The EU Pay Transparency Directive is set to be implemented by all EU member states before June 2026. With the aim of combating pay discrimination and closing the gender pay gap, this directive is likely to put pressure on all organizations doing business in Europe. What exactly is this directive, and how can your organization prepare for it? Read on to learn more about the regulations involved, see how your enterprise can stay ahead, and discover powerful compensation software that boosts transparency across your business.

On December 15, 2022, the European Union reached a political agreement on the importance of pay transparency to combat discriminatory compensation practices. The European Parliament shared a set of guidelines that would help employers ensure equal work for equal pay. These guidelines are now set to be signed into law by the EU’s member states, who must transpose the directive into their own laws by June 7, 2026.

The directive contains several key rights for employees and requirements for employers. These are intended to combat the gender pay gap and to weed out discriminatory compensation practices.

The accompanying regulations will necessitate a big change in how many employers share information about pay, both internally and externally. For organizations found to have a significant gender pay gap, compensation structures may need to be reevaluated as well.

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What Will the Fundamental Rules of the Directive Be?

How can you ensure your enterprise is ready for the new wave of laws set to be codified in the run-up to June 7, 2026? Every employer will need to carefully parse the rules of the directive and the resulting laws of each member state to ensure their particular enterprise acts in accordance with the law wherever they do business, but broadly, here's what you need to know:

• You will need to collect payment data across your entire organization and measure the pay gap between male and female workers. You should take objective factors like level of experience, qualifications, and skills into consideration.
• If your business has at least 100 employees, you will have to publish reports on the pay gap between female and male workers. If your enterprise is smaller, you may not need to publish reports, but you will still need to measure the gender pay gap, as all employees within the EU will have the right to request information about pay within their organizations.
• If your data reveals a gender pay gap of at least 5%—and you can’t justify the gap on the basis of gender-neutral factors—you may need to carry out a pay assessment, in cooperation with workers' representatives.
• You will need to share information about pay and the criteria used to determine salary bands whenever employees request it. You will also need to make information about pay clear to job applicants.
  

Reporting on the Pay Gap Between Female and Male Workers

The EU Pay Transparency Directive will require the following information in reporting:

• The gender pay gap
• The gender pay gap within complementary or variable components*
• The median gender pay gap
• The median gender pay gap within complementary or variable components
• The proportion of female and male workers receiving complementary or variable components
• The proportion of male and female workers in each pay quartile band
• The gender pay gap within worker categories, broken down by ordinary basic wage or salary, and complementary or variable components

*Benefits in addition to the wage the worker receives directly or indirectly, such as bonuses, overtime compensation, travel facilities, and housing.

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Getting Ready for 2026: Steps to Help With Pay Transparency

Creating a culture of transparency across your business will help you prepare for the directive—and for similar pay transparency measures outside of the EU, such as in U.S. states like California. There’s plenty you can do ahead of 2026 to build trust in your organization.

Your goal should be to communicate to both employees and external stakeholders—like job applicants, customers, and regulators—that you’re committed to pay equality and willing to make changes where appropriate.

The following steps can help you chart a course to compensation transparency and parity:

Create Job Groupings

In the EU, your workers will have the right to information on the decisions that inform individual pay levels. Grouping jobs into categories will help workers understand how they compare to their peers, while promoting fairness through the principle of similar pay for similar work.

You will need to identify categories for workers performing the same tasks (or tasks of equal value) by grouping employees based on non-discriminatory criteria, such as skills, effort, responsibility, and working conditions.

Scrutinize Your Pay Structure

To avoid negative repercussions such as back pay or other reparations, it makes sense to do what you can ahead of 2026 to ensure parity across your salary bands.

Your pay structures should correspond with the categories of work mentioned above and ensure equal pay for equal work. As with traditional salary banding, you can use formula-based pay structures.

PeopleFluent’s compensation management software can help. The software uses built-in analytics to help you proactively review your compensation data, so you can detect and remedy disparities. It gives you the visibility you need to identify any parity issues at a glance. You can also model and plan compensation scenarios to see how your interventions would reduce any inequalities and impact your budget.

Refine Your Communication on Pay Levels

The right to information extends beyond worker categories. The directive states that: “Employers shall make easily accessible to their workers the criteria that are used to determine workers’ pay.” This means that you will need to inform employees about the factors used to determine job value.

You’ll need to collaborate with stakeholders across departments to devise a communication strategy for sharing this information. The directive states that you must inform employees of their rights on an annual basis. It therefore makes sense to prepare for proactive measures—such as email comms, departmental meetings, or company-wide webinars.

Prepare to Define and Share Progression Criteria

Your communication strategy will need to include progression criteria as well. The directive states: “Employers shall make easily accessible to their workers the criteria that are used to determine workers’ pay progression.” You will need to be clear on why pay varies across your organization and be able to explain the criteria for pay progression.

It’s a good idea to review your progression criteria now, investigating pay decisions across teams to root out any possible discriminatory practices. Then, make sure to work with stakeholders across teams to decide how progression criteria will be shared. Once the EU member states in which you do business have implemented their laws, you will need to provide this information promptly when it is requested by an employee.,

Bias-Free Postings and Recruitment Processes

Under the directive, prospective employees are also entitled to pay transparency. Note that all job titles must be gender neutral—if your organization currently uses gendered terms to describe a role, this will have to be reconsidered. You will also need to be able to explain how the compensation is related to the tasks and activities the role requires.

Additionally, you will not be allowed to ask applicants about their previous salaries during the recruitment process. These new rules will help candidates negotiate appropriate pay.

Ahead of 2026, it makes sense to share relevant information on compensation and job duties with key stakeholders in talent and recruitment. PeopleFluent Compensation can help with this step. The software offers you complete role-based visibility across departments, empowering talent professionals with clear data on a given job title and its compensation model.

It also equips you with advanced configurability to support complex compensation calculations. This means you can adjust models based on the specific tasks and activities the role requires, allowing you to give candidates a clear picture of how and why they will be compensated.