The EU Pay Transparency Directive
The EU Pay Transparency Directive – are employers focusing on the right issue?
Much has been written in recent years about the EU Pay Transparency Directive (2023/970). The debate has focused in particular on new reporting obligations, pay information during the recruitment phase and employees’ expanding rights of access to information. These changes are noteworthy, but the debate surrounding them easily overshadows a more fundamental question: can an employer justify pay differences when the remuneration of those doing the same or equal work is examined with greater transparency than before?
Answering this question is not a reporting exercise; it requires a fundamental review of the employer’s pay system. In many organisations, preparation is therefore best started from the foundations of pay, not from reporting templates.
What is the current status of the implementation of the Pay Transparency Directive?
The deadline for national implementation of the Directive was at the beginning of June 2026. In Finland, however, the final legislation is still being prepared, and not all national solutions have yet been confirmed.
In recent months, employer organisations have raised concerns at EU level about the administrative burden of the regulation. In spring 2026, the European Parliament asked the Commission whether it was considering a so-called ‘stop-the-clock’ procedure for the Directive or its inclusion in a later omnibus simplification package. The Commission rejected these options and emphasised its commitment to the timely and full implementation of the directive.
From the employers’ perspective, the conclusion is quite clear: even though the details of national legislation may still change, preparation should not be postponed in anticipation of possible EU-level relaxations.
Three changes that will affect almost all employers
A large proportion of the directive’s obligations apply to all employers, regardless of size. Three of these will immediately change day-to-day practice.
| i) | Recruitment will change. The pay or pay range must be disclosed to the applicant in ad-vance, for example in the job advertisement or before the interview. Applicants may no longer be asked about their previous pay history, and both job titles and job advertisements must be gender neutral. |
| ii) | Employees’ rights of access to information are expanding. Every employee has the right to request information on the pay levels of groups performing the same or equal work, broken down by gender, and the employer must respond to the request within two months. |
| iii) | Pay confidentiality clauses are losing their significance. Terms in employment contracts that prevent an employee from disclosing their pay are prohibited. Employees cannot be prevented from disclosing their pay or from obtaining information to investigate potential pay gaps. |
Three pitfalls employers should not underestimate
The discussion often focuses on new obligations. In practice, however, the greatest risks relate to existing practices, which will come under closer scrutiny as a result of the new regulation.
| i) | Undocumented pay history can become a legal risk. In many organisations, particularly SMEs, pay levels have evolved over the years as a result of individual recruitment decisions, market conditions and local pay negotiations, without a formal pay system in place. The end result may be understandable from a business perspective, but difficult to justify legally. Merely referring to previous negotiations or established practices is not sufficient; instead, objective and gender-neutral grounds must be demonstrable for any pay differences. It is therefore advisable to identify and proactively rectify any unjustified differences before they give rise to disputes or allegations of discrimination. |
| ii) | Incorrect employee grouping may expose problems rather than protect against them. Re-porting and pay assessment are based on employee groups. However, a group does not automatically correspond to the organisation’s own team structure; rather, it is formed of people performing the same or equal work, based on non-discriminatory, objective and gender-neutral criteria. If grouping is based on job titles or historical practices, it may reveal problems in the pay structure rather than providing an acceptable explanation for them. Grouping is therefore a legally significant decision that should be made with care. |
| iii) | Small employers are not exempt from regulation. The debate often focuses on large employers, who are subject to reporting and pay assessment obligations. This easily creates the mistaken impression that smaller employers are entirely exempt from regulation. Pay transparency during the recruitment phase, employees’ rights of access to information, and the requirement for objective and gender-neutral pay criteria apply to SMEs as well. The obligations are tiered according to size: criteria for pay and pay levels must be disclosed in all organisations; employers with at least 50 employees must also disclose the criteria for pay progression; and the reporting and pay assessment obligations apply to employers with at least 100 employees. (In addition, the Equality Act already requires pay surveys from organisations with at least 30 employees.) In many small businesses, the greatest risk is not the volume of regulation but the fact that no preparation has been made for it at all. |
Reporting is not the problem; rather, it can reveal the problem
Under the proposed national model, employers with at least 100 employees will be required to report on gender pay gaps both at the level of the organisation as a whole and by employee group. If a pay gap of at least five per cent is identified within an employee group and no objective, gender-neutral justification can be found for the gap, the employer must take corrective action. In certain situations, this will result in a joint pay review with staff representatives, and a penalty payment (€5,000–80,000) may be imposed for failure to carry out the review.
Reporting, however, is not the real risk. It merely makes visible pay differences that may previously have gone unnoticed within the organisation. The real question is whether the employer can demonstrate why the difference exists. This is precisely what needs to be addressed even before the first reporting round.
What constitutes the same or equal work? Many rely too heavily on job titles
Many employers assume that the same job title or the same pay grade determines whether the work is the same or of equal value. However, the legal concept is more complex than this: the same job title does not necessarily mean the same work, the same pay group under a collective agreement does not necessarily mean the same work, and even work that appears similar is not necessarily of equal value.
In the case law of the Court of Justice of the European Union, the assessment has emphasised the actual content of the work: the skills and training required, the workload, the level of responsibility, the working conditions and other actual characteristics of the work. What is decisive is not the job title, but what the work actually entails.
A practical example illustrates the problem. A company may have two people with the same ‘specialist’ title, one of whom is responsible for strategically important client relationships, makes independent business decisions and bears significant financial responsibility, whilst the other focuses on internal reporting and support tasks. Although the job title is the same, the employer may have entirely valid grounds for different pay levels. The situation only becomes problematic when the grounds have never been defined or documented and cannot be demonstrated retrospectively. In addition to the grounds, the assessment criteria themselves can also be a problem: when drawing them up, one must not underestimate the so-called soft skills of the job, such as interpersonal skills or the mental strain of the work.
In corporate groups, the risk may extend beyond the formal employer
One less-discussed but practically significant issue relates to group structures. European case law has long recognised the so-called ‘single source’ principle. According to this principle, the comparison is not in all situations limited to persons employed by the same employer if pay conditions are in fact decided centrally.
The Finnish preparatory work has examined the possibility of treating a group company as an employer where it effectively determines the terms of employment or remuneration of another group company. For many groups, this may be a far more significant change than individual reporting obligations. If remuneration policy, pay scales or the criteria for remuneration are determined centrally, the matter should be assessed at group level rather than on a company-by-company basis.
What should employers do now?
Although the final national regulations are not yet in force, most of the most useful preparatory steps are already apparent.
| i) | Review your job classification system. Assess how roles within the organisation are grouped and the criteria used to evaluate the equivalence of work. Is the grouping based on job content or historical job titles? |
| ii) | Review the pay system and document the criteria. Identify any pay differences by employee group and assess whether an objective and gender-neutral justification exists for them. A pay difference that is not documented anywhere is almost impossible to justify in the event of a dis-pute. In such cases, the justification must exist in documentation, not merely in the recollection of managers or HR personnel. |
| iii) | Review the recruitment process. Check the disclosure of pay ranges, the practice of not asking about pay history, and the gender neutrality of job advertisements. |
| iv) | Involve staff representatives. It is worth starting this collaboration at a sufficiently early stage, as grouping and pay assessment require it. |
| v) | Prepare for questions from staff. The first enquiries about individual pay levels are likely to come in even before the first official reporting round. HR must have a clear process for how to respond to requests and within what timeframe. At the same time, it is important to recognise situations where information cannot be provided directly to the enquirer: if disclosing pay information would reveal the pay of an individual, identifiable employee, the information must be channelled through an employee representative or the Ombudsman for Equality. |
Legal risk increases with transparency
The EU Pay Transparency Directive not only increases disclosure obligations but also legal risks in situations where the grounds for pay differences must be assessed. Employees have better opportunities than before to identify pay gaps and challenge the grounds for them, and the directive strengthens the employee’s right to seek compensation for possible pay discrimination.
From the employer’s perspective, the most significant aspect is the regulation concerning the burden of proof. If an employee presents facts on the basis of which it can be assumed that pay discrimination has occurred, the employer must demonstrate that the difference is based on objective and gender-neutral grounds. In a dispute, what is often decisive is not why the difference arose, but whether the employer is able to demonstrate the grounds for it. A well-documented pay system is therefore the employer’s best protection. Passivity or vague responses to information requests can in themselves weaken the employer’s position.
In conclusion
The discussion often focuses on what new information the employer must provide. At least as important is what happens once the information is made available. What matters is not the technical implementation of reporting, but whether the employer can demonstrate that pay differences are based on genuine, objective and gender-neutral reasons. It is precisely for this reason that the EU Pay Transparency Directive is fundamentally a review of employers’ pay systems rather than a reporting exercise.
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