How can HR prepare for the 2026 Pay Transparency directive ⎯ with skills?
What is pay transparency? (definition, objectives)
Pay transparency refers to the practice of openly sharing information about compensation within an organization. It can include salary ranges for specific roles, how pay decisions are made, and, in some cases, the actual earnings of individual employees. The goal of pay transparency is to create a more equitable work environment by reducing pay gaps based on gender, race, or other biases, and fostering trust among employees.
In practice, pay transparency can vary. Some companies might simply disclose pay ranges for job postings, while others go further by making all employee salaries public knowledge. This practice is becoming more common as companies recognize its impact on employee satisfaction, retention, and their broader diversity, equity, and inclusion (DEI) goals.
For HR leaders, implementing pay transparency involves balancing the benefits of transparency with the need to manage sensitive information and ensure fairness in compensation practices. It’s often seen as a key step toward creating a skills-based organization, where compensation reflects the skills and value an employee brings to the company, rather than traditional factors like tenure or prior salary.
How will the new EU Directive on Pay Transparency impact organizations?
What does the EU's new directive consist of?
A Pay Transparency directive coming in 2025/2026 reverses the burden of proof; from now on, companies must justify salary differences between employees.
The goal of the Pay Transparency Directive is to reinforce the principle of equal pay for equal work by increasing transparency and strengthening enforcement,primarily addressing pay disparities between men and women.
On a broader scale, the Pay Transparency Directive complements the recently adopted EU Corporate Sustainability Reporting Directive (CSRD) which requires companies to report both the gender pay gap and the ratio of the highest-paid individual’s compensation to the average employee’s pay.
The Pay Transparency Directive will effectively complement the Corporate Sustainability Reporting Directive (CSRD), enabling companies to uphold their commitment to pay equity. Board members, labor unions, employees, and investors are increasingly focused on pay-related metrics, emphasizing that pay equity and transparency have become essential components of long-term ESG and DE&I strategies, rather than optional considerations.
The Pay Transparency Directive introduces two key obligations for HR:
- Transparency Obligation: companies must disclose any pay discrepancies to employees
- Reversal of burden of proof: in case of dispute, the company must prove there is no wage discrimination,adhering to the principle of equal pay for equal work.
From now on, if employees have different salaries, the company must justify that the difference is due to differences in their roles, not discrimination.
What are the obligations of the pay transparency directive?
Gender pay gap reporting and equal pay
The EU Pay Transparency Directive will require employers with at least 100 employees to publish data on the gender pay gap. Initially, companies with 250 or more employees must report annually, while those with 150 to 249 employees will report every three years. Employers with a pay gap of 5% or more must work with employee representatives to conduct an analysis and create a corrective plan.
Recruitment
Key requirements include providing job applicants with pay ranges, prohibiting questions about current or past pay, and allowing employees to disclose their salaries.
Accessible information on pay levels
Pay information and levels must be easily accessible to all employees. Employees have the right to request information on average pay levels, categorized by gender, for employees performing the same or equivalent work. Employers are required to provide this data within two months of the request.
Due to the importance of these upcoming measures, organizations should first assess their key risks and opportunities, prioritizing areas for action. This will enable them to create an effective change plan to ensure compliance with the new legislation and broader transparency requirements.
Pay philosophy
Employers with more than 50 workers must also explain how pay and promotions are determined, ensuring any differences are based on objective, gender-neutral criteria. Countries will need to certify compliance, leading to potential changes, especially for those without established pay equity programs.
Why does HR need to take action NOW?
The upcoming directive is fast approaching and Human Resources teams need to prepare their strategy as soon as possible.
Why it’s important
If your organization embraces transparency around pay, it stands to strengthen employee trust and satisfaction, gain the advantages of fair and consistent business practices, and enhance its brand reputation by aligning with leading standards. This approach not only promotes compliance with local and national regulations but also helps close the gender pay gap and transform business operations and talent management processes.
Pay transparency builds trust, boosts employee engagement, and cultivates a positive work environment. Adopting pay transparency practices can also offer companies a competitive edge and save on recruitment costs.
The new Pay Transparency Directive benefits organizations
The Pay Transparency directive is not only crucial for DEI obligations, but it will also benefit organizations in so many ways:
- Clearer career paths through robust and transparent pay levels and job grades, supporting effective career planning.
- Reduced turnover as employees gain visibility into career progression and development opportunities within the organization.
- Managers and HR leaders will have a clear framework and tools for decision-making, leading to:
- Improved employee attraction, retention, and engagement.
- Enhanced transparency and consistency, building trust—a key retention factor, especially during inflationary pressures.
- Stronger alignment with the organization’s DEI policies and overall ESG strategy.
Steps to implement Pay Transparency : your guide to the new EU Pay Transparency Directive
EU employers have time to strategically prepare for maximum impact. The first priority is ensuring leadership is fully briefed and understands the directive, enabling them to assess current practices, align with the new requirements, and conduct a readiness analysis. Most organizations must create a comprehensive, prioritized action plan to implement the necessary changes over the upcoming years. These updates should not be viewed as superficial or short-term fixes. Instead, pay transparency should be integrated into the company's broader ESG and DEI strategies helping justify long-term, transformative decisions that require full implementation time.
Throughout this process, look for opportunities to increase transparency by involving employees in designing and developing your plans when appropriate.
And above all, use this time to be proactive. Position your company as a visible leader in driving these changes, enhancing your reputation with current and potential employees.
First steps for adapting to the EU Pay Transparency Directive
1) Build the fairness case
Highlight how pay transparency fosters fairness, addresses pay inequities, and aligns with organizational values. It resonates with employees, enhancing inclusion and retention, especially when connected to DEI efforts.
2) Build the business case
Link the benefits of pay transparency to talent, total rewards, and DEI strategies. Be prepared to address resistance from leadership by demonstrating how transparency reduces pay gaps for women and marginalized groups.
3) Define compensation philosophy
Establish clear guidelines on how compensation is determined, taking into account roles, skills, responsibilities, and market value to create competitive salary ranges.
4) Review pay structures
Reassess your job architecture, pay strategies, salary bands, and employee perceptions of pay to ensure equity and clarity in your compensation processes.
5) Understand legal requirements
Stay informed about local pay transparency laws, which may require salary disclosures to job applicants, employees, and regulators.
6) Set clear goals
Evaluate your current approach to pay transparency and set achievable goals based on your organization's position on the pay transparency maturity continuum.
7) Communicate policies clearly
Share details on compensation (e.g., salary bands, bonuses, benefits) and the company’s pay philosophy with managers, employees, and job candidates. Ensure recruiters and managers have the tools to discuss pay and explain pay equity analyses while avoiding overly broad salary ranges in job postings to maintain clarity.
8) Monitor progress
Use feedback from employee engagement, DEI, and candidate surveys to evaluate the impact of pay transparency. Assess whether transparency influences retention and recruitment, and analyze results by gender, race, and other marginalized groups to gauge its effectiveness.
The Pay Transparency Checklist
Want to get ready for the 2026 Pay Transparency directive easily ? Download our checklist for HR today!
Use skills and job frameworks to elevate your efforts
HR teams can leverage skills and job frameworks to enhance their pay transparency initiatives by aligning compensation structures with clearly defined criteria, improving fairness, and fostering trust across the organization.
By developing a transparent skills-based framework, HR can tie compensation directly to the skills, competencies, and knowledge required for each role. This allows for more objective pay decisions, showing employees exactly how their skills impact their salary while encouraging continuous upskilling by rewarding skill development, making pay progression more predictable.
Job frameworks that categorize positions based on responsibilities, expertise, and contribution levels provide a clear and consistent foundation for pay decisions. When employees understand the job levels and how they relate to compensation, it reduces ambiguity and promotes fairness. This helps employees see clear pathways for career development, aligning pay transparency with career progression.
By using a job framework, HR can establish salary bands that reflect the market value for each role and skill level. These bands should be communicated to employees, so they understand the ranges for each job category, the factors that influence their positioning within those bands, and how they can progress, ensuring consistent, transparent compensation structures that are easier to explain and defend.
Skills and job frameworks provide a structured way to assess pay equity. By comparing roles with similar responsibilities and required skills across the organization, HR can ensure there are no unintended discrepancies in pay based on gender, race, or other biases. Pay equity analyses can be transparently communicated, showing how the organization addresses pay gaps and maintains fairness.
Our customers are proactively preparing to meet pay transparency requirements by leveraging 365Talents’ Career Developer solution, particularly our AI-driven job description capabilities to:
- Generate all the company's job descriptions via Generative AI
- Identify the skills specific to each job with a job file repository
- Map employees to their job cards with a skills to job connector
Some customers use 365Talents’ employee mapping on their job descriptions to justify that 2 colleagues are not in the same role. For example, let’s say Clara is mapped on the team leader Customer success job description and Tanguy is mapped on the Data Scientist job description, showing that pay disparities are based on differing responsibilities.
Additionally, some justify pay gaps within the same role by comparing individual skills and proficiency levels.
365Talents supports organizations in drafting job descriptions and creating skill-based mappings, achieving actionable results within an average of three months—ensuring compliance and clarity in compensation frameworks.
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