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The EU's new pay transparency regime has begun, but many employers are still unprepared for the practical reality of compliance, according to compensation experts.
The EU Pay Transparency Directive, which member states were required to embed into national law by 7 June 2026, introduces a range of new obligations designed to strengthen equal pay between men and women. Among the measures are requirements to disclose salary ranges during recruitment, provide employees with information about pay levels, and report on gender pay gaps.
While the legislation applies across the European Union, its impact will be felt well beyond the bloc's borders. UK-headquartered organisations with employees in EU member states will also need to ensure they meet local requirements where they operate.
According to Ruth Thomas, Chief Compensation Strategist at Payscale, many multinational employers have spent the last few years waiting for individual countries to finalise their approach rather than preparing internally for the changes.
"For multinational organisations, the main challenge has been understanding the uneven state of transposition across EU member states," she says. "Many organisations have been holding back, waiting to see exactly how each country implements the directive."
However, she warns that such an approach carries significant risks.
"The direction of travel is absolutely clear, and the core requirements around gender-neutral job evaluation, pay range disclosure and the right to information don't need final local legislation before you start building toward them."
Internal readiness is the real challenge
While much attention has focused on the legal and regulatory aspects of the directive, Thomas argues that employers' biggest challenge lies elsewhere.
"Ultimately, they're not your problem to solve. Your problem is: what do you need to be internally ready? And that internal readiness work is where the actual bottleneck is, not regulation."
She notes that organisations which began preparing several years ago are now in a much stronger position to adapt as individual countries implement their own legislation.
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Those that delayed action face a more difficult road ahead. According to Thomas, even something as fundamental as reviewing job architecture can take a year for a mid-sized organisation and as long as two years for a large multinational.
For HR leaders only now beginning to assess the implications of the directive, Thomas says the starting point should be understanding their organisation's current position.
"This should be a clear picture of where you actually stand before you start building processes around it."
That means conducting pay equity audits to identify any unexplained gender pay gaps and understanding where risks may exist before reporting requirements take effect.
"Given that the first mandatory pay gap reports for companies over 150 employees are due in June 2027 (covering 2026 payroll data), the time to understand your position is right now, not next year."
More than just a salary issue
One of the biggest misconceptions about the directive is that it focuses solely on basic pay.
In reality, employers will need to account for a much broader range of reward elements, including bonuses, incentives and benefits.
Thomas says many organisations underestimate the scale of the task.
"Under the EU Pay Transparency Directive, pay doesn't just mean a base salary. It includes bonuses, variable pay, benefits, and any other components."
For businesses operating multiple HR, payroll and benefits systems, bringing this information together into a consistent dataset can prove particularly challenging.
"Many organizations have three or four separate systems that don't talk to each other and working out how to produce consistent data across all of them is a significant piece of work in itself."
The directive also introduces employee rights to request information about their pay and average pay levels by gender for comparable roles. Employers will have just 60 days to respond.
Thomas says organisations need to treat this as a permanent capability rather than a one-off compliance exercise.
Why unexplained pay gaps emerge
The directive requires employers to investigate and address gender pay gaps of 5% or more that cannot be objectively justified.
According to Thomas, most disparities are not the result of deliberate discrimination.
"Pay equity gaps rarely come from bad intent. Individual pay decisions that each seemed reasonable at the time have compounded over years into patterns that disadvantage certain groups."
She identifies variable pay arrangements and historical hiring practices as two of the most common causes.
"The first is variable and complementary pay. This is where discretion, historical practices, and informal norms create outcomes that are hard to compare and harder to justify."
Meanwhile, differences in salary negotiations at the point of hire can have long-lasting consequences.
"If your hiring process has historically allowed more negotiation for some candidates than others, that gap compounds with every pay cycle."
A compliance burden or a business opportunity?
Although many organisations are understandably focused on meeting their legal obligations, Thomas believes employers risk missing the wider benefits of pay transparency if they view the directive solely through a compliance lens.
"There's a real risk that organizations might just invest heavily in minimum compliance requirements and miss the wider opportunity entirely."
Drawing comparisons with the UK's gender pay gap reporting regime, she argues that organisations that achieved the greatest progress were those that moved beyond reporting and focused on improving pay decision-making more broadly.
"The organizations positioned to move fastest are those treating this not as a compliance project but as an opportunity to raise the quality of their pay decisions."
That means establishing clear governance frameworks, documenting decision-making processes and ensuring managers can consistently explain how pay is determined.
According to Thomas, the benefits can extend far beyond legal compliance.
"The evidence is clear that when pay transparency is done well, it improves recruitment, retention and employee trust."
She adds that salary transparency can widen candidate pools and reduce wasted recruitment effort, while employees who understand how pay decisions are made are more likely to feel fairly treated.
Referencing Payscale research, Thomas notes that employees who believe they are paid unfairly are "almost 50% more likely to look for a new role, regardless of their actual compensation".
For HR leaders, she believes the directive presents a rare opportunity to elevate conversations about pay fairness and governance at board level.
"The directive gives HR leaders a legitimate reason to have that conversation at board level and to build the infrastructure to do this properly."
