On 17 May 2023, Directive (EU) 2023/970 to strengthen the application of the principle of equal pay for equal work or work of equal value between men and women through pay transparency and enforcement mechanisms was published in the Official Journal of the EU. This new directive aims to strengthen the principle of equal pay for men and women for equal work. To this end, measures will be introduced to increase wage transparency, including a reporting obligation on the gender pay gap, accompanied by enforcement mechanisms such as fines. Member States have until 7 June 2026 to transpose the directive into national law.
The directive applies to all employers in both the public and private sectors and covers both employees and applicants. In addition, enterprises with 100 or more employees are obliged to report on the differences in remuneration between female and male employees.
Enterprises with 100 or more employees report on, among other things:
- The gender pay gap.
- The median gender pay gap.
- The proportion of female and male employees in each quartile-based remuneration scale.
- The gender pay gap per category of employees broken down into ordinary basic wage or salary and additional or variable components. The term category refers to employees who do the same work or work of equal value.
The accuracy of the information must be confirmed by the employer's management board, after consulting the employee representatives. As part of these consultations, the employee representatives are given access to the methods applied by the employer. Employers can publish the reports on their website or make them publicly available through other means, such as including the information in their management report.
Employers must perform a remuneration evaluation if it turns out that the average salary of female and male employees differs at least 5% per category and the employer has not justified this difference with objective and gender-neutral criteria and has not remedied it within six months. This remuneration evaluation is done in cooperation with the employee representatives. The remuneration evaluation will be performed to identify, rectify, and prevent the relevant wage discrimination and will be made available to the employees.
Other forms of transparency in remuneration
Prior to employment, applicants are entitled to information regarding the initial remuneration or its range for the respective position, to facilitate an informed and transparent negotiation process. Furthermore, employers are not allowed to ask questions or gather information about the current or previous remuneration of applicants, to prevent the perpetuation of the gender pay gap in this way.
During the employment relationship, employers provide their employees with access to the objective and gender-neutral criteria used for determining the remuneration, the remuneration levels and the remuneration development of the employees. Member States may exempt employers with fewer than 50 employees from the obligation to provide access to remuneration development criteria.
Each year, employers inform all their employees on the right to request information on their individual remuneration level and the gender-disaggregated average remuneration levels for categories of employees performing the same or equivalent work, as well as how they can exercise this right. Employers can also choose to provide such information on their own initiative without employees having to ask.
Right to compensation
If an employee has suffered harm because of a breach of a right or obligation related to the principle of equal pay, that employee has the right to claim and obtain full compensation or redress for such harm.
Fines will be imposed for violations of rights and obligations related to the principle of equal pay, which may be based on the employer's gross annual turnover or total wage bill. When determining the fines, member states must consider aggravating or mitigating factors that may apply, such as when other protected grounds of discrimination are involved alongside gender in cases of pay discrimination. Member states will also establish specific sanctions for repeated breaches of rights or obligations related to the principle of equal pay, tailored to the seriousness of the infringement and sufficiently deterrent to discourage recidivism. These sanctions may include negative financial incentives, such as the withdrawal of government benefits or temporary exclusion from further financial incentives or government procurement procedures.
(Phased) entry into force
The directive must have been implemented in national legislation by 7 June 2026 at the latest. The reporting obligation on the gender pay gap takes effect in several phases:
- Enterprises with 250 employees or more: reporting for the first time by 7 June 2027 at the latest and subsequently every other year.
- Enterprises with 150-249 employees: reporting for the first time by 7 June 2027 at the latest and subsequently every three years.
- Enterprises with 100-149 employees: reporting for the first time by 7 June 2031 at the latest and subsequently every three years.
Member States may require employers with fewer than 100 employees to report on the gender pay gap as well.
Employers must map their entire HR process to gain insight into any gender pay gap and the information that needs to be shared. Examples include evaluations of the recruitment process, the employment contracts, the job classification system, performance appraisal interviews, and the remuneration procedure. Gender-neutral performance and remuneration criteria must be used in the entire HR cycle. Starting in time ensures a good reputation and prevents legal problems. We will update this blog as soon as there are new developments.