Will the EU Pay Transparency Directive solve pay inequality?

The European Union (EU) Pay Transparency Directive, due to be implemented by EU member states by 7 June 2026, has been designed to enhance pay transparency and promote fairness in the workplace. The aim is to ensure employees can access information about pay structures and disparities, eliminate pay discrimination and support equitable remuneration practices.

While the UK does not have to implement the directive, there could be points to take away for employers that want to address pay inequality.

Impact on pay inequality

Under the directive, employers will be legally required not only to measure gender pay gaps within equivalent roles, but to act on these if unexplained gaps exceed 5%. From this year’s implementation date, organisations with 150 or more employees will have a year before they will be mandated to publish their pay gap reports.

This is a departure from previous voluntary or lightly enforced practices because it will ban pay secrecy, require salary ranges to be included in job adverts, and place the burden of proof on employers in discrimination cases, says Lorna Ferrie, legal and compliance director at Mauve Group.

“The directive will have an impact because it will force organisations to not just identify, but also to address, pay disparities,” she adds. ”The changes will increase accountability and give employees the information they have historically been denied. That said, its success depends on how organisations respond to the data.”

Another aim of the directive is to bring greater visibility to pay gaps across organisations. Employees will have clearer insight into salary ranges and pay structures, which may lead to more scrutiny on how compensation decisions are made.

However, visibility alone will not close gaps if pay setting systems remain unchanged, says Sidonie Viala, chief people officer at 360Learning.

“If pay still depends heavily on negotiation or subjective decision making, transparency will simply expose inequalities rather than eliminate them,” she says. ”For the directive to have real impact, organisations will need to look beyond reporting requirements and examine mechanisms behind pay decisions.”

Despite the directive not being applicable to the UK, some employers may want to voluntarily publish their pay data. UK employers with 250 or more employees are already required to annually report their gender pay gap data, including mean and median hourly pay gaps, bonus pay gaps, and staff proportions in pay quartiles, so this could be an opportunity for smaller workforces to become more transparent.

Publishing pay data holds employers accountable because it creates transparency within an organisation, but it will not completely fix pay inequality, explains Kate Palmer, chief operating officer at Peninsula.

“What will move the dial is training on overcoming unconscious bias, training on how to ensure processes and policies aren’t interwoven with discriminatory practices, and changing the way a culture operates,” she says.

To address any persistent underlying issues, organisations should make pay transparency and equity part of their culture. The directive on its own will not create pay equality if underlying issues remain, says Viala, adding that one issue is negotiation-based pay.

“If someone starts on a lower salary because they didn’t negotiate, future percentage-based raises are also lower, entrenching inequality throughout their career,” she explains. ”Unless employers reform how salaries are determined, the directive alone will not eliminate the problem.”

Effect of pay transparency

Pay decisions are often shaped by negotiation, senior leadership, counteroffers and market adjustments. “These can reward confidence and bargaining power rather than job performance, disadvantaging women and minorities,” says Viala.

Pay transparency from the outset can tackle this by addressing how salaries are determined and examining the parts of pay processes most vulnerable to bias. It can also bring pay inequality from previously unnoticed or unchallenged unequal career progression, care responsibilities and flexible work penalties to the surface.

Clear salary bands and structured progression pathways can reduce negotiation and subjective decision making. These measures are attractive to potential staff, says Palmer. “They create a fair, transparent performance-based culture where there’s trust, honesty and a good employer-employee relationship. Diversity training and inclusive hiring practices can also help.”

Ferrie adds: “Standardising pay practices by posting salary bands or providing clarity around compensation frameworks encourages organisations to adopt more consistent structures. Regular pay audits with corrective action ensure pay is competitive, fair and defensible.”

Tackling pay inequality

To address pay inequality, employers should look to a fully transparent compensation model, where roles are mapped to defined levels based on objective criteria such as scope, complexity and decision-making responsibility, says Viala.

“Each level can have a published salary range, and raises factor in level, performance and salary positioning,” she says. ”This can remove situations where bias typically enters the system. It also builds trust, as employees can see how decisions are made and that the same rules apply to everyone. Structured pay frameworks help shift compensation to a transparent, predictable system that prioritises fairness.”

Benchmarking roles regularly, both internally and against the market, ensures fair pay across regions, new hires, and current employees. This can help prevent disparities caused by negotiation or market uncertainty.

However, this only works when paired with clear communication and capability building, says Ferrie.

“HR teams, and senior leaders need training to apply the criteria consistently and make fair pay decisions within the established bounds,” she explains. ”Employers need transparent structures and trained decision makers to reduce inequalities forming, and to embed fairness in everyday practice.”

While it will remain to be seen if the pay transparency directive will solve pay inequality, there is much employers can do within their own organisations to address this with increased transparency.