In six months, salary secrecy in Europe comes to an end. For years, employers held most of the information. They knew what roles were paid and how decisions were made, while employees had limited visibility beyond their own contracts.
By June 2026, that balance changes.
Under the new rules, employers hiring in the EU will be required to state pay ranges upfront. Asking candidates about their previous salary will no longer be permitted. Employees will also gain the right to ask what people doing comparable work are paid on average, with the answer provided in writing and broken down by gender.
For leadership teams, the most significant shift is legal. Where a pay gap exists, the burden of proof moves to the employer. If challenged, it will not be enough to say decisions were reasonable. Employers will need to show, with evidence, that differences are justified.
That leaves a narrow window to prepare. What matters is whether you can explain every salary on your books, and stand by that explanation if it’s challenged.
Pay Transparency in Practice
The EU Pay Transparency Directive introduces legally binding disclosure obligations for employers once transposed into national law. These obligations affect how pay data is defined, stored, and explained internally, not only how it is reported externally. Employers must be able to retrieve and present pay information in a form that meets statutory standards when requested.
Access to average pay data
When pay information has to be disclosed, employers need a clear way of deciding which roles are comparable. That work has to be done in advance, inside the organisation, rather than at the point when a request lands.
The Directive sets out broad criteria for comparison: skills, effort, responsibility, and working conditions. In day-to-day terms, this goes well beyond job titles. Two roles can be considered of equal value even if they sit in different teams or carry different labels, if they demand a similar level of expertise, judgement, or accountability.
Effort is not just a question of hours worked. It includes the complexity of the role, the level of concentration required, and the pressure under which decisions are made. Responsibility covers more than formal management lines. It can include financial impact, exposure to risk, and the consequences of getting things wrong. Working conditions reflect the environment in which the work is done, including time constraints and operational limitations.
The test is whether differences in pay can be explained in a way that makes sense to someone outside the organisation. If role groupings are pulled together only after a question is raised, explanations tend to be uneven and hard to stand behind.
Reporting thresholds
Alongside individual access rights, the Directive introduces mandatory public reporting once defined workforce thresholds are reached. These thresholds are numerical and fixed.
Employers with 100 to 249 workers will be required to publish a gender pay gap report every three years. Employers with 250 or more workers must report annually. Headcount is calculated at the level of the legal employer within each Member State, not by department, team, or business unit.
The report must include, at a minimum:
- the overall gender pay gap;
- the gender pay gap in complementary or variable pay;
- the proportion of female and male workers receiving variable pay;
- the gender pay gap by quartile pay bands.
Where a reported gap of 5% or more appears within a group of comparable roles and cannot be explained using clear, gender-neutral reasons, a joint pay assessment is required.
This assessment is not informal. It must be carried out together with employee representatives and documented. The focus moves from summary figures to how pay is designed role by role, including base salary, bonuses, allowances, employee benefits, and pension contributions.
Differences are examined side by side. The question is whether the reasons behind them hold up consistently, not whether they can be justified after the fact. Where gaps cannot be explained cleanly, corrective action is expected. This may involve changes to pay levels, role groupings, or progression rules.
These obligations apply regardless of how employment is designed. Where employment is outsourced, the implications change materially.
Using an Employer of Record under the Pay Transparency Directive
Employer of Record arrangements are built on a simple trade-off. One party is the employer in law. Another party controls the work, the roles, and the pay decisions. That split has been workable because, until now, pay outcomes largely stayed inside organisations.
The Pay Transparency Directive changes that context.
The compliance paradox
There is a point that often gets missed in discussions about EOR and pay transparency, and it sits at the centre of the risk. The EOR model creates a compliance paradox. Legal responsibility sits with the EOR. The data that explains pay differences sits with the client. Each side can reasonably assume the other is covering the exposure. In reality, neither fully is.
The EOR is expected to meet disclosure and reporting obligations, but it does not design roles, set pay bands, or decide how progression works. The client controls those decisions, but may assume that the use of an EOR limits visibility and legal exposure. Under the Directive, that assumption becomes fragile.
In disputes, the degree of daily control exercised by the client can also reopen the question of who the employer is in substance, not only on paper. Where control over work, pay positioning, and progression is sufficiently strong, courts may look past the contractual structure altogether.r.
Pay transparency context
Pay transparency relies on context. Comparisons only make sense inside the organisation where the work is actually done. In EOR arrangements, that context exists entirely within the client’s internal structure.
If roles are loosely defined, if pay decisions evolved informally, or if exceptions were made without a clear rationale, those weaknesses surface quickly once information has to be shared.
Headcount and unintended exposure
Public reporting is triggered by headcount at the level of the legal employer within a country. In an Employer of Record relationship, that legal employer is the EOR, not the client organisation.
A client may employ only a small number of people in a market and reasonably assume that reporting does not apply. If the EOR employs 100 or more workers in that country across multiple clients, the reporting threshold is met.
When that happens, pay data relating to the client’s roles can form part of a public report, even though the client itself would never have reached the threshold on its own.
It is possible to meet the formal reporting requirements and still produce data that explains very little. Aggregated reporting can satisfy the rules while stripping out the organisational context needed to understand or address pay differences inside the client’s business.
The Business Upside of Pay Transparency
If we look at the Directive purely from a P&L and risk perspective, it’s easy to see the EU lawmakers as “villains” adding layers of red tape. But for an employer who is tired of the negotiation games, there is a massive hidden upside: efficiency.
The Directive essentially forces a clean-up of the messy, informal structures that slow down growth. Here is the case for why this is actually a win for well-managed companies:
1. It ends the negotiation tax
How much time does your leadership team and recruitment companies waste on endless back-and-forth negotiations because a candidate has an unrealistic anchor from their last job?
By stating ranges upfront, you stop interviewing people you can’t afford. You filter for alignment before the first Zoom call. It turns hiring into a transaction based on the value of the role, not the persistence of the candidate.
2. It stabilises your retention strategy
The most expensive person in your company is the high-performer who leaves because they found out a mediocre peer, who happened to be a better negotiator, is earning 15% more.
Internal pay compression and secret gaps are retention killers. This law forces a level of internal hygiene that prevents the quiet quitting that happens when perceived unfairness leaks into the office culture.
3. It standardises work value
The Directive’s focus on skills, effort, and responsibility is actually a blueprint for a high-performance culture.
It forces you to define exactly what you are paying for. When you clarify that responsibility (financial impact/risk) is why Role A is paid more than Role B, you give your employees a clear roadmap for how to increase their own value to the firm.
4. It de-risks the star culture
Many companies are held hostage by stars who demand exceptions that throw the whole budget out of whack.
You now have a legal shield. “We have a documented, evidence-based pay structure we must defend” is a much stronger position for a CEO or a hiring manager than simply saying “no” to a lopsided raise request.
What Remains Unresolved
The Directive sets a common deadline, but it does not produce a single, finished rulebook. Each Member State still has to turn it into national law by June 2026, and most have not yet done so in full.
That matters because key questions will be answered locally, not at EU level. How pay transparency obligations interact with existing employment law, how disputes are handled, and how responsibility is assessed will depend on national legislation and, over time, on court decisions.
The Directive applies to employment relationships as they are recognised in national law and practice, not only as they are described in contracts.
Where employment involves third parties and control over work and pay decisions sits elsewhere, that distinction becomes significant.
So far, draft implementing laws give little clarity on how outsourced employment models will be treated. In the absence of explicit rules, interpretation is likely to develop through enforcement and litigation rather than advance guidance.
Pay transparency will therefore be applied in an environment that is still taking shape.