What do you need to know about the EU Pay Transparency Directive?

Susan Doris-Obando discusses the upcoming deadline and explores the potential challenges and opportunities for professionals amid the policy change.

The EU Pay Transparency Directive, which EU member states are required to implement by 7 June 2026, is a policy that will “significantly reshape employment law around pay transparency within the EU“, explained Susan Doris-Obando, an employment partner at Dentons Ireland.

“The intent is to reduce the EU gender pay gap, which currently stands at around 12pc, by having greater transparency around pay and making it easier for employees to bring equal pay claims,” she said.

Initially brought into effect in June 2023, EU member states were told that they would have until the upcoming 2026 deadline to implement the directive. This means employers will have to acknowledge a number of changes in hiring and the dissemination of employment-relevant information.

“During the hiring process, employers will be required to provide candidates with information on initial pay or pay ranges and ensure that job vacancy notices and job titles are gender-neutral and recruitment procedures are conducted in a non-discriminatory manner,” explained Doris-Obando.  

“They will be prohibited from asking candidates about their current or past pay and from using pay secrecy clauses. During the employment relationship, employees will have the right to request and receive, within a reasonable period and in any event within two months, information in writing about their individual pay level and average pay levels, broken down by gender for workers doing the same work or work of equal value.”  

It will also be the responsibility of the employer to ensure that the criteria under which an employee’s pay, pay level and pay progression are determined, is made easily accessible. Additionally, employers with more than 250 employees will be required to report annually on the gender pay gap in their organisation. 

Reporting is mandated every three years for employers with a workforce of more than 150 people but less than 250, starting with a first report in June 2027. Organisations with 100 or more employees and less than 150 employees will be required to first report in June 2031.  

Doris-Obando noted the main difference between the directive and the current gender pay gap reporting policies already in place in many EU member states is that the new regulations require reporting on the categories of workers – namely, those doing the same work or work of an equal value. 

She said: “If the report reveals a pay gap of more than 5pc within a category of the same work or work of equal value that cannot be justified by objective, gender-neutral criteria and not remedied within six months, employers will be required to take action in the form of a joint pay assessment carried out in cooperation with employee representatives.”

It is also important to note that the directive does not prevent employers from paying workers who perform the same work or work of equal value differently, provided that it is based on objective, gender-neutral and bias-free criteria, such as performance and competence.

Moreover, as Doris-Obando stated, many member states – including Ireland – are going to miss the implementation date and will have to take a phased approach to implementation. Ireland to date, has only draft legislation in place around the recruitment obligations.

Directive consequences

Of the potential consequences, she explained that the organisations that fail to implement the new rules will inevitably be faced with increased claims for equal pay, with the directive effectively shifting the burden of proof in claims to the employer in instances where the employee establishes a prima facie case. 

“If an employer does not comply with their gender pay reporting obligations or pay level information requests, then the burden would likely shift to the employer, unless the breach is manifestly unintentional and minor in character. Significant gender pay gaps may also attract adverse publicity, impacting on recruitment and retention.”

She also anticipates issues in building a robust gender-neutral job evaluation and classification system that can correctly categorise those doing the same work or work of equal value. This is not an easy exercise, she finds, but now is the time to start preparing. 

“Work of equal value is often not immediately obvious,” she said. “For example, in some cases, store employees have been found to do work of equal value to warehouse employees. The next step will be to understand the gender pay gap within each category of worker and consider any objective gender neutral justifications. Any remediation steps should then be addressed.

“Policies should be put in place outlining the criteria used to determine pay, pay levels and pay progression and how to deal with pay on recruitment and in responding to employee pay level information requests. Multinational employers will need to consider whether to adopt global policies and consider their approach to member states’ gold-plating the directive.”

Of the long-term effects of the directive, Doris-Obando stated employee representatives are going to have a much larger role to play, particularly, in conversations around joint pay assessments, where typically their role has been short-term around collective redundancy or Transfer of Undertakings (Protection of Employment) consultations.

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