EU Pay Trans­paren­cy: Fair Pay Is Not Enough

The new EU Pay Transparency Directive creates stringent compliance requirements that extend far beyond material pay equity. A legal analysis for practitioners.

The Dangerous Mis­conception

Recently, we encounter a dangerous assumption quite frequently: companies that pay their employees fairly and without discrimination believe they are on safe ground. The EU Pay Transparency Directive is not really relevant to them – after all, they already practice pay equity.

This assessment fundamentally misunderstands the legal situation. The Directive does not primarily require fair salaries, but rather demonstrable, formalized transparency and documentation systems. What matters legally is not only how remuneration is determined, but what can be proven in case of dispute.

This becomes particularly precarious for companies that actually remunerate without discrimination. The substantive legal requirements might be met, but without the formalization required by the Directive, there is no practicable defense in court.

This problem affects not only large corporations. Medium-sized companies with manageable workforces often underestimate the compliance requirements because they are confident in their fair remuneration practices. However, the provision apply to all employers – regardless of company size.

Paradigm Shift in the Burden of Proof

The Directive significantly expands and intensifies the shift in the burden of proof, creating a substantially altered risk situation for employers.

First, the Directive considerably lowers the threshold for workers to present the required prima facie evidence through extended rights to information and more concrete comparability criteria. At the same time, the requirements for employers' burden of presentation and proof increase.

Second – and this is dogmatically new – the shift in the burden of proof now applies automatically in case of certain compliance violations, even without workers first having to present evidence of discrimination. In these cases, the employer bears the preventive burden of proving that no discrimination exists.

This particularly concerns:

• Missing or incomplete pay information in job advertisements
• Questions about previous pay in the recruitment process
• Withholding information about the objective criteria for pay determination
• Failure to respond or untimely response to information requests
• Violation of reporting obligations (from 100 employees)
• Absence of joint pay assessment when pay differences are identified

This automatic shift in the burden of proof means: Even a formal violation of these new transparency obligations can be sufficient to face evidentiary difficulties in proceedings – even with materially non-discriminatory remuneration.

The Procedural Trap in Practice

Let us consider a typical scenario: A male employee earns EUR 48,000, a female colleague in a comparable position EUR 44,000. Under the new law, she receives comprehensive information through the extended rights to information: comparable work, identifiable pay difference, detailed data on pay structures. This makes it significantly easier to present the required prima facie evidence of pay discrimination and put the employer under pressure.

At this point, the employer must objectively prove:

• Which objective, gender-neutral criteria were used for pay determination
• How these criteria were specifically applied within the comparison group
• What different assessments resulted (higher qualifications, more responsibility, better performance)
• That these objective and neutral factors fully explain the pay gap

What is insufficient are retrospective justifications or general statements such as "We pay fairly," "The employee negotiated better," or "It has always been this way." Once a pay gap objectively exists and workers present prima facie evidence, non-discrimination must be proven comprehensively in accordance with EU requirements. If this fails, workers bear no further burden of proof. Missing or insufficient documentation thus regularly leads to loss of litigation.

Existing pay scales or internal systems are insufficient if they are not explicitly based on the four EU main criteria (skills, effort, responsibility, working conditions) and all pay decisions are documented accordingly.

Com­para­bility Across Depart­mental Boundaries

An additional risk: The EU requirements expressly provide that the comparability of activities must be examined across departmental boundaries. The position "Team Assistant Sales" could therefore quite possibly be comparable to "First Level Support IT" if the activities are assessed as equivalent overall according to the four EU criteria. This considerably expands comparison groups and makes a company-wide, systematic job evaluation absolutely necessary.

Over­view of New Obli­gations

Right to Infor­mation: What Employees Can Request

From the effective date, every worker has the right to receive information within two months of request on:

• Their own individual pay level
• Average pay levels, broken down by sex
• Information about groups of workers doing the same work or work of equal value
• The average pay (no longer just median value)

This right exists for all employees, regardless of company size. The previous restrictions (200-employee threshold, minimum comparison group size of six persons) are completely eliminated. Workers must also be informed annually about the existence of this right.

Infor­mation Obli­gation: What Must Be Actively Communi­cated

In addition to providing information upon request, employers must proactively inform:

Before application: Job applicants have the right to information about the initial pay or pay range – for example, in job advertisements or before the job interview. Applicants may not be asked about their current or previous pay.

During employment: Information must be proactively provided about the objective, gender-neutral criteria for determining pay and career progression.

These information obligations apply in principle to all employers, although the EU Directive allows national legislators to exempt companies with fewer than 50 employees. Whether Germany will use this option is currently still open.

Reporting Obli­gation: From What Size Re­por­ting Is Re­quired

For companies of a certain size, there is a reporting obligation on the gender pay gap. The EU Directive mandates this from 100 employees, with the national legislator only able to deviate downward from this requirement.

What Needs to Be Done

1. Establish Job Evaluation According to EU Criteria

The core is an objective job evaluation framework based on the four EU main criteria: skills (knowledge, abilities, education, qualifications, experience), effort (mental or physical strain, stress factors), responsibility (personnel management, process responsibility, leadership tasks), and working conditions (tasks, work equipment, shift work, environmental influences).

These four factors are sufficient as a basis but can be supplemented by additional, job-specific criteria. Employers must specify these criteria for their own company, weight them, and quantitatively evaluate each position.

2. Establish Docu­mentation System

A system is required that documents every pay decision with objective justification and archives it in a tamper-proof manner. The EU Directive requires a minimum 3-year limitation period from knowledge of the discrimination, with waiver clauses being inadmissible.

3. Retro­spectively Docu­ment Existing Pay

All existing pay decisions must be documented, compared with the EU criteria, and appropriately archived. Since all previous decisions company-wide are affected, an early start is recommended. Reconstructing reasons becomes significantly more difficult as time passes.

4. Set Up Infor­mation Request and Infor­mation Processes

A workflow is needed that guarantees information requests are answered within two months. Workers can also request information through their workers' representation or the equality body (yet to be designated by the legislator). Additionally, standardized templates are needed for proactive information about pay criteria and career development.

5. Adapt Recruit­ment Processes

All job advertisements must contain information about the initial pay or pay range. Questions about previous pay are inadmissible, as are confidentiality clauses on pay in employment contracts. This requires new templates, adapted interview guidelines, and training of all managers.

Time Require­ments and Planning

Total implementation effort varies considerably with company size and complexity of pay structures. For smaller companies (approx. 50 employees), the effort is estimated at 220–310 internal working hours. Larger organizations must reckon with correspondingly higher effort. Additional external legal advice may be required, along with ongoing additional effort after implementation.

These estimates are based on pay structures of average complexity and may vary depending on the starting situation.

Time frame: Starting today, less than nine months remain until the deadline of June 7, 2026 – a fairly tight timeframe for an implementation of this complexity.

What Non-Compliance Threa­tens

Retroactive Payments

The greatest financial risk consists of retrospective payment of the pay differential for the entire period of discrimination, encompassing all remuneration components (base salary, bonuses, benefits in kind, variable pay). These are treated as regular remuneration claims, not as damages.

The extended rights to information and intensified requirements of the Directive fundamentally change the risk situation. While previously the prospects of success for workers in discrimination lawsuits were mostly mixed, the probability of success is now very high without appropriate documentation on the employer side.

With an average risk of EUR 10,000–30,000 per case and the realistic assumption that approximately 10 percent of the workforce could assert claims, a total risk of EUR 50,000–150,000 arises for a company with 50 employees. For larger companies, this risk multiplies accordingly.

Damages and Compen­sation

In addition to pay arrears, there is a right to compensation in case of sex-based disadvantage, with no upper limit for non-material damages.

Fines and Sanctions

Member States must enact "effective, proportionate and dissuasive penalties," which mandatorily include substantial fines. Additional measures may include withdrawal of concessions or exclusion from public procurement.

Manage­ment Liability and ESG

Management Liability Under the Legality Principle: Management is obligated to ensure compliance with legal requirements. In case of violations of the Pay Transparency Directive, managing directors can be held personally liable if they fail to fulfill their supervisory and organizational duties.

ESG Compliance: Non-compliance with pay transparency constitutes a violation of ESG criteria (Environmental, Social, Governance). This can have implications for certifications, creditworthiness, investor relations, and participation in tenders.

Repu­tatio­nal Damage

Reputational damage from public court proceedings on pay discrimination is difficult to quantify in general terms but must in any case be considered substantial for recruitment and employer brand.

The Recommended Time­line

Implementation ideally follows a three-phase structure:

Phase 1 (Q4 2025) – Gain Clarity: Development of the pay analysis framework according to EU criteria, retrospective documentation of all existing pay, gap analysis to identify unexplainable differences.

Phase 2 (Q1 2026) – Update Structures: Make documentation system operational, implement processes for information requests and information provision, adapt recruitment process, begin ongoing documentation of all new pay decisions.

Phase 3 (Q2 2026) – Successfully Launch: Testing of all processes, comprehensive employee information, final review of complete evidence, go-live by June 7, 2026.

Support for Small and Medium-Sized Enter­prises

The Directive provides special support for employers with fewer than 250 workers: technical assistance and training by Member States, provision of instruments and methods for work assessment, and ready-to-use templates for fulfilling transparency obligations.

Conclusion

The EU Pay Transparency Directive transforms pay management from an operational into a compliance-driven function. The extended rights to information and intensified requirements for the burden of proof make fair pay a necessary but not sufficient condition. Without appropriate documentation according to EU criteria, even justified pay differences cannot be legally defended.

A wait-and-see approach means considerable legal risks with potentially substantial arrears payments, fines, management liability, and other serious consequences – regardless of the actual fairness of remuneration practices.

The key insight: After June 7, 2026, the legal position is: Not documented according to EU criteria = not provable = lost in court. Existing internal systems, even if fair and well-considered, are by no means sufficient without adaptation to EU requirements.