European regulations on pay transparency are redefining the rules of the game and marking a turning point in the management of pay policies. After all, it is difficult to manage what is not measured, and even more difficult to correct what is not known. Much of the new European regulation on pay equity is built on this premise.
Traditionally, pay has been one of the most private aspects of labor relations.
Salaries were negotiated in hushed tones, communicated under confidentiality clauses, and set—all too often—more out of inertia or discretion than based on objective and verifiable criteria. Directive (EU) 2023/970, on pay transparency and equal pay for women and men, aims precisely to shed light on this dark room.
Being a Directive, each European country must transpose it though local legislation to incorporate its obligations into their domestic legal system. The term for such transposition expired on June 7, 2026. Formal transposition has not yet taken place in several countries, placing them in a state of technical non-compliance with Brussels, with the consequent risk of infringement proceedings and financial penalties. However, this administrative delay should not distract attention from what is truly relevant: the obligations imposed by this Directive are substantial, its incorporation into local law is expected in the short term, and companies that have not yet begun to prepare are already wasting valuable time.
Groundwork Already Laid, But Insufficient
Some European countries have already established a framework for equal pay that includes a pay register, pay audits, equality plans and anti-discrimination protection. But the Directive raises the bar considerably. While current local regulation focusses primarily on internal pay transparency (pay records, audits, and job evaluations), the European standard adds a more comprehensive level of transparency: before hiring, throughout the entire employment relationship, and through external disclosure for companies exceeding certain thresholds. We are facing a paradigm shift.
The New Rules of the Game
- Transparency from the very first contact: the end of salary history as a bargaining chip
One of the most striking changes introduced by the Directive affects the recruitment process. Once the Directive takes effect, employers must inform candidates—before any interview or negotiation—of the starting pay or salary range for the position being offered, as well as the relevant provisions of the applicable collective bargaining agreement. The information cannot be vague or conditional: it must be based on objective, gender-neutral criteria.
But the Directive goes even further, introducing a prohibition that will bring about a true cultural shift in many human resources departments: it is expressly prohibited to ask candidates about their pay history in previous or current jobs. This practice, common in many recruitment processes, contributes to perpetuating existing pay gaps into the future—particularly to the detriment of women—by using compensation set in previous contexts as a reference point. The Directive puts an end to this dynamic.
Additionally, job postings and job titles must be gender-neutral, and hiring processes must be conducted in a non-discriminatory manner.
- Transparency during the employment relationship: the right to know who you are being compared to
Once employed, the Directive grants workers a new and powerful right: to request and receive, in writing, information about their individual pay level and about average pay levels broken down by sex for categories of employees performing the same work or work of equal value. In other words: the right to know how much, on average, their colleagues of the opposite sex who do the same work as they do earn.
Employers, for their part, will be required to make available to their entire workforce, in a clear and accessible manner, the criteria used to set pay, pay levels, and pay progression. These criteria must be gender neutral. And each year, they must remind all their employees that they have the right to request this information and explain how to do so.
There is another significant consequence worth highlighting: the Directive prohibits employers from preventing their employees from disclosing their salary for the purpose of complying with the principle of equal pay. Salary confidentiality clauses, which are so widespread in certain sectors, must be carefully reviewed.
- The 5% threshold: a gap that can no longer be ignored
One of the most innovative and impactful mechanisms of the Directive is the establishment of a 5% average pay gap between women and men (on the same level), above which companies must have a formal justification. If such a difference exists and the company cannot demonstrate that it is due exclusively to gender-neutral criteria and furthermore, has not remedied the situation within six months of the submission of the pay information, it will be required to take corrective measures.
- External Reporting: The Gap Is Made Public
Another significant change is the disclosure requirement. Companies with more than 250 employees must report annually to the competent national authority on the gender pay gap within their organization. This information may be disclosed, if applicable, on the company’s website or through any other means of dissemination. Data that until now was strictly internal will, in many cases, become public knowledge.
The Directive also establishes a phased timeline for these reporting obligations, tailored to the size of the company:
- Companies with more than 250 employees must comply starting June 7, 2027, on an annual basis;
- Those with between 150 and 249 employees must comply by the same deadline, but on a triennial basis;
- Those with between 100 and 149 employees must comply starting June 7, 2031, also every three years.
- Companies with fewer than 100 employees are exempt from this reporting obligation, though not from the other transparency requirements.
- The reversal of the burden of proof: a quiet yet powerful change
If we had to choose the element of the Directive with the greatest potential impact in the judicial sphere, it would be this: the reversal of the burden of proof in pay discrimination litigation.
Traditionally, the burden of proof fell on the employee; now, it will be up to the employer to demonstrate that it has not violated the rules on equal pay or pay transparency. Any employer unable to justify its pay decisions with objective and traceable documentation will bear the legal consequences.
And those consequences are significant. Employees who prove they have suffered gender-based pay discrimination will be entitled to compensation that includes full recovery of back pay and the corresponding benefits or payments in kind. Added to this will be specific penalties for lack of transparency or information, which the Directive requires to be effective, proportionate, and dissuasive, and which will include fines. Spain already classifies noncompliance with equality plans and measures as a serious offense, punishable by fines ranging from 751 to 7,500 euros. The penalty regime under the future transposition law will presumably go even further.
- Intersectional Discrimination: A New Development That Should Not Be Underestimated
For the first time in the field of European equal pay law, the Directive expressly incorporates intersectional discrimination: that is, discrimination resulting from the combination of multiple factors of inequality, such as gender and ethnicity, or gender and sexual orientation. This inclusion has significant practical implications for companies’ diversity and inclusion policies, which must consider not only the gender pay gap in the strict sense but also the gaps that may affect groups facing cumulative discrimination. The regulation also includes specific provisions to ensure that the needs of workers with disabilities are considered.
- What Companies Must Do Today
Although most European countries are still pending on a transposition law, the European regulatory framework already provides sufficient guidance to identify the main courses of action that companies should take to anticipate future requirements regarding pay transparency and equal pay:
First, it is advisable to review selection and hiring procedures from the perspective of pay equity and transparency. This involves, among other measures, defining objective salary ranges for each position before beginning the hiring process and eliminating references to candidates’ prior salary history.
Second, companies should analyze their compensation systems to verify that pay differences are based on objective, neutral, and properly documented criteria.
Third, it is important to proactively identify and correct potential instances of pay inequality. Early detection of deviations will help reduce legal, financial, and reputational risks in the context of increasing regulatory scrutiny.
Finally, this adaptation should not be limited to salary policy. Employment contracts, internal policies, corporate manuals, and codes of ethics must be aligned with the principles of transparency and pay equity to ensure consistent application throughout the organization.
- A Paradigm Shift, Not Just a Regulatory One
The real challenge posed by Directive (EU) 2023/970 is neither technical nor legal: it is cultural. For generations, pay has been treated as a state secret within companies. The European regulation effectively states that such secrecy is not only inefficient but also contributes to inequality.
For many organizations, the road ahead is demanding. Structuring and systematizing job evaluations, clearly defining salary bands, and establishing internal mechanisms for compensation oversight and decision-making all require an investment of time, resources, and commitment to transformation.
But there is more at stake. In a labor market where competition for talent is increasingly intense, companies capable of demonstrating that they compensate fairly, transparently, and objectively will have a real competitive advantage. Salary transparency, when well-managed, is not just a legal obligation—it is also a factor in building trust, attracting talent, and retaining it.
Pay transparency alone does not change the reality of organizations. What does change is that, from now on, pay differences will have to be justifiable.