Navigating Pay Transparency in the EU for US Employers
The EU pay transparency regulations come into effect in less than 2 years (June 2026 at the latest)
The EU pay transparency regulations come into effect in less than 2 years (June 2026 at the latest) and they are forcing employers across the EU to respond with the need for compliance often forcing significant and far-reaching changes.
The EU pay transparency regulations come into effect in less than 2 years (June 2026 at the latest) and they are forcing employers across the EU to respond with the need for compliance often forcing significant and far-reaching changes.
This is challenging enough for EU employers but is even more so for those based in the US where the regulations feel somewhat distant and come at a time when US states are also evolving their requirements on a state-by-state basis, for example, those coming into effect in Illinois from January 2025. This combination makes the whole process highly complex and challenging for US based employers with people in the EU as they try to keep up with local US state evolutions and try to balance those with the new EU requirements.
What is Pay Transparency all about and why the sudden escalation in regulations?
The World Economic Forum produced a report in 2022 which defined the global gender pay gap (the difference between average male and female pay) with women being paid on average 37% less than men. Whilst this number is gradually reducing, it is doing so very slowly with women still being an estimated 268 years away from pay parity at the current rate of progress. The gender pay gap is lower in the EU with the number being in the region of 13% in favour of men. Over the years many EU countries have introduced pay equality regulations to help ensure the principle of ‘equal pay’ but the simple truth is that these regulations have clearly not been successful because, even at 13%, we still have a clear and significant Gender Pay Gap. The pay gap is reducing in the EU but, once again, the number is coming down very slowly with forecasts indicating that at the current rate of progress, pay parity is still around 100 years away.
Pay inequality is clearly unfair and this is increasingly recognised in today’s society as being fundamentally wrong, and this is particularly true amongst the younger workforce. It is against this backdrop of a lack of notable progress and increasing social pressure that legislators have decided to act. The process began slowly with a small number of countries introducing some requirements (e.g. gender pay gap reporting in the Nordics and the UK) but again, these moves have had limited success in addressing the issues. As a result, regulators have felt it necessary to intervene and their response has seen a rapid increase in attempts to remove pay secrecy in an attempt to ensure that employers have transparent reward arrangements that are consistently applied and understood. It should be noted that this is proving to be a global movement which extends across the US, Europe and into Asia as there is a clear and shared intent to reduce the gender pay gap and deliver pay equality and fairness.
This increase in regulation does create several significant pressures for international employers and particularly for those coming from the US as highlighted above. The issue is caused by the very different regulations that exist around the world, forcing employers to consider whether they respond locally or establish a global approach that encompasses all requirements.
The EU Pay Transparency Directive
The table below highlights some of the core elements of the EU Pay Transparency Directive that will come into effect across all EU member states by June 2026. It should be noted that the regulations will apply to all employers with people in the region and the only element that currently has a headcount minimum requirement is the gender pay gap reporting piece, everything else should be expected to apply, regardless of the number of employees you have in a single country.
It is also important for US employers to note that whilst many US states might have gone earlier with their transparency requirements, the EU regulations are much more significant and far-reaching and, despite a few overlaps, complying with US requirements is unlikely to deliver compliance with the EU Regulations without additional work.
Key features of the EU Pay Transparency regulations
Transparency regulations
(Applies to all employers)
- Employers will need to share details on initial pay levels/ pay range for any advertised position (inc. bonus and benefits entitlement)
- Employers will not be able to ask any job applicants for information on their current or previous salary
- Employers need to ensure that they have assessed and understand work of equal value in their business through the use of a gender-neutral job evaluation/ classification scheme
- Pay differences between roles rated as ‘equal work’ can exist but they must be linked to objective criteria (e.g. market premia, individual performance differences)
- Employers must share details on how its pay framework is set, managed and maintained with employees
- Confidentiality clauses that prohibit employees from discussing their salary details with others will be rendered null and void. Employees can discuss/ share their salary details with whoever they choose
- Workers have the right to request information from their employer annually which shows information on their pay level and the average pay for male and female workers performing the same jobs as them or work that has been rated of ‘equal-value’. Employers are expected to remind employees of this right annually.
Gender pay gap reporting requirements
(Dependent on the number of employees in an individual country)
- Employers with 100+ employees must publish details of their gender pay gap
- Employers with 250+ employees must publish their GPG by 7 June 2027 and annually thereafter
- Employers with 150-249 Employees must publish their GPG by 7 June 2027 and every 3 years thereafter
- Employers with 100 – 149 Employers must publish their GPG by 7 June 2031 and every 3 years thereafter
- Employers with less than 100 workers may publish their GPG if they wish to
- If a gender pay gap of more than 5% exists, employers will be required to work with a staff body/ Works Council to conduct further analysis in the form of a Joint Pay Assessment to identify the causes and to develop a corrective action plan
Please note: the requirements above represent minimum thresholds and individual countries may decide to go further in their own national requirements (particularly if they already do so)
The definition of ‘pay’
- The Directive definition of ‘pay’ is much more than just base salary and includes other components e.g. bonus, overtime, allowances, sick pay and occupational pensions)
Penalties for non-compliance
- Countries are expected to put into place ‘effective, proportionate and dissuasive’ penalties including fines for employers that infringe the rules. The EU Directive suggests that these penalties are expressed as a percentage of company turnover or total payroll
- The compensation available to an employee who is found to be a victim of pay discrimination is to be ‘uncapped’ and it is the responsibility of the employer to show that they did not discriminate and not for the employee to show that they were discriminated against.
The impacts of the EU regulations
The summary below focuses on some of the common initial changes that employers in the EU are having to make to help ensure their compliance with the regulations. This does not represent a complete list in any way but does signpost some of the most significant evolutions that need to be considered.
Job evaluation and grading
There is a clearly defined requirement for employers in the region to use an analytical job evaluation scheme to underpin grading and reward structures and as a means of clearly identifying work of equal value in the business. This type of job evaluation scheme is not common in the US today and many US employers have struggled to explain such schemes and their application to their US based Executive and HR teams. It should be noted that whole job matching schemes deployed by even the largest of the global market pay data providers, where roles are ‘matched’ into a pay survey catalogue using capsule job descriptions, are highly unlikely to meet the definition of an analytical job evaluation methodology.
Implementing a full job evaluation based grading approach and evaluating all individual roles can be a potentially time-consuming piece of work, particularly if done globally. Even if such work is focussed purely on the EU countries it can still be complex. This is an activity that the business really should not try to rush through, and communications will need to be carefully managed. There are some approaches and methods that can simplify the approach which will meet the EU requirements but even for these, work will need to begin sooner rather than later!
Bonus and incentive plans
Reward schemes with a high degree of management discretion are unlikely to comply with the regulations and the most common (although not exclusive) place for this is in determining bonus awards. If you have a scheme where managers decide how to distribute a pot of money amongst their people, then the scheme is likely to need some revision and updating to provide ‘guardrails’ and guidance for management decisions. Such discretionary schemes are still commonplace in some parts of the US and across some sectors across the EU, but they will need to be evolved.
Any reward component that has a high degree of management discretion will need to be reviewed and this is obviously not limited to bonus plans but could equally apply to base pay and other elements e.g. award of a company car or eligibility for other allowances / benefits.
Reward strategy
The incoming EU regulations require employers to share large parts of their reward strategy as they will need to publish information on not only levels of pay (and all of the constituent parts) but also on how it will be managed and maintained. This information should already be documented in the organisations reward strategy and can be taken from there, although many employers still confess to not having such a document or to not having looked at it for many years.
In advance of the regulations, it is recommended that employers either review, or draft, their reward strategy to ensure that it is fit-for-purpose, provides the content that is required under the new regulations and addresses the needs of the business and its people. It should be remembered of course that whatever is communicated internally, will find its way onto the desks of your competitors at some point and this should also be considered when reviewing and drafting the strategy.
Performance management and market data
The regulations do not require all employees in the same job or in equal work to be paid at identical levels and there is still some room for variance however, any differences must be based on objective and gender-neutral criteria. The most common criteria being a personal performance differentiation between two individuals and a market premia difference between two cities or two different skill sets. However, if an organisation intends to lean either of these potential justifications to differentiate pay between individuals then:
- The underlying performance management approach will need to be reviewed to ensure its robustness and consistent application by trained individuals, across all roles within a country with all outcomes being documented
- The market data used must be tested for robustness. Data taken from job adverts on the internet is unlikely to be considered robust or fit for purpose in this context
A journey plan for compliance and beyond
With all of the new regulations coming in across the EU (and their likely expansion and impact on non-EU countries in Europe including the UK) it can be difficult to know where to start, particularly now we are getting closer to the implementation date. For US employers balancing local state changes with the EU requirements the task can be particularly complex, but it is possible to simply this through a structured approach. The journey plan below describes the common framework that Blick Rothenberg use with our clients when helping them to navigate and prepare for the regulations.
Education and impact sessions for Leadership (and HR) teams
Begin to prepare the business for the regulations by raising understanding amongst the Leadership (and HR) teams
A ‘Readiness Assessment’ which compares current practices against the core requirements and highlights areas of risk and existing compliance
Conduct country specific readiness assessments looking at how current policy and practice need to evolve to reduce the risk of non-compliance.
If the business already has an analytical job evaluation scheme in place, this activity could also include a detailed equal pay audit to identify specific anomalies and issues. There is limited value in doing this without a job evaluation scheme in place as there would be no robust basis for any equal pay analysis without a clear understanding of ‘equal work’.
Action planning and prioritisation assessment
Based on the output from the ‘Readiness Assessments’ a plan can be developed to deliver all of the required evolutions within the defined timeframe. This enables a planned and coordinated approach to change which allows the business to present it to employees as a single, coordinated journey that is in full alignment with its desired Employee Value Proposition and any other changes already planned by the business.
Develop an employee education plan
Experience is already highlighting the importance of taking employees on the journey to transparency. Employers are already experiencing a number of clear benefits from communicating early with employees to help prepare them for the changes and educating them on the new information that will receive and how to interpret it. This is also an important activity because if the employer does not own and take control of the messaging, the Works Councils or the media will be the ones to inform and educate your people which is probably not a desired outcome.
Deliver the change needed to help ensure compliance
In delivering the required evolutions it is important to consider opportunities for employee involvement and feedback in the changes to ensure the process, and not just the outcome, is as transparent as possible. It is also important to ensure the organisations desired market reputation and EVP are fully aligned and integrate with any changes to deliver a consistent message on the employers identity and values.
Time to act
There is less than two years before the deadline for each EU member state to have written the pay transparency regulations into local law. Depending on the level of change that is required, this might already be a challenging deadline for some and so the time to act is now.
There is no reason to delay preparations because any delay now, could compromise your ability to respond in the way that you might like. It is true that the regulations are likely to evolve slightly on a country specific basis and we do not know what those local ‘tweaks’ will be at this time. However, it might be another six months before those details come through and the core requirements and impacts are already clear and can be acted upon.
The regulations have a number of impacts for employers that are complex, and they involve processes and principles that might not be in everyday use in US employers. This is just an extra reason on why work should be starting as soon as possible, particularly for US employers with people in the EU. It is important to allow time for US firms allow time to help with the education of business leadership and to really understand the required level of change and the wider impacts of those changes. This is not work that an employer can rush or try to push through in the six months immediately before the deadline. There is still time to approach this work in the right way, just, but the clock is definitely ticking down now.
Blick Rothenberg can help
Blick Rothenberg can offer highly bespoke support solutions to employers to help them on their journey to pay transparency. This might be through simple leadership education activity, detailed country focussed readiness assessments or in designing and helping to implement new grade structure, bonus schemes or reward strategies. Our approach is bespoke and highly flexible and would be tailored to an organisations specific needs and context.
If you would like to discuss your journey or the details of the regulations in the context of your own business please do not hesitate to reach out to Stuart Hyland, Partner and Head of Reward Advisory Solutions using the form below.
Contact Stuart
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