On June 6, 2023, the European Pay Transparency Directive (Directive (EU) 2023/970), also referred to as the EU Pay Transparency Directive (EUPTD), entered into force. With this directive, the European Union has established a binding framework that all Member States must transpose into their respective national laws by June 7, 2026. At its core, the directive aims to consistently enforce the principle of “equal pay for work of equal value” and to significantly reduce the persistent pay gap between women and men—the so-called gender pay gap. The key instrument to achieve this will be extensive transparency obligations that all companies must comply with, with requirements varying depending on company size.
Classification within the legal framework
Germany already has regulations in place under the Pay Transparency Act (Entgelttransparenzgesetz, EntgTranspG), which now need to be expanded and aligned with the content of the EU directive. In addition, the EUPTD forms part of a broader legislative development toward greater corporate sustainability. When implementing the directive, overlaps with other relevant regulatory frameworks—such as the CSRD—must be taken into account.
Who is affected?
Whether public or private employer, large corporation or small business—the regulations apply to employers of all types. They cover all employees with an employment contract or an employment relationship based on collective agreements or customary practice. Furthermore, certain provisions already apply to applicants during ongoing recruitment processes.
Overview of key obligations
Compared to the existing Pay Transparency Act, the new EU directive goes significantly further. While reporting obligations already exist, these will be substantially expanded.
Reporting obligations
In the future, all companies with 100 or more employees must report on gender-based pay gaps. The reporting obligation is tiered based on company size, meaning reports must be submitted at different intervals and levels of detail:
The pay reports include various metrics that reflect pay disparities between genders based on different calculation methods. A central element of the reporting obligation is the analysis of gender pay gaps within comparable employee groups. If this analysis reveals a gap of at least 5% that cannot be justified by objective, gender-neutral criteria, companies must take corrective measures within six months. If they fail to do so, a joint pay assessment with employee representatives must be initiated.
Right to information
The right to information, which already exists to some extent, will in the future apply to all employees, regardless of company size. Upon request, employers must provide not only information about the individual’s own salary but also about the average remuneration of employees in comparable or equivalent positions. The relevant reference point will be the entire company, rather than an individual establishment.
This information must be provided no later than two months after the request is made. In addition, employers are required to proactively inform employees at least once a year about their right to request such information and how to exercise it. All disclosed information must be broken down by gender and must be based on objective, transparent, comprehensible, and gender-neutral criteria.
Recruitment process
The directive also introduces significant changes to recruitment processes. Employers will be required to disclose the intended starting salary or at least a salary range in job postings. Questions about applicants’ previous salaries will no longer be permitted.
Furthermore, confidentiality clauses in employment contracts that prevent employees from discussing their compensation will lose their legal validity. This means that employees are allowed to openly communicate their salary.
Significant sanctions & enforcement
The directive significantly increases the penalties for non-compliance. In addition to fines, regulatory measures and labor court proceedings may be initiated. In cases of proven gender-based pay discrimination, affected individuals are entitled to compensation. In practice, this may result in significant back-pay obligations, particularly due to salary adjustments.
Moreover, a reversal of the burden of proof will apply under EU law. Currently, the burden of presentation and proof generally lies with the employee. In the future, this burden will shift to the employer.
Conclusion
The directive marks a fundamental shift for human resources. In this context, HR departments will become a central hub—not only for compliance and reporting, but also for the strategic alignment of recruiting, compensation, and talent development. Pay transparency is therefore no longer a marginal labor law issue but an ongoing corporate responsibility.
If you have not yet begun preparing for these new requirements, you should start taking action as early as possible, given the significantly increased level of regulatory impact and the limited timeframe for aligning your processes in a legally compliant manner. Early implementation is essential—not only from a regulatory perspective but also in terms of liability risk and overall risk management.