EU Pay Transparency Directive – what is it and what does it mean for employers in the UK?

Robert Shore: Hello, and welcome to the Brightmine podcast, formerly known as the
XpertHR podcast. Brightmine is a leading provider of people data, analytics and insight, offering employment law expertise, comprehensive HR resources and reward data to meet every HR and organisational challenge and opportunity. You can find us any time of the day or night at www.brightmine.com.

Hello everyone. My name is Robert Shore, and today we are going to be discussing the EU Pay Transparency Directive, the changes it brings to member states and – for reasons that will become clear in a moment, I hope – to the Netherlands and Portugal in particular. We will also be discussing the implications for UK employers because although the UK is no longer part of the EU, it is quite likely to bring changes here too.

So, to introduce our speakers today, Ro Carracedo Lopez is the senior international legal editor here at Brightmine. Hello, Ro.

Ro Carracedo Lopez: Hello Robert.

Robert Shore: And then we’re also joined by Wouter Heere in the Netherlands. Hello,
Wouter.

Wouter Heere: Hi Robert.

Robert Shore: And Rui Rego Soares in Portugal.

Rui Rego Soares: Hello Robert.

Robert Shore: You both work, of course, for Littler and you do our guides for us, which is wonderful – our international guides.

So the EU Pay Transparency Directive came into force on 7 June 2023. It aims to deal with a lack of transparency around pay, as its title suggests, and the EU sees this as a main contributive difficulty enclosing the gender pay gap. It sets out that a general lack of transparency about pay levels within organisations maintains a situation where gender-based pay discrimination bias can go undetected or, where suspected, are difficult to prove.

So let’s start at the beginning. Ro, can you talk us through the new rules under the EU Pay Transparency Directive?

Ro Carracedo Lopez: Yes. So one of the key requirements of the directive is the need for employers to report on a variety of information regarding the gender pay gap. But the reporting obligation will be introduced in stages. So employers with at least 250 employees will be required to report gender pay gap information every year, and employers with 150-249 employees will be required to report every three years. For employers with 100 employees or more, the reporting obligation will start five years after the directive is transposed to international legislation, and then every three years after that.

If pay reporting reveals a gender pay gap of at least 5% and the employer cannot justify the pay gap based on objective, genderneutral factors, the employer will need to carry out a pay assessment together with employer representatives.

The directive also has a whole host of transparency measures. So for example, employers will also need to provide information about the initial pay level or its range in job adverts. They’ll need to make available the criteria that are used to determine pay levels and progression, and also allow employees to ask for information on their
individual and average pay levels broken down by sex.

If an employee brings a claim alleging a breach, the employer will bear the burden of proof. And also, employees who have suffered gender pay discrimination will be entitled to compensation, including back pay and related bonuses or payments in kind.

So the directive goes much further than just reporting. It brings a whole host of other measures too.

Robert Shore: That we don’t currently have in the UK.

Ro Carracedo Lopez: Correct.

Robert Shore: So that will be something for UK employers to look out for. So, in terms of how EU directives work – and we’ll be coming onto much more detail about this in a moment – will the rules be the same then in every EU country?

Ro Carracedo Lopez: No. So while the directive will ensure a degree of consistency across the EU, it does allow different approaches. So in essence, EU directives are legislative acts that set out the aims that each EU country needs to achieve, but it’s up to each member state as to how they actually fulfil those aims. So that could mean that a member state goes beyond what is stated in the directive. It could mean they require reporting for a lower company headcount, they specify reporting to occur more frequently, for example, or they want a wider amount of data.

The most important element is that national rights and protections must at least match the protections that are stated in the directive. But it does allow there to be disparities.

Robert Shore: So when are the changes taking place?

Ro Carracedo Lopez: EU member states have until 7 June 2026 to transpose its provisions into national laws. And despite the fact that the clock is definitely ticking, at the time of recording progress has been rather slow. So a few countries have started to make legislative action…steps, sorry, to transpose the directive into national law, but even in those cases it’s not comprehensive. So for example, Malta has transposed the directive effective from 27 August but its impact is only restricted to their actual rights to pay information. It doesn’t specify anything about reporting. So further legislation will be needed. And a lot of other countries will have to follow suit.

Robert Shore: We’re going to return in due course into the impact on UK employers because there are important things we need to say about that. But now let’s look at the situation in Portugal and the Netherlands, and we’re very lucky to have Rui and Wouter with us today to talk about that. So let’s begin in Portugal. Rui, can I ask you, how generally does this business of transposing EU directives generally work?

Rui Rego Soares: That is a first great start question because in Portugal we do have a particular track record when it comes to EU directives. Generally speaking, we tend to transpose them quite faithfully, although I must say not always in a timely or a critical manner. In fact, the common understanding from the legal community in Portugal is that our transposition, let’s say formula, has been somehow automatic but incomplete, uncritical and often quite late. So the question there that I think we must ask here is, ‘Can we expect the same now with the Pay Transparency Directive?’ And most likely I would answer yes. I need to clarify you that the legislative climate has been somewhat unstable for the past few years in Portugal. We have had a fallen government, anticipated elections, and currently the new Government has announced a draft bill for another major labour reform, and the main opposition parties have already established that they are not willing to negotiate at this point the reform. It is why I believe Portugal will probably go for a very literal mirrored transposition of this directive without going for anything fancy or really getting creative in the approach to the transposition.

That being said, I would just like to additionally say that our labour law is highly detailed in our Labour Code, and EU directives are typically integrated through amendments to the code and other relevant acts. So the general legislative process is usually proceeded by a consultation with social partners. This means trade unions and employers’ associations, which can either impact the process, timing and content, or in some result in a non-discussion or non-negotiation scenario at all.

Robert Shore: Yeah. No, that’s really interesting. So of course, yes, what you’re saying there is effectively when people go to the polls in Portugal they choose the party that they want to represent them and you get new labour laws accordingly, but with an EU directive obviously you get that no matter which party is in.

Rui Rego Soares: Of course.

Robert Shore: But at the same time, maybe the imagination with which it’s taken into national law is affected by who’s in power and how harmonious parliament feels at that time. So…

Rui Rego Soares: Yes.

Robert Shore: Right. How about in the Netherlands?

Wouter Heere: So I’m glad to answer that question. And to save time, the policy of The Netherlands is generally to transpose directives to the extent it needs to to comply with the basis of the directives. And we’ve also seen that here with the EU Pay Transparency Directive, as the implementative bill of the Dutch Government does not contain any more progressive or more far-reaching provisions than are required under the directive. And I’ve looked at the data to see, you know, if the Netherlands generally is a false transposer or a slow transposer, and the Netherlands doesn’t really do well, I’m afraid, because the EU has a single market scoreboard that tracks all transpositions by member states, and it shows that the transposive time of the Netherlands is below average. So just to give a few numbers, so in December 2024 the Netherlands had nine overdue EU directives, while the EU average was at eight. And its average delay in transposive time was 15 months, where the EU average is 11.9. And I’ve also looked very fast and not too detailed, but I’ve also looked at the data for Portugal, and Portugal has kind of similar statistics.

Robert Shore: Yes.

Wouter Heere: So, you know, if the question is, ‘How are Portugal and the Netherlands doing as transposers of EU directives?’ then both countries have some work to do.

Robert Shore: Yeah, ‘cause I mean, we’ve said confidently that on 7 June 2026 the provisions will become law in all countries but that’s not necessarily going to be true, is it, in that things are often delayed?

Wouter Heere: That’s true, yeah.

Robert Shore: If I can ask, in the Netherlands currently we’ve said that pay transparency is an important issue for all sorts of reasons but definitely gender pay gap-related. What legislation is there currently on gender pay gap reporting and pay transparency, and how does that work at the moment?

Wouter Heere: Yes. So the legislation on pay transparency and combatting pay gaps is currently quite limited. There is a general prohibition for employers to discriminate based on gender in terms of, for instance, conditions of employment, which includes salary. And if an employee finds that there is a gender discrimination case then this person can go to court, and if this person is able to present facts and circumstances that may suggest gender discrimination, then the law states that the burden of proof shifts to the employer and it is then up to the employer to prove that there is no gender discrimination. Other than that, there are not a lot of tools for employees to make a probable case of gender discrimination. And in that sense I think that this directive will be very helpful for employees to take action in legal terms.

I think one important thing that I would want to say is that currently there are no reporting obligations for employers to report on equal pay. So the reporting obligations for all employers with a headcount of 100 and upwards will be entirely new.

Robert Shore: Okay, so this is quite a significant change then, isn’t it? Okay. How about in Portugal? Is it similarly placed at the moment?

Rui Rego Soares: In Portugal I can say in advance that we are somehow in a comfortable position. But I will get there in a minute. First of all, I would like to contextualise the current scenario in Portugal because if we consider actual gender pay gap and transparency or other singular mechanisms as the ones set out in the directive, we do not have such specifications as the directive will be imposing. However, we do have some building blocks that come quite close.

So I would explain this very briefly in three major points. First of all, at the very top we have our constitution. That already establishes the principle under which employees are entitled to equal pay for equal work. And the Labour Code even defines these concepts. So according to our law, equal work will mean every test that is objectively similar in nature, quality and quantity, and also it has to be rendered to the same employer. And as for the concept of work of equal value, the law goes a little bit further and it looks specifically into the skills or experience required for the specific job role and the level of responsibility of the employee, the effort – whether it is a physical or a psychological effort – and the conditions under which the work is carried out for the same employer.

So the principle, I may say, that is already there. But as you may think, this is indeed very hard to set out in practice. This is the reason why legislators worldwide tend to write a lot on the matter and perfect legislation and act more and more legislation on equal. Secondly, I would say that – and this is the part where I advance that we are in a quite comfortable but not perfect position – is that because since 2018 in Portugal we have legislation that really introduced the data-driven approach. I’m talking about the law no. 60 from August 21, and it states that each year the Government publishes sector barometers and company-level balances for pay differences. Let’s suppose a company with 50 or more employees shows unjustified pay gaps. In that case, the labour inspection can require the employer to present a plan and assess the pay differences within 120 days, and then implement the plan for 12 months. If not, there can be sanctions and even a presumption of discrimination regarding payment. Also, an employee – and this is a very important aspect – any employee or union representative may require the legal opinion of existence of gender-based discrimination regarding payment to the [unclear – 0:15:28.2], which is our national authority regarding equality in employment leading to disclosure from companies of relevant pay criteria and other binding opinions for specific cases.

And finally, I would say there are specific rules also in the Labour Code that regard to transparency. And as an example, I would say the need for companies to keep internal records, broken down by gender, of their recruitment processes for a minimum period of five years. And this rule is justified so that in case of inspection the labour authorities are able to assess whether there have been discriminatory practices in
access to employment.

To answer your question, Robert, I will leave in a way the legal framework in Portugal is there, at least in theory, but the real challenge is how it will play out in practice. So in more recent data, in January this year the Labour Inspection Authority has engaged in a massive round of notifications and fiscalisation to companies with 50 or more employees. And from January to the present date there has been, according to official data, more than 4,000 companies notified. Of course, we have been able to work with clients already in these types of situations in addressing and drafting the reports that
inspection authorities require on gender pay gaps.

Robert Shore: So you mentioned before equal pay for equal work.

Rui Rego Soares: Yes, correct.

Robert Shore: And of course this is different from a sort of gender pay gap, isn’t it, in that, say in UK law, equal pay has been sort of [unclear – 0:17:14.8] for 50 years. Gender pay gap reporting is more recent. In terms of gender pay gap, though, what is the current situation in Portugal? Do you know? I mean, is there a rough sort of idea of actually what that level of inequality is?

Rui Rego Soares: I believe it is still quite considerable. I don’t have the official data to present you but I believe that, as I’ve said, this is a framework that we have in the books, in paper, but in practice we have not seen yet this being a major question or a major [unclear – 0:17:51.5]. Just now in 2025 the labour inspection started to address this more effectively, and therefore the need for this massive round of notifications and fiscalisation in Portugal. But we do not have yet results that may show the results of such inspection.

Robert Shore: And would you say that the sort of uptick in the inspections, though, is related to the passing of the directive? Has it been motivated by…?

Rui Rego Soares: I believe so. I believe it has been motivated with the announcement of the directive and enforcement of the directive because until then we didn’t have this type of rounds of notifications and fiscalisation.

Robert Shore: It’s interesting. It sort of changes the mood a bit in any case, even before…

Rui Rego Soares: Yes.

Robert Shore: …before introduction.

Rui Rego Soares: I would add that even our local authorities, such as [unclear – :18:46.1] felt the need to announce guidelines in order for companies to be able to produce such reports. Because until then no one had any clue of the requirements for such reports and what was in fact required from companies to present to local inspection.

Robert Shore: Right. Let’s go over to the Netherlands, then. Rui, I asked you about pay gap in Portugal and I’m going to ask the same question to Wouter.

Wouter Heere: Thank you. So the Dutch Government is actually referring to some figures of the Dutch Office for Statistics, which is the CBS, in Dutch, on the period between 2014 and 2022. So in 2014 this office calculated that there was a pay gap of 10% within the business sector, which is unexplainable and was also accounted for in terms of the hours worked. So this was all corrected. And these figures show that there has been a decrease to 7% in 2022, and those are the most recent figures that the Dutch Government refers to. But the status quo is still that there is a pay gap of almost 7% on average in the Netherlands within the business sector specifically.

Robert Shore: Yeah. And so obviously the transparency directive requires that to be 5% and under, doesn’t it? And for the first time suggests there will be financial penalties if this isn’t met.

Wouter Heere: If an employer would be obligated to report under the directive, this report would point out a pay gap of 5% and over, then this would be one of the conditions for the employer to have to carry out a pay assessment. And currently, so the average over the Netherlands in 2022 is actually higher than that. So I think that’s quite a significant number.

Robert Shore: The next question I wanted to ask was really about the challenges then of bringing the directive into national law. And let’s start in the Netherlands and then we’ll go to Portugal on this one. What are the particular challenges, both in terms of actually turning it into law, the elements of the directive, and secondly in terms of making sure that businesses and organisations are compliant and meet the necessary sort of thresholds?

Wouter Heere: The main challenge in the Netherlands is the timeline because most rules do not exist yet and therefore can be implemented quite easily, but of course employers will have up to 7 June of next year, so less than a year’s time to, for instance, make salary structures, to reframe their hiring process and to align it with the obligations – not to ask certain questions to job applicants, for instance. And also, they must really work on installing that reporting obligation in time.

This timeline is also tricky for the Dutch Government, of course, because they have less than a year’s time to bring this draft bill to the Council of State, which must adopt this opinion. And after that, it will have to be submitted to the House of Representatives and the Senate, which will both discuss the draft bills extensively and will then do a vote and accept, or of course refuse, any draft bill.

So I think the main challenge is the timeline.

Robert Shore: Yeah. And how easy is it for businesses to prepare while the legislation is still being worked out in this way? Is it possible because they can see what the directive says to really ready themselves? Or actually, is it going to be very difficult for them to move quickly afterwards?

Wouter Heere: I think from my understanding, it is possible for employers to prepare because most obligations are outlined quite clearly. I think we can expect some practical recommendations from the Dutch Government, so for instance on how to make the calculation of the pay gap. But I think based on the draft text so far, employers are able to prepare. But I think they would do well to prepare well in advance.

Robert Shore: Right. Let’s go back over to Portugal. So we got those figures from the Netherlands and actually the pay gap then, if it’s calculated in a comparable way, is lower than in the UK. In Portugal, insofar as one knows what is there, are there figures?

Rui Rego Soares: Yes. In Portugal the situation is worse. It’s a worse scenario than in he Netherlands. In 2022 women in Portugal were earning an average less than 13.2% than men in their pay salary, while the total men’s salary average was 16% according to the barometer for differences in payment in Portugal between men and women from 2024. And recent data indicates that this average still is not quite positive.

Robert Shore: Is there a sense that the EU directive is really going to address that?

Rui Rego Soares: I believe so because similarly to what my colleague Wouter was saying, companies will be forced to report. So while we have current legislation in Portugal, it would be not like companies having to report only if the inspection authorities notify them. They will actually be mandatorily obligated to report any pay gap above the 5% threshold.

Robert Shore: We’re also talking about the challenges in the Netherlands. Is there any
particular area of the legislation that seems harder to harmonise in Portugal?

Rui Rego Soares: Yes. I would say that compliance levels will vary a lot because the clients tell us that some topics may not apply to them, and others say that they would apply but they were unaware, or even they were aware and they want to be compliant, fully compliant with the current requirements. However, I must say there are two different realities.

For example, in multinational companies it is easier, as they are currently aware of their obligations and have already implemented internal systems, sometimes well-oiled already and up and running. I’m talking about global reporting, HR structures, processes etc. So however, in Portugal about 90% of the company sector in Portugal is small or medium-sized companies. So there is where the challenges really lies. So smaller companies may have a different reality and would require a different approach. Usually the main difficulties that are reported are limited staff, lack of economic resources and even unawareness of what the law requires of them.

And then, on the other hand, there are difficulties also from the labour inspection side. Although, as I’ve mentioned, there has been a monitoring and compliance actively in different areas from the inspections, its enforcement is still somehow limited because also the inspections have still low human resources and the means to conduct full-on investigations are currently limited. So as a result, we have not seen yet a wave, let’s say it, of court-based cases in these matters, but litigation risks, I believe, will be expected to grow as awareness will increase.

However, we have seen a growing number of administrative procedures, such as this major notification round and fiscalisation from the labour inspection. And another thing that I would like to highlight is more importantly the reputational sanctions that are often worse than financial one. Let’s face it, no company wants to be excluded, for
example, from public tenders or be exposed in the media by not having compliance with the law, especially when it comes to a sensitive topic such as this. Please be aware that we truly believe that these secondary sanctions are indeed more serious because being a [unclear – 0:27:29.9] incident in labour law would lead in Portugal to being unable, as I’ve said, to participate in public tenders, to being exposed on social media or in local or national news, aggravating further economic penalties, and this would also lead to temporary closure of the establishment in Portugal.

Aside from also these more legalized questions, there is also one other aspect that is the cultural impact. The pay transparency will inevitably become more of a raisable topic at the workplace and in the collective bargaining procedures. So in Portugal, unions will most certainly use their legal prerogatives to request more and more information. I just have to make a small disclaimer because this information that the
employer representatives may require is limited to a certain extend because, unlike countries as Germany, in Portugal information and consultation is not an actual participation and co-determination regime within companies. So we do not have that in Portugal, and also I believe that in the future is not foreseeable that this would be a
reality.

Robert Shore: How about in the Netherlands in terms of what Rui was saying about Germany and how consultation is undertaken? What’s the position in the Netherlands?

Wouter Heere: The consultation with other parties such as trade unions and your works council, for instance?

Robert Shore: Yes.

Wouter Heere: Those parties will play a major role in the Netherlands. So let’s start with the works council, if an employer has a works council. This works council will be actively involved with the obligations under the directive. So for instance, the employer will have to establish salary structures that are based on objective and gender-neutral criteria, and these are then used to make categories of work of equal value. And to establish those salary structures the works council will have a right of
consent. So the employer will need the consent of its works council in order to meet that obligation. If there is no consent then the consequence is, under Dutch law, that the works council can declare such a system null and void. There is no failsafe and the company will need to actively involve its works council.

The second thing is that if an employer is obligated to report, so it has a headcount of more than 100 employees, its findings will have to be confirmed by the board and it will have to consult the works council.

So also in that obligation the works council plays a role. And thirdly, if the reporting obligation results in a pay gap of 5% and over coming to light and the employer would have to make a pay assessment, then the works council has a right of consent for the plan of action that the employer will need to form to resolve that pay gap. And then for trade unions, if salary structures are laid down in a CLA, so let’s say the employer has its own CLA with a trade union, then this will of course fall under the CLA.

Robert Shore: And what is a CLA?

Wouter Heere: Oh, sorry. This is a collective labour agreement, which is agreed with trade unions, which are representative parties that represent employees. And if the current salary structures or evaluations of positions is part of a CLA, then the employer will have to involve its trade union to have the CLA provisions adjusted in order to establish these salary structures.

And also on the trade unions, if to resolve the pay gap changes would have to be made to a CLA, then of course the employer would have to involve the trade union to have that CLA adjusted properly.

Robert Shore: Right. So finally then, drawing things together, let’s just sum up and any final comments then, Rui?

Rui Rego Soares: Yes. In addition to what Wouter was saying, I believe that also in Portugal the timeframe will be quite a challenge. So not only because it has been mentioned we have less than a year until the deadline for the transposing of the directive, but also because of the current scenario in political matters in Portugal. So not only we have the recent Government, but also the Government is already…is currently concerned with a future major reform in the Labour Code and has not yet addressed – not even in the proposed draft bill – these issues and the matter of pay gaps and pay transparency. So I believe there hasn’t been much attention from our political parties regarding this topic, and they should be addressing this [unclear – 0:32:40.2].

Robert Shore: Thank you. I think that gives us a really good idea of political process in different jurisdictions. And so let’s come back to Ro then. So Ro, having heard all of that, just summing up quickly, what do you think the impact of this directive is likely to be on UK employers? Obviously UK employers might be multinational, which means that they’d be automatically affected by it. But just more general, I don’t know, is it more about the vibe that the directive gives? And also a sense of what’s likely to come up in the UK parliament.

Ro Carracedo Lopez: As you said at the beginning of the podcast, as the UK is no longer a member of the EU there is no requirement to transpose it into national legislation. But it will still have an impact. So if an organisation has employees in the EU, if they want to hire from the EU, if they are thinking of expanding into an EU country in the next few years, or if they’re looking to adopt the same approach in terms of pay across the region or to align to EU standards, then all of that will have an impact and they’ll have to think about how the directive will be affecting their operations.

In fact, we carried out some research earlier this year into pay transparency, and our survey found that those organisations that did have EU operations, a third of them were going to look at implementing all or part of the directive. But even those organisations that do not have EU operations were also thinking about the implications. So they were being influenced by the directive in terms of thinking about reviewing their pay structures or they were having internal discussions about their organisation’s pay transparency goals and how was the best way to go about it. So even if there isn’t perhaps a direct impact for some organisations, it does leave a lot of room for thinking about kind of the broader adoption and potential shifts in best practice in terms of pay.

Robert Shore: Wonderful. Yes. And I think we may find then that more employers start putting pay levels actually in job ads.

Ro Carracedo Lopez: Yes, exactly.

Robert Shore: That would be quite a significant change, wouldn’t it? Yeah. I hope everyone will agree that this has been a really fascinating conversation that has shown us how things work differently in different jurisdictions within the EU, and also the fact that the UK, no longer a member of the EU, is still nonetheless likely to be impacted by what happens in the EU. And so all employers are advised to make sure they’re aware of the new strands of this legislation.

So it just remains for me to say thank you to our contributors today, to Wouter in the Netherlands, and to Rui in Portugal, and to Ro in London. Thank you all so much. I’ll put some links in the show notes, as ever. Beyond that, it just remains for me to say, until next time.