The EU Pay Transparency Directive
- 4 minute read
- Payroll and HR
For years, the EU has been working on a common framework for promoting and supporting equal pay for equal work and work of equal value between genders. This has now materialized into the EU Pay Transparency Directive, which will be incorporated into member states’ national legislation.
Highlights from the Pay Transparency Directive
As an extension of the EU’s anti-discrimination principles, the directive seeks to protect employees from discrimination caused by gender bias. Member states must have incorporated the directive in national legislation no later than 7 June 2026. Penalties will include fines, and employers must make efforts to keep the gender pay differences below 5%. The directive will not make existing legislation on pay equality obsolete but will add to this to have a common stance on an EU level.
Background for the EU Pay Transparency Directive
The main goal of the directive is to strengthen and support the prevalence of equal pay for equal work or work of equal value between genders. In the EU, the gap is on average around 13% in hourly wages – in Denmark, it is a little higher. The difference between gender’s pensions is 30% in the EU. All of these differences are in favor of men.
The directive is an extension of the EU’s anti-discrimination principles and seeks to protect employees from direct and indirect discrimination caused by gender bias.
It is a directive put forward in the EU, and it is up to the member states to incorporate this into national legislation. This must be done no later than 7 June 2026.
Equal pay for 'equal work' and 'equal value of work'
In the directive, ‘pay’ refers to the wage or salary and other considerations that an employee receives directly or indirectly (complementary or variable components).
To overcome a skewed picture by comparing pay across job functions, or by comparing too narrow groups of workers, the notion of equal work or work of equal value is introduced.
Basically, it means that employees with completely different job titles or functions may contribute the same overall value to the organization, and by that, they are comparable when discussing pay levels.
Therefore, it is essential that categories of ‘work of equal value’ are defined in neutral and objective criteria based on skills, efforts, responsibilities, working conditions, and other elements including soft skills that may be unique to the job.
Requirements for transparency
With these categories defined, there is a list of reporting requirements set out to present the pay levels and pay gaps between genders in a transparent, neutral, and contextual way.
The purpose is to change how we approach the notion of pay in the workplace, and by that reach a more leveled playing field.
Job applicants have the right to:
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- Get information about pay levels (already in the job listing or before the interview) and provisions relevant to pay stated in collective agreements.
- Not speak about one’s pay history.
Employees have the right to:
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- Easily access information about average pay for equal work or work of equal value as well as the criteria set to determine pay levels and career progressions.
- Request information on one’s individual pay level and average pay levels for genders for the defined categories of employees performing equal work or work of equal value.
- Be informed about these rights annually.
Requirements to reporting
The formal requirements for external reporting set out by the EU are the following:
- The gender pay gap.
- The gender pay gap in complementary or variable components.
- The median pay gap.
- The median 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 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.
Who will the Pay Transparency Directive apply to?
As the directive is yet to be integrated into Danish legislation, it is not yet determined who must report on gender pay gaps. But the directive states that:
From 7 June 2027: Companies with 250+ must report yearly. From 7 June 2027: Companies with 150-250 employees must report every 3rd year. From 7 June 2031: Companies with 100-149 employees must report every 3rdyear. Companies with less than 100 employees are exempt from external reporting (unless stated by national law).
Part-time workers and contract hires are included.
Enforcement and penalties
Employers should ideally present a gender pay difference below 5%.
If it is higher than 5% without sufficient explanation, the employer has 6 months to fix this gap, Alternatively, the employer is required to conduct a common pay assessment and create a gender action plan, outlining how this will be fixed within a reasonable time period. This must be done in collaboration with employee representatives.
There will also be a shift in the burden of proof, which in practical terms means that should there be a pay dispute, the employer must be able to document why the employee is paid fairly. It has previously been up to the employee to prove any discrimination.
Furthermore, should an employee have lost pay due to discrimination, they will have to right to full compensation.
Pay transparency in Denmark
As mentioned, it will be up to the member states to integrate the directive into national legislation. This also means that member states must define penalties that will be effective and proportional, and that can guarantee an actual effect. These penalties must include fines.
For Danish companies, it will entail a significant administrative task. For example, there will be a need for new HR processes, new policies, contracts, and handbooks.
Managers must also be well-equipped through training to handle the situations that pay transparency undoubtedly will entail.
Furthermore, the new reporting requirements and information requirements must be included in the administrative workflows.
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