Pay Transparency Act: What Does It Mean For Employers?

How to prepare your organisation for new European pay transparency requirements?

Greater transparency around payment is becoming increasingly important across Europe. The EU Pay Transparency Directive introduces new requirements designed to make pay structures more transparent and strengthen the principle of equal pay. For employers, this means being able to explain more clearly how pay is determined and demonstrate that differences in pay are based on objective, gender-neutral criteria. Pay transparency affects HR, recruitment, job evaluation and the way organisations make, document and communicate decisions about pay. In this article, we explain what the Pay Transparency Act means for European employers, what changes organisations can expect and how HR software can help you prepare. 

What is the Pay Transparency Act?

Before looking at what employers need to do, it's important to understand where these new requirements come from. The European legislation is based on the EU Pay Transparency Directive (Directive (EU) 2023/970), which aims to strengthen the principle of equal payment for women and men doing equal work or work of equal value. It introduces greater transparency around how pay is determined and gives employees more opportunities to identify and challenge unjustified pay differences. 

EU Member States are responsible for implementing the Directive through national legislation. This means the exact legislation, implementation dates and requirements may differ between countries. However, the underlying principles apply across the European Union. 

Under the European framework, employers will need to prepare for requirements, including:

• Providing job applicants with information about the initial pay or pay range for a position.
• No longer asking candidates about their current or previous salary.
• Using objective, gender-neutral criteria to determine pay and pay progression.
• Ensuring job evaluation and classification systems support the principle of equal pay for equal work or work of equal value.
• Giving employees greater insight into how their pay is determined.
• Providing employees with the right to request information about their individual pay level and average pay levels for comparable work.
• Reporting on gender pay gaps for organisations with 100 employees or more, with reporting requirements being phased in according to organisation size.

The new rules are therefore about more than simply reducing the gender pay gap. They require organisations to build a fair, consistent and explainable approach to pay. Rather than waiting until every national requirement has been finalised, we strongly advise to already start reviewing job structures, salary bands, recruitment processes and the quality of HR and payroll data. 

What does the Pay Transparency Act mean for your organisation?

We believe that many of the requirements by the Pay Transparency Act will be relevant to employers across the EU. Organisations will need to be more transparent about how pay is determined and be able to demonstrate that pay decisions are based on objective, gender-neutral criteria.

The main difference lies in the reporting requirements. Under the EU Pay Transparency Directive, these requirements are being introduced gradually and depend on the size of the organisation. Individual Member States may introduce additional or more stringent requirements when implementing the Directive into national law. 

What changes for employers? 

Pay transparency starts before someone even joins your organisation. Job applicants must receive information about the initial pay or pay range for a position, and employers will no longer be allowed to ask candidates about their current or previous salary. 

There are also important changes for your current workforce, as employees will have greater access to information about how their pay is determined and will be able to request information about their individual pay level and average pay levels, for employees doing the same work or work of equal value. This doesn't mean that every individual salary within an organisation will become public. It does mean that employers need to be able to explain pay differences using objective, gender-neutral criteria. 

For many organisations, this means taking a fresh look at existing processes. Are roles and salary structures clearly defined? Can you explain why employees are placed within a particular salary band? And will you still be able to explain and justify pay decisions several years from now? These questions will become increasingly important as pay transparency requirements take effect across Europe. 

Additional reporting requirements for larger organisations

The EU Pay Transparency Directive also introduces reporting requirements for organisations with at least 100 employees. The exact frequency and starting date depend on the size of the organisation: 

• 250 employees or more: reporting starts by June 2027 and is required annually. 
• 150 - 249 employees: reporting starts by June 2027 and is required every three years.
• 100 - 149 employees:  reporting starts by June 2031 and is required every three years.

Member States can introduce additional requirements in their national legislation, including reporting requirements for organisations with fewer than 100 employees. 

The reporting requirements cover more than a single headline figure. Organisations will need insight into areas such as the overall gender pay gap, median pay differences, variable pay and gender representation across different pay quartiles and categories of workers. That requires reliable HR and payroll data, up-to-date job structures and close collaboration between HR, Payroll and Recruitment. 

But reporting is only the end result. Organisations that start improving their job structures, salary bands and pay policies today won't just be better prepared for future reporting requirements. They'll also be building a fairer, more consistent and easier-to-explain approach to pay. 

How to prepare your organisation for the Pay Transparency Act

Although implementation of the EU Pay Transparency Directive differs between Member States, organisations shouldn't wait until every detail of national legislation has been finalised. By reviewing your processes and data now, you can avoid having to make major changes under time pressure. More importantly, greater transparency can already help you build a fairer, more consistent and better-structured approach to pay. 

Here are four steps you can take today to prepare your organisation.

1. Review your job structures and job evaluation

Pay transparency starts with clearly defined roles. If job descriptions are inconsistent or similar roles are evaluated differently, it becomes much harder to objectively explain differences in pay. Make sure job profiles are accurate and up to date, and use a consistent approach to evaluating and classifying roles. This also makes it easier to determine when employees are performing equal work or work of equal value, an important principle within the EU Pay Transparency Directive.

2. Make your pay criteria transparent

The new requirements place greater emphasis on objective, gender-neutral criteria for determining pay and pay progression. Clearly document the factors that influence salary decisions, progression and pay increases. These could include knowledge, skills, experience, responsibilities and performance. The clearer and more consistent these criteria are, the easier it becomes to explain how pay decisions are made and demonstrate that differences are based on objective factors.

3. Review your recruitment and pay processes

Pay transparency also changes the recruitment process. Review how salary information is communicated to candidates and make sure recruiters and hiring managers understand what information they need to provide and which questions they should no longer ask.

With an Applicant Tracking System you are able to set up vacancies quickly with clear salary information. Request a demo for more platform details.

At the same time, take a critical look at your internal pay processes. Are salary decisions documented consistently? Is it clear why an employee has been placed at a particular level within a salary band? And could you still explain that decision several years from now? Creating clear and consistent processes today will make it much easier to demonstrate fair pay practices in the future.

4. Build a reliable foundation of HR and payroll data

Reliable data is essential for pay transparency. When job information, salary bands and employee data are spread across different systems or aren't kept up to date, analysing and explaining pay differences becomes unnecessarily difficult. A central, accurate source of HR and payroll data makes it easier to identify pay differences, understand where they come from and prepare for future reporting requirements. It also gives HR and Payroll a much stronger foundation for making informed decisions about pay.

How can HR software support pay transparency?

Preparing for the Pay Transparency Act starts with getting your HR processes and data in order. When job information, salary bands and employee data are spread across different systems or managed manually, it becomes difficult to objectively explain pay differences or understand how pay decisions are made.

Integrated HR software provides one central source of reliable HR and payroll data. It can help organisations to:

• Centrally manage job information, job classifications and salary bands, ensuring that HR teams always work with accurate and consistent data.
• Standardise HR processes and workflows, so that pay decisions and changes to roles are documented consistently.
• Support pay decisions with reliable data and a clear audit trail, making it easier to understand how and why decisions were made.
• Identify and analyse pay differences, helping organisations spot potential issues at an early stage.
• Prepare for reporting requirements more efficiently, with relevant HR and payroll information available in one central environment.

HR software therefore does more than help organisations prepare for the Pay Transparency Act. It provides the foundation for a fair, consistent and future-ready approach to pay. 

Pay Transparency Act: start preparing today!

The exact implementation of the EU Pay Transparency Directive may differ between Member States, but the direction across Europe is clear: organisations will need to be more transparent about their pay policies and better able to explain differences in pay. And that goes far beyond reporting. It requires clearly defined roles, objective pay criteria, reliable HR data and well-structured processes.

By taking action now, you aren't simply preparing your organisation for new legislation. You're also creating the foundations for a fairer, more consistent and more transparent approach to pay. That won't just make it easier to meet future legal requirements. It can also help build greater employee trust in the way pay decisions are made.

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