Beyond disclosure: how the EU Pay Transparency Directive will reshape employer obligations

Stricter pay transparency rules are coming into force across the European Union, with significant implications for multinational employers. The United Nations (UN) officially recognises 18 September as International Equal Pay Day – a day dedicated to raising awareness and promoting action towards achieving equal pay for work of equal value globally. In that spirit, we publish this article to highlight the latest legal developments and practical steps for employers as the EU moves towards greater pay equity.

Sweeping changes to pay transparency are on the horizon for employers across Europe. The EU Pay Transparency Directive, set to take effect from June 2026, will fundamentally alter how organisations report, analyse and address gender pay gaps. For UK employers, the Directive does not apply directly, but those with EU operations – and those watching the UK’s own evolving regime – should take note: the landscape is shifting, and the risks of inaction are growing.

A new era of transparency

The EU Pay Transparency Directive (Directive (EU) 2023/970) requires all EU Member States to transpose new pay transparency and gender pay gap reporting obligations into national law by 7 June 2026. Employers with 100 or more employees will be subject to mandatory reporting, with staggered deadlines depending on workforce size.

Larger employers (250+ staff) must publish their first report by June 2027 and then annually thereafter. Employers with 150–249 staff must also publish their first report by June 2027, but will only be required to report every three years. Those with 100–149 employees will have until 2031 to issue their first report and will then be required to do so every three years. Some Member States may impose even lower thresholds.

What sets the Directive apart is its scope and ambition. Employers will need to provide detailed information not only on overall pay gaps, but also on pay-setting criteria, average pay by gender for comparable roles, and the breakdown of remuneration – including bonuses, benefits and allowances. Employees and job applicants will have new rights to request and receive this information, and employers must proactively inform their workforce of these rights every year. 

Crucially, where unexplained pay gaps of more than 5% are identified and not resolved within six months, employers must conduct a joint pay assessment with employee representatives. This process is designed to uncover the root causes of pay disparities and agree on concrete action plans to close the gap. For many organisations, this will mean engaging with works councils or unions in new and potentially challenging ways. 

Enforcement and risk

The Directive introduces robust enforcement mechanisms. Member States are required to implement ‘dissuasive’ sanctions for non-compliance, including significant fines – potentially up to 2–4% of annual gross revenue – exclusion from public procurement, and compensation for affected employees. The burden of proof in pay discrimination claims will shift to the employer, and collective actions by unions or equality bodies will become more common.

The UK perspective

For UK employers, the current gender pay gap reporting (“GPG”) regime already requires annual reporting for organisations with 250 or more employees. Equal pay is also addressed under separate legislation. 

Further changes in the UK are expected, including the proposed introduction of mandatory disability and ethnicity pay gap reporting for employers with 250 or more employees.  Under the new Employment Rights Bill employers with 250 or more employees will be required to develop and publish action plans showing how they will address gender pay gaps. The UK Government has also launched a call for evidence on potential equality law reforms, including in relation to pay transparency obligations.

The Directive goes much further than the current UK framework. For example, in the UK there is no duty to take action to close any gap identified or produce an action plan re steps to resolve a gap. However, we may see a “levelling up” effect, if businesses operating across the EU and UK harmonise their approach to pay transparency.

Practical challenges and audience concerns 

The recent CMS webinar revealed that many employers are still unprepared. Nearly half of respondents admitted they did not know their company’s gender pay gap, and the majority had not started preparations for the Directive. Audience questions highlighted practical concerns: how to handle pay information requests from employee representatives, what counts as ‘work of equal value’, and how to ensure compliance with data protection rules when publishing pay data.

There is also uncertainty around the calculation of headcount for multinational groups, the treatment of variable pay and benefits, and the risk of disclosing personal information when reporting on small groups. Employers asked whether salary expectations can still be discussed with candidates, and how to communicate employees’ rights to request pay information – whether through individual emails, townhalls or simply an intranet notice.

The Directive does not provide detailed answers to every operational question, and national implementation will vary. However, the message is clear: organisations must start preparing now, regardless of whether local legislation is in place.

What employers should do now:

To ensure compliance and minimise risk, employers should take the following steps:

• Map your workforce by jurisdiction and headcount to determine which entities are in scope.
• Audit current pay structures, salary systems and data collection processes, ensuring that criteria for pay and progression are objective and gender-neutral.
• Prepare draft reporting templates and test data extraction for new disclosure requirements, including breakdowns by job category, pay quartile and variable pay components.
• Train HR and legal teams on new rights, obligations and processes for handling information requests from employees and their representatives.
• Engage with employee representatives or works councils to plan for joint pay assessments where required.
• Monitor national implementation in each relevant EU country and review UK developments, as thresholds and reporting formats may differ.
• Review public communications and prepare for increased scrutiny from employees, unions and regulators.

Looking ahead

International Equal Pay Day serves as a timely reminder that pay equity is not only a legal requirement, but a fundamental principle of fairness and inclusion. The Directive marks a decisive shift towards greater transparency and accountability in pay practices. While the administrative burden will be significant, the reputational and legal risks of non-compliance are even greater. Employers who act early – by reviewing pay structures, training teams and engaging with employee representatives – will be best placed to navigate the new landscape and demonstrate their commitment to pay equity.

For tailored advice on preparing for the EU Pay Transparency Directive or UK gender pay gap reporting, or to discuss your organisation’s compliance strategy and good practices, please contact your usual CMS advisor or one of our employment law specialists.

Article was drafted by the members of the CMS Employment Associate Initiative: Charlotte Guirlet, Tiago de Magalhães, Stephanie Witt and Sarah McGowan.