insights

The EU pay transparency directive: A new era for pay equity in the workplace

In June 2023 the EU formally adopted the new Pay Transparency Directive (EU 2023/970), aimed at strengthening equal pay for equal work by boosting openness in compensation. Member states must transpose the Directive by June 7, 2026, meaning HR teams have until 2025 to prepare systems and policies for compliance. The Directive requires companies (over 100 employees) to report gender pay gaps; if a gap exceeds 5%, they must analyze and correct it. It also mandates sharing salary ranges with candidates and giving employees the right to request pay information. Why does this matter in 2025? Because implementation is imminent: pay gap reports for large employers will be due in June 2027 (based on 2026 data). Pay transparency is seen as a key tool to close the persistent gender pay gap in Europe.

The cost of clarity: benefits and burdens under the directive

• Closing the gap: Transparency laws empower employees to spot and challenge discrimination, helping close Europe’s pay gap (average ~12% in 2023). Public data shows women in the EU still earn about 12% less per hour than men. New reporting requirements will pressure companies to fix unjust differences. Studies note that pay equity policies increase trust and engagement – making businesses more attractive employer. Transparent pay can also bolster broader ESG and DEI goals; for example, aligning with the EU’s Sustainability Reporting rules.

• Empowered employees: Employees get a stronger “right to know” and can enforce equal-pay rights. Under the Directive, employees can request information on pay structures and colleagues’ salaries for similar work. This empowerment helps balance the info asymmetry in hiring and promotion. Early adopters report gains in morale: when pay is fair and open, talent retention and satisfaction improve. Are your employees empowered to question pay decisions?

• Increased compliance burden: Many organizations worry about the cost and complexity of compliance. In fact, surveys find 70% of employers expect significant impact from the new rules, yet fewer than 10% feel fully prepared. Companies must overhaul data collection, HR systems, and reporting processes. Defining “equal value” work is especially hard: unlike familiar “equal pay for equal work,” the Directive requires mapping all jobs into comparable value categories – a complex task for many firms.

• Transparency tensions: Open salaries can cause employee anxiety or conflict if handled poorly. Employers must prepare communication plans for questions about pay. Indeed, 24% of employers admit they already deviate from stated pay policies, indicating hidden inequities. Revealing these gaps can be uncomfortable. However, hiding information is no longer an option: non-compliance risks fines and lawsuits, and young talent expects openness.

• Cultural shock: In some organizations, pay secrecy is ingrained. Replacing that with openness may face internal resistance from managers used to discretionary pay decisions. Companies must invest in training leaders to make fair, documented pay choices.
  
  Could your current pay structure withstand a compliance audit? What hidden disparities might emerge if all salaries were transparent?

Pay equity vs pay equality: Which path leads to true fairness?

It’s easy to confuse these terms, but they mean different things in practice:

• Pay equality means everyone in the same role is paid the same base salary, regardless of any personal factors. In a strict equality model, two engineers with identical titles would have identical pay, no matter their experience or education. Similarly, a simple “equal bonus” policy (e.g. 2% to everyone) is a pay-equality approach. Equality aims to eliminate any direct unequal treatment. The gender pay gap is one of the main discussion points around pay equality. Women are often paid less than their male counterparts for the same work, contributing to a systemic imbalance in compensation.

• Pay equity means fairness: employees are compensated based on objective factors like experience, performance, or responsibilities. In this model, two engineers with different tenure might receive different pay – that’s equitable if justified. For example, one consultant might earn a higher bonus for exceptional results, unlike the fixed bonus under equality. Equity goes beyond identical jobs: it recognizes that roles such as those of a male engineer and a female marketing professional may differ, but their contributions to the organization could hold similar value and warrant equitable pay.

Put simply: pay equality demands identical pay for identical work, while pay equity demands fair pay for work of equal value. As one HR expert explains, if two female and male engineers have the same education and experience, “they should be paid the same—that’s pay equity. If they aren’t, that’s unequal pay”.

When was the last time your company benchmarked pay to ensure both equality and equity?

Unpacking the numbers: Gender pay disparity across Europe

Recent data show Europe’s pay gap remains stubborn: in 2023 the average unadjusted gender pay gap in the EU was about 12.0% (women’s hourly earnings were on average 88% of men’s). The gap varies widely by country. Among EU members, Latvia had the highest gap (19.0%), whereas Luxembourg was the only country with a negative gap (women earning ~0.9% more than men). In full-time work, the range was similarly broad: from -8.1% in Belgium (women out-earn men) to +20.7% in Latvia. Across Europe (including non-EU Norway/Switzerland), Luxembourg and Norway consistently report very low or negative gaps, reflecting strong equality policies. By contrast, Eastern European countries (e.g. Czechia, Estonia) often have larger gaps.

Pay gap in Southeastern Europe

Recent figures for 2023 show notable differences in the unadjusted gender pay gap across Southeastern Europe, both within EU member states and their non‐EU neighbors.

In Slovenia, the overall unadjusted gap stands at 5.4%, meaning that women earn 5.4 % less than men on average. When broken down by employment type, full‐time female workers earn 4.0 % less than their male counterparts, while the part‐time gap balloons to 27.3 %, one of the highest such differentials in the entire EU. In Croatia, the average woman’s  earnings trail a man’s by 7.4 %. Bulgaria exhibits one of the widest overall gaps in SEE, with women earning 13.5 % less per hour than men. For those in full‐time roles, the gap increases to 15.3 %. Interestingly, part‐time female workers in Bulgaria earn 6.0 % more per hour than their male peers, a phenomenon often linked to selection effects (for example, women choosing better‐paid part‐time roles or men taking lower‐paid part‐time positions). Among EU members in SEE, Romania has the lowest overall unadjusted gap at 3.8 %. Full‐time women there earn 3.2 % less per hour than full‐time men, while part‐time roles show a 10.2 % shortfall.

Taken together, these EU‐SEE countries reveal that Romania has the smallest average gap (3.8 %), whereas Bulgaria’s 13.5 % differential tops the region. Slovenia’s 27.3 % part‐time gap is particularly extreme, underscoring how part‐time work can exacerbate gender disparities.

Turning to the non‐EU Western Balkans, official Eurostat data are not available, so most estimates come from national labor‐force surveys or independent research such as FREN’s 2020 Policy Brief. In Serbia, raw data from 2023 indicate a modest unadjusted gap of 8.8 % (women’s gross earnings are 8.8 % below men’s). After accounting for factors like education, experience, occupation, and sector, the “true” pay gap in Serbia is approximately 11%, pointing to persistant discrimination. In North Macedonia, the unadjusted gap for 2022 is 13.4 %, and the adjusted figure climbs to 17.9 % after controlling for labor‐market characteristics. This suggests that, even when holding qualifications and job types constant, women still earn nearly 18 % less than men. Montenegro shows both an unadjusted and an adjusted gap of 16.1 % in 2022, indicating that systemic barriers prevent women from entering higher‐paid occupations or career tracks. In Bosnia & Herzegovina, a Paylab survey for 2021–2022 finds that women earn roughly 13 % less than men in predominantly full‐time roles. Although no official adjusted figures are readily available, this private‐sector estimate points to a persistent disparity.

Why your HR team needs a Comp&Ben benchmarking software?

To meet the new transparency rules, companies must build robust analytics. First, compile comprehensive pay data: not just base salaries, but all cash and benefits (bonuses, allowances, company cars, etc.), since EU law explicitly defines “pay” to include benefits. Next, choose consistent methodology: most governments use the difference in average (or median) gross hourly earnings between men and women. But pure averages can hide age effects. Analyzing pay by age, department, or level can reveal where gaps arise.

Conducting a comprehensive pay equity audit typically takes between 2 to 5 months on average. New technologies can simplify this work. Rewardly offers a real-time, data-driven compensation benchmarking platform. How can Rewardly benefit your HR team?

• Gain a clear and comprehensive understanding of your pay equity data: Utilize an intuitive dashboard that provides detailed insights into compensation across various industries, job positions, job families, geographic locations, age, gender and many more. Quickly identify pay disparities based on gender and age while comparing your company’s performance to market standards.
• Enhance talent acquisition and retention: Proactively address pay equity issues to build a competitive edge in attracting and retaining top-tier talent, fostering a culture of fairness and trust.
• Drive meaningful conversations with leadership: Leverage the dashboard to present your organization’s pay equity standing, pinpoint critical areas for improvement, and secure leadership commitment to equity initiatives.