Demystifying the EU Pay Transparency Directive for UK employers

Author: Rocio Carracedo Lopez

To address the gender pay gap across its member states, the EU recently approved the Pay Transparency Directive (2023/970/EU). This introduces reporting requirements and obliges employers to take steps to address pay inequalities, and must be transposed into national legislation by 7 June 2026. Rocio Carracedo Lopez, international legal editor at XpertHR, examines the new rules and discusses their implications for employers operating across the EU - and potentially in the UK too.

Gender equality has been a fundamental EU principle over the past 50 years, but legislation has proved unsuccessful in ensuring equal pay between men and women. According to Eurostat, women were paid, on average, nearly 13% less per hour than men in the EU in 2021, with the greatest difference (20.5%) being recorded in Estonia.

What are the key measures in the Directive?

The EU Pay Transparency Directive sets out the following obligations and rights:

• Reporting Employers will need to report a variety of information relating to the gender pay gap. Following consultation with employee representatives, management must confirm the accuracy of the information and the report must be made publicly available. This reporting requirement will initially apply to employers with 250 or more employees but will gradually extend to employers with over 100 employees.
• Joint pay assessment If pay reporting reveals a gender pay gap of at least 5% and the employer cannot justify the gap based on objective gender-neutral factors, the employer will need to carry out a pay assessment together with employee representatives.
• Pay transparency during recruitment When filling vacancies, employers will be obliged to provide information about the initial pay level or its range in the job advertisement or before the job interview. Employers are not permitted to ask job applicants about their pay history.
• Pay level transparency Employers will be required to make available the criteria that are used to determine pay levels and progression.
• Right to information Workers will have the right to ask for information on their individual and average pay levels, broken down by sex, for the category of workers performing the same work as them or work of equal value.
• Pay secrecy clauses prohibited EU member states will need to put measures in place to prohibit any contractual terms that aim to restrict workers from revealing information about their pay.
• Remedies If an employee brings a claim alleging a breach, the employer will bear the burden of proof. Employees who have suffered gender pay discrimination will be entitled to compensation, including back pay and related bonuses or payments in kind, and compensation for lost opportunities.
• Enforcement EU member states will be required to establish specific penalties for violations, including fines.

While the Directive will ensure a degree of consistency across the EU, it does allow different approaches. Many member states currently have no or few rules in place and will require new legislation to comply with the Directive's provisions. In countries with existing pay transparency rules, national governments will need to assess all the new obligations and work out how to address cases where domestic legislation conflicts with the Directive or where it falls short of the Directive's minimum standards. This means global employers operating in the EU will need to pay close attention to how each country interprets and implements the Directive.

How does the Directive differ from current UK legislation?

In the UK, relevant employers in the public sector with 250 or more employees on the "snapshot date" of 31 March in the year to which the information relates, and in the private and voluntary sectors with 250 or more employees on the "snapshot date" of 5 April, are obliged to publish gender pay gap information annually. The report must include a written statement that confirms that the information is accurate and the report must be uploaded to the Government's website.

Acas and the Government Equalities Office have produced non-statutory guidance on the Regulations and recommend employers to "take suitable steps to minimise" the gender pay gap. However, the Regulations do not impose any obligations on employers to do so and, although the Equality and Human Rights Commission may be able to take enforcement action, the Regulations do not include any specific penalties or enforcement mechanism in the event of non-compliance.

Further, the Regulations do not require employers to disclose initial pay levels or ranges in job adverts or prohibit inquiries about candidates' pay history. Equally, workers do not have the right to request individual and average pay data by gender for comparable roles. 

The EU Directive imposes stronger obligations in terms of employee and job candidate information, obliges employers to carry out joint pay assessments where necessary and establishes sanctions for non-compliance. The Directive is about more than reporting, however, introducing a broader range of pay transparency measures. It places more emphasis on the involvement of employee representatives and make employers more accountable for their pay structures.

What do employers operating in the UK need to do?

Nothing immediately since, following Brexit, the UK is no longer governed by new EU legislation.

However, as the new Directive goes beyond the requirements set out in UK gender pay gap legislation, it may be relevant for organisations that operate in EU jurisdictions or that wish to align to EU standards to update their policies accordingly.