Louise Skinner, Aaron Grant, Margaret McDowell, partner and associates from Morgan Lewis give an insight into the requirements and impact of the EU Pay Transparency Directive.
A growing global patchwork of tighter pay reporting and transparency related requirements means that global employers should be vigilant about monitoring current pay practices and adhering to the differing obligations placed upon them globally.
From 7 June 2026, the EU Pay Transparency Directive will introduce significant changes in relation to transparency, imposing a plethora of duties on employers, from the initial recruitment stage to throughout the full cycle of the employment relationship. While the Directive’s requirements are subject to local implementation by each EU member state (the progress of which is fragmented, with certain member states confirming delays, and others not having not taken any substantive steps to implement the requirements), the overarching requirements imposed in the EU Pay Transparency Directive itself raise the bar for pay transparency related practices.
Transparency on hire related requirements and greater scrutiny of recruitment related practices are two key aspects of the Directive’s requirements which will significantly impact the recruitment industry. As a result of the Directive, employers (including third party recruitment agencies) will no longer be able to ask candidates in the EU about their pay history. In addition, candidates will gain rights to be informed of the applicable pay range or salary for the role they are applying for, either in the job advertisement, prior to interview, or in another form, subject to local legislation provided in each EU Member State. Training for internal recruiters on what can and cannot be said to candidates and the information they are required to receive in a relevant country will be important to ensuring compliance with the Directive’s requirements. Organisations should also seek confirmation from their external recruitment partners that they are aware of the Directive’s requirements and will ensure compliance.
The variance in these laws, coupled with the lack of guidance in certain laws regarding the geographic scope of their applicability, has made compliance an increasingly complex exercise.”
To comply with the Directive, employers should also be aware of the following key obligations designed to promote pay transparency and pay equity:
• Equal work and work of equal value: Member States must ensure that employers implement pay structures that guarantee equal pay for equal work or work of equal value, supported by accessible analytical tools, methodologies and structures designed to help assess and objectively compare the value of work, based on gender-neutral criteria.
• Rights to information: Employers of all sizes (regardless of headcount) must be prepared to provide all workers with written information, upon request, about their individual pay and the average pay levels, broken down by sex, for workers performing comparable work or work of equal value.
• Gender Pay Reporting: Employers must provide information regarding the mean and median gender pay gaps, including: (a) those based on complementary and variable pay components (such as bonuses), (b) the proportion of men and women receiving these pay components, (c) the gender distribution within each pay quartile and (d) pay gaps across worker categories broken down by basic salary and complementary or variable pay. (a) – (c) must be reported to the relevant authority and shall be made publicly available. (d) must be provided to workers and workers’ representatives, as well as the labour inspectorate and the equality body upon request. The thresholds are as follows: 1) Employers with 100-149 employees: Must publish the report by 7 June 2031 and every three years after; 2) Employers with 150-249 employees: Must publish the report by 7 June 2027 and every three years after; 3) Employers with >250 employees: Must publish the report by 7 June 2027 and annually (and, it should be noted, that some individual countries propose to introduce lower headcount thresholds for reporting).
• Joint pay assessments: Employers subject to the reporting obligation must conduct a joint pay assessment if their report shows a gender pay gap of 5% or more in any worker category that cannot be justified by objective, gender-neutral criteria and remains unaddressed six months after reporting. Additionally, employers are required to remedy unjustified pay differences promptly in cooperation with workers’ representatives, with possible involvement from the labour inspectorate and equality body.
Prepare now – wherever you are
Employers should not underestimate the preparation required to comply with the Directive’s requirements and are encouraged to make preparations in and advance of local implementing legislations coming into force in each country.
Where different standards and competing obligations exist across an organisation’s global footprint, employers may wish to consider whether to implement greater standards of transparency across their global operations. As awareness of the Directive’s requirements grows across employee populations employers may wish to be prepared to respond to employee’s expectations when it comes to pay transparency and pay equity related issues.
Employers with a presence in the United States also should remain mindful of the evolving patchwork of US pay transparency laws, as well as the increasing legal scrutiny of DEI-related practices.
From a pay transparency perspective, while no comprehensive federal pay transparency statute currently exists, a growing number of US state and local jurisdictions – including California, New Jersey, New York, Illinois, and Washington – require employers to disclose compensation ranges in job postings and, in some cases, provide pay information to employees upon request. Certain jurisdictions impose further disclosure obligations on employers, including additional compensation details, benefit information, job descriptions, and application deadlines. Critically, the laws vary widely in terms of whether they apply only to positions within that jurisdiction, and whether the law expressly addresses applicability to remote positions or out-of-state positions. The variance in these laws, coupled with the lack of guidance in certain laws regarding the geographic scope of their applicability, has made compliance an increasingly complex exercise.
Multinational employers in the US also should remain cautious of the increasing scrutiny and legal challenges to DEI-related practices, both from government agencies and the plaintiffs’ bar. This evolving US landscape creates notable tension with the EU’s expanding equal pay and pay transparency framework, which increasingly requires employers to collect demographic data, analyse systemic disparities, and implement corrective measures designed to advance substantive equality outcomes. Multinational employers must therefore navigate potentially conflicting expectations regarding workforce equity governance and permissible remediation strategies.
Louise Skinner is a partner at Morgan Lewis based in London. Louise provides strategic advice on all aspects of employment law, with a particular focus on equality and pay transparency matters.
Aaron Grant is an associate at Morgan Lewis based in London. Aaron advises multinational employers on a range of employment law issues.
Margaret (Maggie) McDowell is an associate at Morgan Lewis based in Philadelphia. Maggie advises clients on a wide range of workplace matters, with a focus on employment disputes.
