The EU Pay Transparency Directive: What Employers Need to Know
On 7 June 2023, the European Union adopted Directive (EU) 2023/970, commonly referred to as the EU Pay Transparency Directive (the “Directive”).[1] This legislative measure marks a significant step forward in the EU’s ongoing effort to close the gender pay gap by introducing new standards of transparency around pay structures, recruitment processes, and employee rights. It enforces the long-standing principle of equal pay for equal work or work of equal value, extending it with practical and enforceable mechanisms to promote fairness and accountability.
By making reference to Article 11 of the United Nations Convention of 18 December 1979 on the Elimination of All Forms of Discrimination against Women,[2] which all Member States have ratified, the Directive provides that “States Parties are to take all appropriate measures to ensure, inter alia, the right to equal remuneration, including benefits, and to equal treatment in respect of work of equal value, as well as equality of treatment in the evaluation of the quality of work.”
Equal pay is already a constitutional and statutory right in Malta. Article 14 of the Constitution of Malta establishes that “the State shall promote the equal right of men and women to enjoy all economic, social, cultural, civil, and political rights”. It further mandates that appropriate measures be taken “to eliminate all forms of discrimination between the sexes”, including the assurance that women workers receive equal pay for equal work as their male counterparts.[3]
This constitutional obligation is reinforced by article 27 of the Employment and Industrial Relations Act (Chapter 452 of the laws of Malta), which guarantees the right of employees within the same class of employment to receive equal remuneration for work of equal value. Employers may introduce differentiated salary scales and increments only within the context of collective agreements and in compliance with anti-discrimination laws.
The Directive
The Directive applies across all EU Member States and to all employers, regardless of size or sector.[4] Its core aim is to enhance access to pay information and establish systems that ensure greater transparency in remuneration decisions.[5]
i. Prior to employment
From the recruitment stage onward, prospective and/or present employers are required to inform job applicants of the initial salary or pay range offered, including any relevant collective agreements, either in the job advertisement or prior to any interview.[6] Crucially, employers will no longer be permitted to inquire about an applicant’s previous salary history, a practice that has historically contributed to the perpetuation of pay inequality.
Crucially, job titles and vacancy notices must be gender-neutral, and the recruitment process must be free from any form of discrimination, in order not to undermine the right to equal pay for equal work or work of equal value (the ‘right to equal pay’).[7]
ii. During employment
Once employed, employees are entitled to request information, in writing on:
- their individual pay level;
- the average pay for categories of employees performing the same or equivalent work, disaggregated by gender; and
- the criteria used to determine pay levels and salary progression, which must be objective and gender-neutral.
Reporting on Pay Gap between Female and Male employees
One of the more far-reaching components of the Directive is its imposition of pay reporting obligations based on company size.
Category 1: As of June 2027, companies with two hundred and fifty (250) or more employees must report annually on their pay structures.
Category 2: As of June 2027, companies with between one hundred and fifty (150) and two hundred and forty-nine (249) employees will be required to report every three (3) years from the same date.
Category 3: Those companies with between one hundred (100) and one hundred and forty-nine (149) employees will begin reporting from June 2031.
Notably, the Directive dictates that Member States must provide support, in the form of technical assistance and training, to employers with fewer than two hundred fifty (250) workers and to the workers’ representatives concerned, to facilitate their compliance with the obligations of Directive.
With respect to reporting, employers must provide the following information concerning their organisation to their employees:
(a) the gender pay gap;
(b) the gender pay gap in complementary or variable components;
(c) the median gender pay gap;
(d) the median gender pay gap in complementary or variable components;
(e) the proportion of female and male workers receiving complementary or variable components;
(f) the proportion of female and male workers in each quartile pay band;
(g) the gender pay gap between workers by categories of workers broken down by ordinary basic wage or salary and complementary or variable components.
Joint Pay Assessment
Where these reports reveal an average gender pay gap between male and female employees, of 5% or more in any category of employees, that cannot be justified through objective and gender-neutral criteria, and where the employer has not remedied such an unjustified difference within six (6) months from the reporting, employers will be obliged to conduct a joint pay assessment. This assessment must identify the causes of the pay disparities and outline appropriate remedial measures to eliminate them within a reasonable timeframe.
Specifically, the joint pay assessment shall include[8]:
(a) an analysis of the proportion of female and male workers in each category of workers;
(b) information on average female and male workers’ pay levels and complementary or variable components for each category of workers;
(c) any differences in average pay levels between female and male workers in each category of workers;
(d) the reasons for such differences in average pay levels, on the basis of objective, gender-neutral criteria, if any, as established jointly by the workers’ representatives and the employer;
(e) the proportion of female and male workers who benefited from any improvement in pay following their return from maternity or paternity leave, parental leave or carers’ leave, if such improvement occurred in the relevant category of workers during the period in which the leave was taken;
(f) measures to address differences in pay if they are not justified on the basis of objective, gender-neutral criteria; and
(g) an evaluation of the effectiveness of measures from previous joint pay assessments.
The Directive also strengthens the rights of employees to seek redress for unequal pay. Employees who believe they have been subject to pay discrimination are entitled to claim full compensation, which may include back pay, bonuses, and non-material damages.[9] In such cases, the burden of proof fall on the employer, who must demonstrate that no discrimination has occurred.[10] Employers who fail to comply with the Directive may face strict penalties, including fines, and Member States are expected to implement enforcement mechanisms that are effective, proportionate, and dissuasive.
The Way Forward for Companies
From a practical standpoint, the Directive requires a cultural shift in how companies approach pay transparency and equality. Employers must prepare to respond to information requests from employees within two (2) months and proactively remind them of their right to request such data.[11] Companies will also need to develop internal systems capable of identifying roles that involve the same or equivalent value of work. This may include evaluating different job functions, based on skill, responsibility, effort, and decision-making levels.
The Directive does allow Member States to exempt employers with fewer than fifty (50) employees from certain obligations, such as making criteria for salary progression publicly available. However, these smaller employers are still required to provide pay transparency information upon request, and they are not exempt from the overarching principles of equal pay and non-discrimination.[12]
The deadline for transposition of the Directive into national legislation is 7th June 2026. While this may seem distant, companies are strongly encouraged to act now. Implementing transparent and fair pay structures not only mitigates legal and reputational risks but also contributes to a more equitable and motivated workforce.
The EU Pay Transparency Directive represents more than a regulatory obligation; it is an opportunity for employers to align their practices with the evolving expectations of fairness and equality in the workplace, sooner rather than later. By fostering open dialogue and embedding transparency into their pay policies, companies can help ensure that equal work truly receives equal pay.
How Can AE Help
Understanding and implementing the EU Pay Transparency Directive can be complex. At AE Legal, we offer clear, practical advice to help employers and employees navigate these new obligations with confidence. Contact us today for a free consultation.
[1] Directive (EU) 2023/970 of the European Parliament and of the Council of 10 May 2023 to strengthen the application of the principle of equal pay for equal work or work of equal value between men and women through pay transparency and enforcement mechanisms which may be accessed here.
[2] Which may be accessed here.
[3] This is moreover emphasized in article 21 of the Charter of Fundamental Rights of the European Union (the ‘Charter’) which prohibits any discrimination, inter alia, on the grounds of sex. Furthermore, article 23 of the Charter and article 23 of the Universal Declaration of Human Rights, inter alia, provides that equality between women and men must be ensured in all areas, including employment, work and pay.
[4] Article 2 of the Directive; [5] Article 4 of the Directive; [6] Article 5 (1) of the Directive; [7] Article 5 (3) of the Directive; [8] Article 10 (2) of the Directive; [9] Article 16 of the Directive; [10] Article 18 of the Directive; [11] Article 7 (4) of the Directive; [12] Article 6 of the Directive.
