How to get prepared for the EU Pay Transparency Directive in 2026

New pay transparency laws are on their way, and they’re strict.

Across Europe, countries are currently in the process of transposing the EU Pay Transparency Directive into their national laws ready for roll out by June 2026.

Once in place, the legislation will mean big changes to pay transparency and gender pay gap reporting practices for most EU employers.

2026 feels like a long way off right now – there are a million other priorities to think about before then. Which explains why a recent survey of People and Reward Leaders identified that the majority of companies (45%) are still operating in a ‘wait and see’ mode when it comes to preparing for pay transparency regulation. 

But, it will creep up in no time, and for most companies there’s a lot of work to be done to ensure compliance with the EU Pay Transparency Directive rulings, so we’d highly recommend adding preparation for new pay transparency laws to that list of priorities ASAP.

Later in this article we’ll take a closer look at the three major implications of the new legislation and how employers need to prepare for each of these: 

1. Pay transparency for existing employees: compensation philosophy, pay practices, employee communication
2. Pay transparency for job applicants: new hire salary ranges, job descriptions, interview guides
3. Gender pay gap reporting: pay equity analysis, gender pay gap calculations, action plan.

But first we want to share an important piece of overall advice from David Lorimer, Legal Director of Lewis Silkin for HR and People Leaders who are faced with preparing for the EU Pay Transparency Directive by 2026.

Expert advice: ‘Assemble your pay transparency working group now’ – David Lorimer, Legal Director at Lewis Silkin

For David Lorimer, Legal Director at Lewis Silkin, one of the most important first steps for HR and People Leaders to take in reaction to the EU Pay Transparency Directive is to assemble a working group.

As we’ve seen, the new pay transparency laws have wide-reaching impacts for core company processes across hiring, compensation, and employee communication. This means that there are a whole host of stakeholders to consider in terms of input.

So, a good place to start is with assembling a working group with colleagues from all of the relevant functions, particularly: HR/People, benefits, payroll, finance, legal.

The best part about this is that instead of feeling like you need to be the person to lead the charge within your organisation, suddenly you have a group of people to tackle it with you.

1. Pay transparency for existing employees: compensation philosophy, pay practices, employee communication

The central focus of the EU Pay Transparency Directive is to close the gender pay gap by increasing pay transparency – shining a light on cases and causes of pay discrimination (i.e. unjustified differences in pay for employees performing equal work or work of equal value) and pushing employers to address those causes.

To achieve this, the legislation introduces new pay transparency rulings for employees.

Two key things will become mandatory when the roll out of the EU Pay Transparency Directive is completed in 2026, with regards to existing employees:

• Pay and career progression transparency. Employers must make pay levels and career progression pathways easily accessible for employees.
• Employee right to pay information. Employees have the right to information on the pay level of employees doing equal work or work of equal value to them, and employers must make them aware of this. Employees also cannot be banned from discussing salaries with colleagues. 

Effectively, this means that employers need to get much better at communicating their compensation approach to employees and explaining why employees are paid the way they are and what they need to do to increase that level of pay.

Which means that, first and foremost, you need to make sure you have a clear and logical compensation approach.

If you don’t already have a robust compensation framework, now’s the time to do that. And if you do, it’s still worth checking the thinking and making any adjustments needed to ensure you’re happy to share the approach openly with employees. 

The crucial pieces of the puzzle are: 

• Compensation philosophy. The guiding principles that explain why the company approaches compensation in the way that it does, which is vital for the clear and transparent communication about compensation with employees that the new pay transparency laws call for. 
• Level framework. The level framework outlines the different career tracks within a company’s structure (typically Professional/IC, Management, Executive), the hierarchy of job positions i.e. job levels within each of these tracks, and the definition for each job level (e.g. responsibility, impact, scope). Pay naturally varies depending on the level of seniority of a role, and the job levels also outline the possible career and pay progression pathways within a company, so a clear level framework is a crucial building block for a robust compensation framework. This also makes communicating the different pay levels to employees much easier. 
• Salary bands. Salary bands go hand-in-hand with the level framework. Salary bands should be created for each job level in the level framework to give a clearly defined structure for pay progression within an employee’s current role, as well as requirements for career progression to the next pay level. Reliable salary benchmarking data should be used to inform the salary band for each job role and job level, aligned to market-standard compensation. Again, with a well-defined and logical salary band structure that you feel confident in, the requirement to make pay levels and progression pathways clear for employees becomes a simple task. 

Once you have that robust compensation framework in place, you’ll also need to make a plan for how you will ensure this information is easily accessible and regularly updated for employees.

2. Pay transparency for job applicants: new hire salary ranges, job descriptions, interview guides

The pay transparency rulings extend to prospective employees as well as existing employees, with the key changes being:

• Salary ranges for new job positions must be made accessible for candidates before they are called to an interview.
• Gender neutral language must be used in job adverts and descriptions.
• Candidates must not be asked about their salary history during interviews.
• Employment contracts must not include a pay secrecy clause because employees have the right to discuss salaries (this also applies to existing contracts, which may need to be amended). 

Therefore, an important step for employers preparing for the EU Pay Transparency Directive by 2026 is to check current hiring practices and ensure that documents and processes are in line with these changes.

The ruling on exposing salary ranges for new job positions is particularly important and is causing a stir in the People Leader community.

In terms of steps to take in preparation, this links us back to the previous section on ensuring you have a robust compensation framework that you’re happy to share openly with employees, because this ruling means that you also need to be comfortable for your pay approach to be shared publicly via job adverts. 

One particular issue to be aware of with new employees is salary compression – when new hires are brought in at a higher salary than existing employees who perform equal work or work of equal value. 

This might occur because companies aren’t performing regular, robust compensation reviews to ensure that all employee compensation packages remain fair and competitive with the market. Or it might be that pay and career progression pathways and practices aren’t working correctly for existing employees. Or it might be that a decision is made to offer a higher salary for a candidate in order to secure them for the role, particularly if you’re struggling to fill the position. 

All of these causes come down to a lack of consistency and fairness in compensation practices, which is why having a well-defined and logical compensation framework is absolutely crucial when preparing for new pay transparency laws.

3. Gender pay gap reporting: pay equity analysis, gender pay gap calculations, action plan

One of the key implications of the EU Pay Transparency Directive is that it will introduce gender pay gap reporting requirements for employers which are much stricter than those currently in place by individual EU member states. 

In brief, the rulings mean that companies with 100+ employees will be required to report their:

1. Mean and median gender pay gap for base salary
2. Proportion of men and women receiving variable pay
3. Mean and median gender pay gap for variable pay
4. Proportion of men and women in quartile pay bands i.e. lower pay, lower middle, middle upper, upper.

Companies that have a gender pay gap of more than 5% in any of these areas, and does not fix this within 6 months, will be required to conduct a ‘joint pay assessment’ – a much deeper analysis into the root causes of the gender pay gap and an action plan for addressing these causes, produced in collaboration with employee representatives. 

Therefore, another crucial step for employers preparing for the EU Pay Transparency Directive is to gather the employee compensation data you need and calculate the existing gender pay gap (across the above criteria) within your company. Once you have this information, if your gender pay gap is above 5% in any category you’ll need to start digging deeper into the data to understand why there are pay differences based on gender and put actions in place to close the gender pay gap. 

For the Ravio 2024 Pay Equity Report we identified some of the most prevalent causes for pay equity issues across European tech companies

• Software engineering teams have the highest adjusted gender pay gap
• New hire salaries have a bigger impact on the gender pay gap than career progression and promotion
• Women are underrepresented at the senior levels.

This data may provide helpful context as you seek to understand pay equity and gender pay gap issues within your team, so let’s take a closer look at each of these.

Software engineering teams have the highest adjusted gender pay gap

Certain job functions typically contribute disproportionately to pay equity issues.

In particular, our analysis highlighted that software engineering is a particular problem in tech companies: a higher than average unadjusted gender pay gap and women occupying only 18% of senior positions leaves engineering as the job function with the highest adjusted gender pay gap.

New hire salaries have a bigger impact on the gender pay gap than career progression and promotion 

Ravio’s data shows there is a consistent problem with women being offered lower compensation than men at the point of hire – the gender gap exists from the very start of a role’s existence. 

This spans all job roles, but is particularly prevalent in software engineering roles – again adding to the previous point that tech companies need to pay particular attention to pay practices within their engineering teams. According to Ravio data, a male software engineering professional receives a new hire salary 3.3% higher than their female equivalent. 

At the same time, Ravio’s data shows that women receive similar rates of promotions and pay increases to men, suggesting that pay and career progression practices are not a major contributor to the gender pay gap.

Women are underrepresented at the senior levels

Ravio’s analysis shows a large discrepancy between unadjusted and adjusted gender pay gaps, which highlights the crux of the pay equity problem: a lack of female representation in senior positions.

Female representation is below 50% across the majority of job levels, and only 21% of C-suite positions in Europe’s tech companies are held by women. Further, male tech executives stay in their role 46% longer than female executives.