The EU Pay Transparency Directive: A briefing for Reward leaders

Global employers are increasingly focused on improving DEI within their organisations as well as making progress towards equal pay – and this focus is being accelerated by legislation.  

In April 2023, the European Parliament approved a new Pay Transparency Directive, which seeks to align EU Member States with a common set of standards for equal pay and improve the impact of existing regulations (the EU pay gap currently stands at 13%). The Directive sets out to “strengthen the application of the principle of equal pay for equal work or work of equal value between men and women through pay transparency and enforcement mechanisms.” 

The Directive requires companies to disclose the percentage gap in pay between men and women – for every level/category of worker within the organisation. 

Undoubtedly a significant and positive step towards closing the gender pay gap, the Directive has some key implications for reward and benefits strategies… 

5 takeaways for Reward and Benefits leaders 

1. Benefits will need to be included in pay equity analysis 

According to 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 his or her employer from his or her employers.” 

In other words, ‘pay’ includes benefits. Benefits like health insurance, pension, bonuses, stock options and benefit allowances can have a significant impact on an employee’s total reward. Therefore, employers will need to know which benefits they offer, the value of benefits for each employee in each EU Member State, and include these in yearly calculations of average pay levels and gaps by category of workers. A common challenge for organisations is that in the absence of benefits technology, the data that is required for this type of analysis is spread across various systems – HR, payroll and benefit carriers. 

2. Transparency will be required in job offers and recruitment 

Employers must provide information about initial pay levels or range in job vacancy notices (or on request prior to the first interview). To be able to provide this, employers will need to create a clear job architecture.  

As employees will have the right to request and receive pay information about their individual role, organisations will need to plan to fulfil these requests in a timely manner, either by pulling together individual reports, or by sharing this information with all individuals via annual statements. 

Mike Jones, Head of Platform Delivery at Benefex points out the opportunity for Total Reward Statements to support the EU Pay Transparency Directive. As well as using TRS to make pay and benefits information available to employees, there’s the potential for a simplified TRS to support pay transparency prior to interviews. Although there isn’t a legal requirement to include all reward details at this stage, sharing a TRS with candidates provides a clear and simple reward picture – improving the candidate experience.  

3. Organisations can’t ask employees about pay history 

The new directive prohibits employers from asking candidates about their current or past pay, to prevent perpetuating pay inequalities. Therefore, employers will need to revisit their recruitment policies and training – to ensure hiring managers are aware of the legislation.  

To ensure hiring practices don’t perpetuate the gender pay gap, the Directive states that “employers shall ensure that job vacancy notices and job titles are gender neutral and that recruitment processes are led in a non-discriminatory manner, in order not to undermine the right to equal pay for equal work or work of equal value.” 

4. Employees will have the right to information 

Employees will be able to request information about average pay levels – broken down by sex – for categories of workers doing the same work, or work of equal value. Both employees in the hiring process and existing employees will have this right to information and employers will need to inform all workers – on an annual basis – of their right to receive the information. 

Employers will need to provide the pay information within a reasonable period of time – the Directive states that it must be provided within two months from the date of the request.  

5. Organisations will need to report on pay gaps and explain differences of more than 5% 

Employers will need to report on average pay gaps by category of workers. And they’ll need to show that they’re taking action to close gaps of 5% or more that can’t be justified on objective, gender-neutral grounds (for example, the work location or an employee is a high performer). 

Where differences in pensions and benefits contribute to pay gaps of 5% or more within the same category of work, employers will need to be able to explain this difference – for example, in the case of benefits, some employees might have been eligible for a defined benefit plan that later closed. If an objective reason for the disparity can’t be identified, employers must develop an action plan to address it.  

When will the provisions come into effect and how often will you need to report? 

EU Member States have until 7th June 2026 to bring into force the laws, regulations and administrative provisions necessary to comply with the Directive – although it’s possible that some states may bring laws into force sooner.  

All employers in EU Member States will be subject to the Pay Transparency Directive provisions, although only employers with more than 100 employees will be required to regularly report on pay (note that some Member States might also choose to make reporting on pay mandatory for employers with fewer than 100 workers). Some markets such as France already have potentially more stringent requirements so it remains to be seen how these will interact with the Directive. 

What metrics will you need to report on? 

The Directive states that organisations will need to provide information on: 

• The gender pay gap 

• The gender pay gap in complementary or variable components 

• The median gender pay gap 

• The median gender pay gap in complementary or variable components 

• The proportion of female and male workers receiving complementary or variable components 

• The proportion of female and male workers in each quartile pay band 

• The gender pay gap between workers by categories of workers broken down by ordinary basic wage or salary and complementary or variable components. 

What action do Reward and Benefits leaders need to take?  

Although salary may be the greatest element impacting the pay gap, benefits can significantly impact whether the overall gap exceeds the 5% threshold. So employers should start assessing their benefits programmes now and planning to comply with the Directive’s requirements by the time they become law in the EU’s Member States.  

To ensure they’re prepared, employers will need to look at their data collection, analytics tools and reporting capabilities – and ensure that they’ll be able to comply with the company-wide data reporting requirements of the Directive. As you might expect, technology will have an important role to play in gathering and analysing the data that employers need to provide for comprehensive and accurate reporting, ahead of the earliest reporting deadline of 7th June 2027.  

The challenge in terms of data collection, is that so often this data is held on multiple systems, for example HRIS, payroll and third-party platforms including benefit vendors. Thinking about how this data can be collated is a key part of preparations and this is where organisations with benefit platforms may be at an advantage. Typically, these platforms are collating information from HRIS and payroll systems, whilst capturing the details of the benefit plans that exist. 

At this stage, there remain some areas that require greater clarity. We know for example that each country will enact the requirements with discretion. How information will be reported and in what format remains unclear. In addition, there is greater clarity required around the valuation approaches to certain benefits. 

Whilst the legislation is yet to be finalised at a country level, with a deadline of 2026, some key questions to consider are: 

• Do you already analyse your gender pay gap – and are you making progress to meet the requirements of the Directive? Do you include benefits in this analysis?  

• Can you report on benefits and total reward by gender across employee groups?  

• Do you have a clear job architecture in place with a defined approach to pay levels and grades – and is it non-discriminatory and underpinned by clear, objective criteria? 

• Do you have processes in place to support renumeration and promotion decisions – and are employees aware of these? Is your approach consistent?  

• Do you have a clear view of where the data that will be required for this reporting is held? 

• How do you currently communicate pay and benefits to employees, either as part of the onboarding process or on an ongoing basis? 

• Do you have a clear way of applying a value to all benefits that may be in the scope of this legislation? 

If you’d like to discuss how organisations are seeking to power their Total Rewards experience and support the conversation with employees, get in touch with the Benefex team.