Pay Transparency Directive – The Countdown Is On
Dr. Thomas Köllmann
Equal pay for equal work or work of equal value has long been a key policy goal – yet implementing it in practice remains a challenge. The EU Pay Transparency Directive (EUPTD) is intended to strengthen the enforcement of this objective.
For employers, the Directive means increased transparency, expanded obligations, and the need to review and adjust internal pay structures in line with the new requirements. In this multi-part blog series on the EUPTD, our team of pay transparency experts examines the context, legal obligations, and implementation challenges. Part One provides an overview of the Directive’s objectives and key provisions.
Blog Series: Equal Pay and Pay Transparency
Pay equity is no longer merely a matter of fairness – it is becoming a statutory requirement. Under the EU Pay Transparency Directive, companies face a new set of requirements – from mandatory reporting to the implementation of transparent pay systems. In this blog series, we highlight what companies need to consider as the Directive takes shape and how to implement pay equity in a legally compliant and strategic manner.
I.
Background: Equal Pay – A Core European Principle
Equal pay for equal work or work of equal value is a fundamental principle of the European Union – enshrined in the Treaties, affirmed by the Charter of Fundamental Rights, and upheld in numerous rulings of the European Court of Justice. Despite existing legal standards, considerable pay gaps between men and women still persist in practice.
The so-called unadjusted gender pay gap remains contested but may point to broader underlying structural differences that warrant closer examination. In 2023, the unadjusted gender pay gap stood at 18 % in Germany, while in Luxembourg it was –0.9 % – indicating that, on average, women there earned slightly more than men. The causes of these disparities are diverse, ranging from social and political challenges to a lack of childcare availability, insufficient transparency, and conscious and unconscious bias. The 2017 German law on pay transparency has fallen short of expectations, even as the issue gains increasing public and political attention.
With the EUPTD, the EU is introducing a significantly more effective instrument to uphold the right to equal pay. The Directive must be transposed into German law by 7 June 2026, but its impact is already being felt – and employers are under growing pressure to act.
II.
The Objective: Fair and Non-Discriminatory Pay Systems
Company pay structures have often developed informally, influenced by custom and personal discretion rather than objective, transparent standards.
Smaller companies frequently operate without defined, objective standards for setting pay. In contrast, collective agreements generally establish a more structured and transparent framework, based on defined factors such as experience, qualifications, and company tenure – even if this does not always equate to equitable pay.
The EUPTD now imposes a clear and binding standard: pay structures must be based on objective, gender-neutral, and transparent criteria. The key elements are defined as:
Skills
Effort
Responsibility
Working conditions
III.
What are the implications of the EUPTD for Employers?
1. Review and Reassess Existing Pay Systems
A key priority is to conduct a systematic review of the existing pay system – whether or not a formal structure is currently in place. The EUPTD requires employers to establish structures that ensure gender-neutral pay. Companies that fail to establish clear, gender-neutral pay structures may find themselves unable to meet reporting obligations or respond successfully to legal challenges. Companies that are party to collective agreements – or that follow collectively agreed pay scales – will increasingly be taking steps to review their job classifications and reassess how salaries are set outside the scope of those agreements. Given the potential involvement of trade unions and works councils, some employers are proactively launching internal reviews, job classification updates, and stakeholder alignment processes to ensure a smooth transition.
Practice Guidance:
Carrying out due diligence on existing pay systems is an essential step in determining both the scope and urgency of required measures. Further details will be provided in a future instalment of our series.
2. Preparing for Legal Compliance Requirements
The EUPTD introduces extensive new regulations to establish pay transparency, including:
Transparency in Pay Setting:
Information on setting pay, pay levels, and pay progression criteria
Right to request information and obligation to provide information:
When the Directive comes into effect, employees will be entitled to request information about the average pay within their comparison group. As such, employers are required to provide this information on an annual basis.
Reporting Requirements under the Directive:
Employers with 100 or more workers are obliged to provide detailed annual reports on the gender pay gap. This will apply to companies with 250 or more employees beginning in 2026, and to smaller companies at a later time. By 2026, meaningful “pay equity” should largely have been established.
Joint Pay Assessment:
For any unjustified wage gap exceeding 5 %, employers must carry out a joint pay assessment in cooperation with workers' representatives.
Extensive Sanctions and Reversal of the Burden of Proof:
Alongside the possibility of legal/procedural standing and collective action, the EUPTD outlines extensive sanctions and, most importantly, substantial easing of the burden of proof in cases of failure to comply with its obligations.
IV.
Implementation into Germany's Legal Framework
The implementation of the EUPTD in Germany has stalled due to the recent elections. In the previous legislative period, the Federal Ministry for Family Affairs, Senior Citizens, Women, and Youth (BMFSFJ) was responsible for the implementation. As of yet, the current exploratory paper of the SPD and CDU/CSU has not addressed the subject. Nevertheless, a first draft of the bill is expected to be submitted by 2025.
V.
Implementation Challenges – The Countdown Is On
Considering the circumstances, it is unlikely that the implementation of the EUPTD will be a simple process. Companies will be faced with the task of assessing, restructuring, and documenting their internal structures and processes. To accomplish this, time, resources, and, above all, advanced planning are essential.
Should you have any questions regarding the EUPTD or your company’s internal pay structure, we would be pleased to assist you.
In the coming weeks, we will share insights from our legal practice, showing how companies can take actionable steps towards practical, legally compliant solutions.
