is a pay gap of 5% or more in any category of workers
- such a difference cannot be objectively justified – by reference to gender neutral reasons
- the employer has not put right the unjustified difference within 6 months of reporting it
The pay assessment is a detailed equal pay audit which is done in co-operation with the worker representatives, using additional data to that used to prepare the pay gap report, and with a requirement to implement measures to address the unjustified differences in pay. The joint pay assessment has to be published to workers and made available to equality bodies and labour inspectorates.
What are the penalties for a breach of the obligations under the Directive?
The Directive includes a requirement that Member States ensure that real and effective compensation or reparation can be claimed by workers who have sustained damage as a result of any infringement of any right or obligation relating to the principle of equal pay. Without any fixed amount, the levels of compensation set across the Member States are expected to vary, although the Directive makes clear that there should be no set upper limit. The Pay Transparency Directive also makes clear that a breach of any of the requirements under the Directive will shift the burden of proof to the employer in any equal pay claim. The Pay Transparency Directive also requires member states to ensure that equality bodies and other representative groups can bring claims on behalf of, or in support of, employees. This means that companies that fail to adhere to the pay transparency requirements could face action by labour inspectorates, employee representatives and/or individual workers, adding an additional layer of risk and complexity to any breaches. In addition to the direct risk of penalties for breach of the pay transparency requirements, there are indirect risks too. Increasingly, companies are challenged to demonstrate effective diversity and inclusion measures, with reputational risks for those companies that fail to do so, including among customers, job applicants and existing employees.
The above questions are not tailored to any particular circumstances your company may be facing and should not therefore be seen as a substitute for obtaining legal advice. If you require advice or assistance, please see the Key Contacts section of this page.
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