Pay transparency in the EU: What does the new directive mean, and how employers should prepare?

Since the Directive is not directly applicable and the transposition process is ongoing, the specific rules and obligations will only become final after implementation. But what exactly do these changes entail, and how can companies prepare for them?

The objective of the Directive: Real equality in pay

The European Union aims to ensure that the principle of "equal pay for equal work" is applied in practice. To this end, the introduction of the Directive seeks to establish a more transparent and objective pay determination system. Although numerous EU provisions mandate gender equality, the theory has not yet been fully translated into practice. Research by PwC Hungary and Profession.hu found that, at the EU level, women on average receive nearly 13 percent less pay than men, and in Hungary, this figure is even higher, at 17 percent.

The Directive applies to both the public and private sectors and affects the entire remuneration system—including not only the basic salary but also bonuses and other benefits. As part of this, employers will be obliged to use clear, gender-neutral criteria in both job advertisements and when making pay decisions.

It is important to clarify that, contrary to popular belief, the Directive does not mandate the public disclosure of individual pay data. The primary goal of the Directive is not to reveal specific salaries but to ensure the transparency and clarity of the evaluation and pay-setting processes, thereby minimizing the possibility of discrimination. This goal is supported by recent research findings that employees' primary need is not to see everyone's salary. It is far more important for them to know what objective criteria management uses to make pay decisions, as this transparency is still missing in many organizations.

The most important obligations for all employers

The new rules contain several provisions that apply to all employers, regardless of company size:

Objective, gender-neutral remuneration criteria:

Applicants must be given access to the criteria used to determine the starting salary or pay range.

Prohibition of questions about past pay:

Employers cannot ask candidates about their current or previous income, ensuring that past pay gaps are not perpetuated.

Gender-neutral job advertisements:

Job titles and descriptions must not contain gender-specific or discriminatory elements.

Transparency in pay determination:

Employers must make available the criteria they use to determine pay levels and increments. (Member States may choose to exempt employers with fewer than 50 employees from this obligation.)

Right to pay information:

Employees can request information about their own pay and the average pay of colleagues performing the same or equal value work, broken down by gender. The employer must respond within two months of the employee’s request.

Annual informational obligation:

Employers must remind employees annually about their right to access pay information.

Prohibition of pay secrecy clauses:

Employment contracts cannot contain any clause that prevents employees from discussing their pay or sharing information about it.

Public disclosure of pay gaps – phased introduction

One of the most significant innovations of the Directive is that employers must prepare reports on the pay gap between men and women. This obligation will be introduced gradually:

Companies employing at least 250 employees: Must report data by June 7, 2027, and annually thereafter.
Companies employing 150–249 employees: Must report data by June 7, 2027, and every three years thereafter.
Companies employing 100–149 employees: Must report data by June 7, 2030, and every three years thereafter.

Member States may decide to extend this obligation to smaller companies with fewer than 100 employees.

The intention behind the public disclosure of pay gaps is fundamentally to increase transparency and reduce the gender pay gap. However, this effort faces serious legal and data protection challenges, which may limit full transparency.

One of the most significant concerns is the problem of indirect identification. Publishing gender-segregated pay statistics carries a serious risk if, for example, only a single female employee works in a specific role, department, or narrow segment, as the statistic could effectively disclose her specific salary.

Remedies and sanctions

A crucial element of the Directive is to provide effective remedies for employees who suffer harm due to a violation of the equal pay principle. They can claim full compensation or reparation, the exact conditions and limitation period of which will be determined by the national rules of the Member States.

Sanctions for breaching the pay transparency obligations are also within the competence of the Member States, so their severity may differ from country to country.

What to prepare for now

Although the final deadline for transposing the Directive is June 7, 2026, employers should start preparing for the new requirements in advance.

This may include:

Reviewing remuneration systems and pay structures.
Documenting the criteria used to determine pay levels.
Checking the language of employment contracts and advertisements for gender neutrality.

In complying with the Directive, the HR department will play a key role in preparing managers for open, data-driven communication about pay issues, especially during performance appraisal processes. To this end, HR must support management with training, relevant data, and guidelines. Companies that treat the transition not as a burden but as an opportunity and create a fairer, more transparent, and more incentivizing remuneration system will benefit from the change.

Summary

The Pay Transparency Directive is not just an administrative burden but also an opportunity for employers: by making pay systems transparent, employee trust and corporate reputation can be enhanced, and long-term talent retention can also improve.

As the 2026 deadline approaches, every organization should start internal preparations—so turn that the applicability of the Directive to its advantage, not an obligation.