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EU Pay Transparency Directive: Bridging The Gender Pay Gap, For Good

When it comes to equality, the EU has a persistent problem: the gender pay gap. Despite existing legislation promoting equitable pay, women in the EU still earn an average of 12.7% less per hour than men. So, how can the EU combat this deeply ingrained and seriously far-reaching issue? Enter the EU Pay Transparency Directive. By mandating pay transparency and strengthening enforcement mechanisms, this no-nonsense legislation - due to come into full force in 2026 - is set to tackle the gender pay gap at a root cause level.

What the gender pay gap really means

The gender pay gap varies across the EU. As of 2022, Luxembourg has the smallest gap, with women actually earning an average of -0.7% more per hour than men. On the other end of the spectrum, Estonia’s unadjusted pay gap sits at an astounding 21.3%. 

To understand the pay gap, it’s important to comprehend the difference between the unadjusted and adjusted pay gap. The unadjusted gap looks at the overall earnings of men and women, without considering factors such as industry, job type, or working hours. 

On the other hand, the adjusted gap takes these factors into account and aims to isolate the portion of the pay gap that stems directly from gender discrimination.

The unadjusted gap is influenced by a range of systemic factors: women tend to work in lower-paying sectors, take on more part-time or flexible roles, and, at times, are underrepresented in senior or leadership positions. 

Yet ultimately, even when women and men work in the exact same roles, studies reveal that women generally receive less compensation, especially in high-paying industries like tech, finance, or law.

This disparity translates into long-term socioeconomic consequences for women. Over a lifetime, they are missing out on thousands of euros compared to their male counterparts. The pay gap even follows women into retirement, where the recieve smaller pensions. 

Why have other attempts to bridge the gap failed? 

The gender pay gap is hardly a novel problem. Over the years, the EU has produced several key pieces of legislation aimed at promoting gender equality in the workplace and narrowing the pay gap.

As far back as 1957, the Treaty of Rome established the principle of equal pay for equal work. In 2006, the bloc attempted to consolidate earlier directives and introduced provisions for employers to promote gender equality through gender audits and action plans.

In 2014, the Recommendation on Pay Transparency encouraged member states to improve pay transparency. However, this legislation lacked any real binding force. 

The effectiveness of this legislation is reflected in the steady - yet ultimately slow - progress made in closing the EU-wide pay gap. Between 2012 and 2022, the gender pay gap fell by 3.7 percentage points in the EU, down from 16.4 to 12.7 percent.

Alarmingly, six countries - namely Slovenia, Latvia, Poland, Malta, Switzerland and Lithuania - have actually seen their gender pay gaps increase during this time, ranging from 0.1 to 3.7 percentage points. 

One of the biggest obstacles to success?  Many of the measures introduced by previous legislation were voluntary rather than mandatory. Equally, a general lack of transparency in pay structures has helped to keep the gender pay gap hidden in plain sight for decades.

Why the EU Pay Transparency Directive is different 

The new Directive is like nothing the bloc has seen before. It’s set to tackle the pay gap head on, with a multi-pronged approach to the root causes of pay inequity. 

Crucially, it will mandate - not just recommend - pay transparency and pay gap reporting for all member states. While not binding legislation itself, the Directive requires EU member states to pass new legislation by June 2026. 

All companies with 100 or more employees in Europe will need to comply with a stringent set of rules, which include:

  • Objective pay structures: Employers must ensure that their pay structures are based on objective, gender-neutral criteria. A robust job evaluation system is needed to ensure that compensation structures are free from gender bias.
  • Pre-employment transparency: Employees must provide candidates with a job’s  initial pay or range in the job posting or prior to interview. Employers will also be prohibited from enquiring about a candidate's pay history.
  • Right to information: Workers will be entitled to request information on their individual pay and the average pay of categories of workers performing the same work, or performing what is deemed ‘work of equal value’.
  • Pay reporting: employers with at least 100 employees are required to report on their pay gap between female and male employees. If a company has over 250 employees, they’ll have to publish their pay audits. 

Unlike previous pay equality legislation in the EU, the incoming Directive will be backed by robust enforcement mechanisms. Member states are required to establish proportionate and dissuasive penalties for infringements, including fines. 

And in legal proceedings concerning pay discrimination, the burden of proof shifts to the employer. Ultimately, they become responsible for proving that discrimination hasn’t taken place. 

Getting prepared for the EU Pay Directive with gradar

It couldn’t be more clear: the Pay Transparency Directive is set to transform HR processes and pay practices in all corners of the EU. With 2026 sure to roll around soon, it’s vital that organisations get prepared for pay transparency and compliance. That’s where gradar comes in. 

Our complete job evaluation system is accessible, affordable and works for businesses of all sizes. Available in 27 languages (and counting!), it has an intuitive interface and easy functionality that means it can be used by your own HR team in-house. 

We’re here to help businesses across the EU and beyond future-proof themselves against evolving pay transparency requirements. Get in touch for more info.