The Pay Transparency Directive – Do employers now have to disclose all salaries?

The European Union’s new Pay Transparency Directive (Directive (EU) 2023/970) came into force on 6 June 2023. By imposing a series of new transparency requirements on employers, the European legislator aims to strengthen the application of the principle of equal pay for equal work and work of equal value for men and women. Lawyer and specialist in labour law Nils Wigger from the law firm Wittig Ünalp explains the important new features of the Pay Transparency Directive and what they mean for employers.

The establishment of equal rights between men and women in terms of pay is an important concern for the European legislator. With the Transparency in Pay Act (EntGTranspG), Germany already has a law that is intended to promote the enforcement of the principle of equal pay.

The new directive is now expected to further tighten the equality and transparency regulations to be complied with by employers by the end of the transposition deadline on 7 June 2026. The German legislator must transpose the requirements of the directive into German law.

Does the Pay Transparency Directive apply to all employers?

The Pay Transparency Directive applies to all employers and all employees in the public and private sectors. In addition to the usual basic or minimum wage, ‘pay’ within the meaning of the directive also includes all other remuneration that employers pay their employees in cash or in kind. This therefore also includes variable remuneration components such as commissions, overtime bonuses and other allowances.

Equal pay for equal work

The Directive obliges Member States to ensure that employers have remuneration structures in place that guarantee equal pay for employees for equal work or work of equal value.

In future, such remuneration structures must make it possible to use objective, gender-neutral criteria to assess whether employees are in a comparable situation in terms of the value of their work.

The criteria are: competences, workload, responsibility, working conditions and other factors that are relevant to the specific job or position.

Mandatory salary information in job adverts

In future, job applicants will have the right to receive prior and transparent information from their potential employer about the starting salary for the position in question or its range.

Employers must provide such information in a way that ensures well-founded and transparent negotiations on pay, for example in a published job advertisement or before the interview.

In future, employers will therefore be obliged to proactively disclose the level of starting salaries they pay to (potential) job applicants before a job interview has even taken place.

Employers must disclose criteria for pay and pay trends

Employers must also provide their employees with easily accessible information on the criteria they use to determine employees’ pay, pay levels and pay trends. These criteria must be objective and gender-neutral.

However, Member States may exempt employers with fewer than 50 employees from the obligations. It remains to be seen whether Germany will make use of this option.

Employees’ right to information on the salaries of comparable employees

The directive establishes a comprehensive right to information for employees on individual and average pay levels. The relevant information must be provided to employees in writing, broken down by gender and for the groups of employees who perform the same or equivalent work as them.

In addition, employers must inform all employees annually about the right to information as such and all steps required to exercise this right.

According to the directive, it is also no longer permissible to prevent employees from disclosing their remuneration to third parties, in particular to colleagues, in order to enforce the principle of equal pay, for example through corresponding agreements in their employment contracts.

Employers’ obligation to report on the pay gap

In future, employers with more than 100 employees will be obliged to make information on the gender pay gap publicly available on their website or by other means. Depending on the number of employees, the information must be provided by 7 June 2027 or 7 June 2031 and thereafter every year or every three years for the previous calendar year.

In addition, employees, employee representatives, the labour inspectorate and the equality bodies may request clarification and details from employers regarding the data provided.

Employers with fewer than 100 employees can also be obliged by the member states to provide corresponding information on pay in accordance with national law. It remains to be seen whether Germany will also make use of this option.

Damages and compensation claims

In addition to the requirements listed above, the Pay Transparency Directive contains a number of provisions intended to ensure the effective enforcement of transparency regulations:

If employers violate the provisions of the Pay Transparency Directive, the employee who has suffered damage as a result is entitled to full compensation or indemnification in accordance with Art. 16 of the Directive. In particular, employers must compensate lost remuneration, including default interest and non-material damages.

Furthermore, employers who violate provisions relating to the principle of equal pay may in future be required by the authorities or courts to cease and desist from such violations and to take measures to ensure compliance with the principle of equal pay under threat of a penalty payment.

Furthermore, the Pay Transparency Directive shifts the burden of proof for the (non-)existence of pay discrimination to the employer. In the event of a dispute, employers must prove that there is no direct or indirect pay discrimination if employees can credibly demonstrate facts that suggest the existence of such discrimination.

Finally, the Directive obliges the Member States to create effective, proportionate and dissuasive sanctions to be imposed in the event of violations of the rights and obligations relating to the principle of equal pay. These include, in particular, fines to be imposed in accordance with national law.

Conclusion

The Pay Transparency Directive means a significant tightening of the requirements for a transparent and non-discriminatory remuneration system. Employers will therefore have to accept considerable restrictions on individual pay structures and significant additional bureaucracy.

Employers are therefore advised to deal with the new transparency requirements as early as possible and to adapt their own remuneration systems accordingly by the end of the implementation period on 7 June 2026.

Furthermore, all employers should collect and prepare the necessary information now to fulfil their future disclosure and reporting obligations, adapt existing confidentiality obligations regarding pay in their employment contracts and – where possible – eliminate existing pay differences of at least 5% between employees in a peer group in order to avoid the obligation to carry out a joint pay assessment.