The EU Pay Transparency Directive

According to a study by the European Commission from 2022, the gender pay gap in the European Union is 13%. This means that, on average, women earn only 0.87 euros for every euro earned by men. The “EU Directive 2023/970 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” essentially contains transparency and design tools to further enforce the requirement of gender-neutral pay.

This EU Directive was adopted on 6 June 2023 and must be transposed into national law by 7 June 2026 at the latest. From a German perspective, the Directive will be implemented in the Pay Transparency Act, which will entail a number of substantive changes to the current statutory pay transparency regulations. Companies should prepare for the new, stricter regulations at an early stage.

Key content of the directive:

  1. Extension of the right to information

In future, all employees, regardless of the size of the company, will have a right to information – no longer just in companies with more than 200 employees.

  1. Right to salary information

Employers are obliged to provide employees with information on the criteria for determining, the amount and the development of remuneration in an unsolicited and easily accessible manner.

Employees have the right to receive information about their individual remuneration and the average remuneration of colleagues of the opposite sex who perform the same or equivalent work.

This right to information exists regardless of the size of the company and must be fulfilled within two months of the request being made at the latest.

Employees must be informed of their right to information on an annual basis (exception: companies with fewer than 50 employees).

  1. Objective and gender-neutral remuneration criteria

The criteria for determining remuneration must be objective, comprehensible and gender-neutral.

The criteria include skills, workloads, responsibilities and working conditions.

  1. Changes to the application process

In future, applicants will have the right to receive information about the intended starting salary or a salary range during the application process. This information can be provided directly in the job advertisement or in advance by other means. In addition, they are entitled to information about relevant collective agreement provisions that apply to the position.

Employers are no longer permitted to ask applicants about their previous or current salary during the interview or application process. This is intended to prevent previous salary differences from being carried over into new contracts, thereby reinforcing wage discrimination.

The directive requires that job titles be gender-neutral and that recruitment procedures be conducted in a non-discriminatory manner. This is largely in line with the current legal situation, but is reaffirmed.

In the event of violations of these requirements, such as failure to provide salary information or asking questions about previous salary, the burden of proof is shifted to the employer. This means that employers must prove that there is no discrimination. The sanctions and enforcement options will be stricter in future.

  1. Reporting obligations

Companies with at least 100 employees must regularly compile reports on gender-specific pay differences and submit them to the competent authorities.

The reporting requirements will come into force in stages, depending on the size of the company:

  • From 7 June 2027: Companies with 250+ employees (annually)
  • From 7 June 2031: Companies with 150–249 or 100–149 employees (every three years)
  1. Identification of a gender pay gap of 5% or more

If there is a gender pay gap of 5% or more, the company must conduct a comprehensive review of its pay structures in consultation with employee representatives (e.g. works council). The aim is to identify and eliminate the causes of the pay gap.

The results of this joint assessment must be communicated to the workforce and the competent authorities.

The employer must either close the gap within six months of reporting or provide an objective and gender-neutral explanation for the difference.

Affected employees are entitled to compensation, including back pay, bonuses or benefits in kind, if discrimination is found. The burden of proof lies with the employer. Sanctions for non-compliance may include fines and must be effective, proportionate and dissuasive.

These measures apply to companies that fall under the reporting requirements of the Directive (generally those with 100 or more employees).

  1. Shifting the burden of proof

In cases of dispute, the burden of proof will in future lie with the employer, who must demonstrate that there is no pay discrimination.

  1. Sanctions and enforcement

For the first time, fines and other sanctions will be imposed for violations of the requirements.

New instruments such as class actions are intended to strengthen the enforcement of rights.

Conclusion

Early and structured preparation for the EU Directive on pay transparency is crucial. Companies should analyse their remuneration structures, establish objective evaluation criteria, create transparency and report regularly in order to comply with legal requirements and ensure fair working conditions.