The EU Pay Transparency Directive and its significance for small and medium-sized businesses

Equal work or work of equal value should receive equal pay, regardless of gender. Although this principle has long been enshrined in law, gender pay disparities persist.

The EU Pay Transparency Directive (EU) 2023/970 aims to make these disparities more visible and strengthen the enforcement of existing rights to equal pay.

The deadline for transposing the Directive into national law expired on 7 June 2026. However, Germany has not yet fully implemented it. The specific new obligations for private companies therefore continue to depend on national legislation.

For small and medium-sized businesses, this is no reason to postpone addressing the issue. Reviewing existing pay systems, developing clear job evaluation methods and preparing appropriate information processes all take time.

Why action is needed

Many companies are convinced that they pay their employees fairly, regardless of gender. And in many cases, there is indeed no deliberate discrimination.

Nevertheless, unequal treatment can also arise unintentionally, for example:

when evaluation criteria systematically disadvantage certain types of work,
when roles of equal value in different parts of the business are graded or paid differently,
when individual performance, experience and skills are not clearly distinguished from the underlying evaluation of a role.

What matters, therefore, is more than whether a company considers its pay practices fair. Existing pay differences must be explainable using objective, gender-neutral criteria.

The challenge lies in the detail: When is work considered equal or of equal value? And how can individual performance continue to be rewarded appropriately?

Small and medium-sized businesses in particular often have pay structures that have evolved over time. Individual agreements, different recruitment dates and personal salary negotiations can cause pay differences to become entrenched over the years.

What companies can expect

The EU Directive provides for a range of additional transparency and information obligations. These include, in particular:

Transparency in recruitment: Applicants should receive timely information about the initial pay or its range. Employers should refrain from asking about applicants’ pay history.
Employees’ rights to information: Employees should be able to request information about their individual pay level and the average pay levels of comparable groups of employees.
Objective evaluation criteria: The criteria used to determine pay and pay progression should be clear and gender-neutral.
Reporting obligations: Larger companies will be required to report regularly on gender pay differences.
Enforcement and penalties: The Directive provides for measures to address breaches of the equal pay principle more effectively.

The reporting obligations are phased according to company size. Under the EU Directive, companies with at least 250 employees are to report annually, companies with 150 to 249 employees every three years from 2027, and companies with 100 to 149 employees every three years from 2031.

The distinction is important: these deadlines are set out in the EU Directive. The specific rules and transitional periods that will apply in Germany depend on its implementation in national law.

Furthermore, not all transparency obligations apply exclusively to companies with 100 or more employees. Smaller employers also need to address the requirements for clear and non-discriminatory pay practices.

Act now – do not wait for legislation

Addressing pay transparency should go beyond meeting statutory reporting obligations.

It also gives companies an opportunity to review their pay systems fundamentally.

Questions to consider include:

Are roles within the company clearly described and evaluated?
Are consistent criteria used to determine base salaries?
Can pay differences between comparable roles or work of equal value be objectively justified?
How are individual performance, experience and specialist skills taken into account?
Are pay decisions adequately documented?
What information can be obtained from existing HR and payroll systems?

The answers matter for more than legal preparedness. They can also improve the quality of HR decisions, strengthen internal fairness and build employees’ trust.

Pay transparency as an opportunity to improve pay structures

Systematic job evaluation provides a basis for comparing different roles using consistent criteria.

This does not mean paying every employee the same amount.

Instead, a distinction must be made between the value of a role, individual performance and skills, and other objectively justifiable pay components.

A transparent pay system can therefore support equal pay requirements while also allowing differentiated, performance-related remuneration.

For small and medium-sized businesses in particular, the solution should remain practical. Complex evaluation models and extensive rulebooks are not automatically better. What matters is that the approach is clear, consistent and workable in everyday business.

Conclusion: A legal requirement with strategic significance

The EU Pay Transparency Directive presents companies with additional organisational and administrative challenges.

At the same time, it offers an opportunity to review pay structures that have evolved over time and place them on a systematic footing.

Companies that address job evaluation, pay principles and internal transparency early create a stronger foundation for future legal requirements and for clear, fair employment practices.

As a management consultant, I support small and medium-sized businesses in addressing these questions strategically and practically – taking a systematic approach to job evaluation, pay policy and corporate culture while considering how they interact across the organisation.