The EU Pay Transparency Directive came into force in June 2023 with an effective date of June 2026.
This is a significant step forward for gender equality, empowering organizations to demonstrate fairness and transparency in their pay structures. However, non-compliance—whether intentional or accidental—can result in substantial fines, reputational damage, and legal consequences.
The challenge is equally critical for companies hiring within the EU who have offices outside the region. These organizations may be less familiar with the directive’s requirements and risk falling short of compliance without realizing it.
In this article, we explore the key provisions of the directive with insights from Roshan Zameer, Compliance Manager at Multiplier. You’ll discover the frameworks you should put in place to meet the requirements of the EU Directive as well as support you can leverage to make the process easier.
EU Pay Transparency Directive summary
The EU Pay Directive was created to combat gender-based wage discrimination and close the gender pay gap.
As Zameer highlights, there are three major steps to enable payroll compliance here, applying to all countries in the EU:
- Employees and job seekers can request information about their pay levels and how they compare to colleagues of the opposite gender who are doing the same work or work of equal value.
- Companies with 250 or more employees are required to report gender pay gap data annually to the relevant national authorities. Those with 150 to 249 employees must report every three years and companies with 100 to 149 employees will need to begin reporting every three years starting in 2031. Companies with fewer than 100 are encouraged to start collecting data now to prepare for growth.
- Companies must report the following payroll data: the overall median gender pay gap, the gender pay gap in variable pay components such as bonuses and benefits, and the distribution of men and women across each quartile pay band.
- If a company’s gender pay gap exceeds 5%, it must justify this and take corrective measures. Where there is a justifiable reason for the pay gap, the burden of proof is on employers to prove it.
Each EU country will establish its own penalties for non-compliance, but all employees now have the right to request full reparation. This means that if an employee is found to have been underpaid due to gender, they can seek compensation for the pay discrepancy, which may include back pay, benefits, and more.
How to meet the requirements of the EU Pay Directive
It’s an unfortunate truth that unequal pay issues are all too common. And often, these gaps aren’t the result of intentional bias—they creep in over time through everyday decisions and improper compensation management.
Factors like legacy pay structures, negotiation differences, geographic salary adjustments, or promotions without proper pay increases can all lead to disparities. Even well-meaning retention raises or manager discretion can unintentionally widen the gap.
That’s why the optimal approach to pay transparency starts at the root of the issue—examining how these patterns emerge—and extends outward to inform fair policies, consistent practices, and open communication. Let’s take a closer look at what this involves.
1. Optimize your pay policies
The first step to meeting the EU Directive on Pay Transparency is ensuring your internal pay structures are grounded in fairness, consistency, and objectivity. This means:
- Establishing transparent salary bands. Group roles of similar value or responsibility into clearly defined pay ranges — completely removing gender or personal negotiation from the equation.
- Defining clear criteria for pay and career progression. Replace subjective promotion decisions with structured, transparent frameworks. Shift from manager discretion to standardized processes that reduce the risk of unconscious bias.
- Conducting consistent, gender-neutral job evaluations. Use objective tools that assess roles based on value delivered—not titles or legacy pay—so you can accurately identify and compare equal work across the organization.
2. Analyze existing pay issues
While creating salary bands, it’s likely that existing pay inequalities will come to the surface—and that’s a good thing. The key is to undertake a full payroll audit and get to the root of why these differences exist, correct the ones that are unjustified, and be prepared to clearly explain those that have a valid basis.
When evaluating whether a pay gap is justified, consider questions like:
- Is there a consistent, documented rationale behind historical salary decisions? If not, you may need to reassess those decisions and bring them in line with your updated pay policies.
- Do you have sufficient data to support pay differences based on market premiums? Though paying a global team will innately come with pay disparities, you need to be able to show that these differences are based on real context and reliable market data—not assumptions.
- Can workload or responsibilities be adjusted over time to close the gap? Where you can’t justify a pay difference, consider whether adjusting the scope of work can bring compensation into alignment in a fair and sustainable way.
3. Implement robust training programs
Unlike other payroll best practices, everyone involved in the pay process needs to be educated on the requirements of the pay directive, but as Zameer points out, managers play an especially pivotal role. “There are some easy mistakes managers and senior leaders can make to become non-compliant.” These include:
- Offering extra compensation as an incentive to apply for a role or promotion without aligning it with formal pay structures or salary bands.
- Recording or referencing discriminatory criteria—even unintentionally—when making pay or promotion decisions.
- Discussing pay in an informal or ad hoc way, leading to inconsistent communication or undocumented promises that fall outside policy guidelines.
4. Document everything
To stay compliant and build a strong reputation, companies need to prioritize not just fair pay practices, but also optimize reporting and communication. As Zameer puts it, “Documentation makes it easier to find and fix pay transparency issues, but it also gives visibility and confidence to stakeholders, employees, and prospective employees.”
Publish pay transparency information on your website for ultimate clarity. This should include information about salary ranges, promotion criteria, and how pay decisions are made.
5. Adjust hiring practices
The EU Pay Transparency Directive will help companies attract high-quality talent by fostering trust and clarity. However, it’s important to consider how it may affect existing employees. As Zameer notes, “Pay transparency on new roles could make some employees feel that they aren’t being paid at the rate they deserve.”
This can lead to internal friction if current employees discover that new hires are earning more for similar roles. At the same time, you might find it challenging to offer salaries to new hires that align with what your current team is being paid—at least until your internal pay structures are fully adjusted.
To bridge this gap, Zameer offers a few tips:
- Identify the mean of current salaries based on market conditions.
- Introduce a salary band that extends 20-30% above and below that average.
- Use this range for internal pay structure alignment and compensation planning.
While incentives like bonuses are addressed under the directive, you can still use sign-on bonuses to attract top talent. Just ensure all hiring-related decisions and offers are well documented to remain compliant.
Outsource risk for meeting the EU Pay Directive
In case it wasn’t obvious by now, complying with the EU Pay Transparency Directive isn’t just a box-ticking exercise—it’s complex and inherently risky. As Zameer puts it, “Across industries, it can be confusing to know how to implement the requirements—it’s a lot for companies to take on alone.”
For this reason, it’s often wise to contact compliance specialists who can support you. Multiplier implements the following process to help you avoid legal risks:
- We’ll create policies for you.
- We’ll train managers and ensure smooth implementation.
- We’ll help your team record all important information.
We can also take a deeper dive, either analyzing your salary bands and the breakdown of genders, your job descriptions compared to your salary ranges, or your actual data to find outliers. From here, we can help you identify issues more seamlessly.
