The EU Pay Transparency Directive Transposition Deadline Is Closing In. Here’s Where Things Stand.

In 2023, the European Union passed the Pay Transparency Directive (EUPTD) to address gender pay disparities across the EU. The directive has two key components: pay transparency and pay reporting. Earlier, we outlined the core aims of the directive and some initial development of the pay reporting requirements. Now, as the transposition deadline of June 2026 draws closer, member states are actively working to translate the directive into national law.

In this article, we examine recent developments regarding the directive in several EU member states, address open questions and challenges, and include a tracker for ongoing updates.

Current Developments

As of July 2025, several EU member states are at different stages of transposing the directive.

Some states are transposing transparency and reporting simultaneously, often building on the existing national law and regulations. Here’s what we’ve seen so far from the member states that have drafted the transposition of specifically the pay reporting component, including some differences between the national pay reporting requirements and the general EU directive.

Belgium

Under Belgium’s existing pay gap reporting law, employers with 50-plus employees must conduct and share a gender pay gap analysis every two years.

The 2024 draft under the EUPTD requires the government and public sector employers (Fédération Wallonie-Bruxelles) of all sizes to publish annual gender pay gap and career progression assessments. Public employers with an unexplained gap of at least 3% (versus the directive’s 5% threshold) must carry out a mandatory joint assessment and remediation.

There has been no mention of private employers in Belgium’s 2024 transposition draft. This is expected to be updated by June 2026.

Finland

Employers with 30 or more employees are already mandated to prepare a gender equality plan, including a comprehensive pay survey, every two years.

The May 2025 proposal expands on the existing framework by introducing further measures to enhance pay transparency and tackle gender pay gaps for employers with 100 or more employees. This legislation aligns with the provisions set out in the directive and is anticipated to come into effect by May 2026.

Ireland

From June 2025, employers in Ireland with 50 or more employees will be required to report gender pay gap data annually, with reports due each November. This approach is more stringent than the EUPTD, which sets a minimum reporting threshold of 100 employees and permits phased reporting intervals based on employer size.

All in-scope employers must provide a narrative explaining the reasons for any gender pay gaps and outlining measures to address them, regardless of gap size. This goes beyond the EUPTD, which requires a narrative only if the pay gap exceeds 5%, lacks objective justification, and has had no corrective action taken on it within six months.

Lithuania

Under existing Labour Code and Equal Opportunities legislation, employers with 20-plus employees must report pay gap data annually.

To align with the EUPTD, Lithuania’s Ministry of Social Security and Labour published draft legislation in May 2025. The draft proposes keeping the reporting threshold at 20 employees (lower than the EUPTD’s minimum threshold of 100 employees) and retaining the annual reporting frequency.

Beyond that, the draft mandates that employers develop formal pay systems based on gender-neutral factors such as skills, effort, responsibility, and working conditions. It also builds upon existing reporting obligations by introducing a remediation requirement if an unexplained pay gap of 5% or more is identified.

Netherlands

The draft legislation published in the Netherlands in March 2025 proposes adopting the same thresholds and requirements as the EUPTD.

One additional obligation it introduces is that employers must justify how they group employees into categories and explain any gender differences in pay progression across those groupings.

Sweden

Under current Swedish law (the Discrimination Act 2008:567), all employers with 10 or more employees must conduct an internal annual equal pay review. These are to analyze pay differences (including effects from parental leave) and must be documented. Employers with 25-plus employees are required to develop broader equality plans based on the review findings.

The Swedish government intends to maintain the internal equal pay review requirement while adding another reporting obligation to align with new EU standards. The draft implementing legislation, published in May 2024, introduces additional pay reporting measures in line with the EUPTD.

Several other member states have prioritized implementing the pay transparency provisions. For a copy of our latest tracker showing transposition status and national requirements, please download via the form at the end of this article.

Potential Challenges

It’s hard enough to keep track of evolving national laws and varying implementation approaches under the EUPTD. But add the fact that these studies need to be performed for compliance, and the complexity—not to mention sensitivity—goes up even more. Careful planning, high-quality data, and close coordination across HR, compensation, and legal teams are a must.

Below is a discussion of some of the key challenges that the EUPTD doesn’t address but which employers may face as they prepare to meet these new requirements.

1. Job Comparability

As EU member states transpose the EUPTD into national law, one area where employers may encounter significant complexity is establishing and evaluating their job architecture. The directive aims to ensure “equal pay for equal work or work of equal value,” which means that pay comparisons are no longer limited to employees in identical or similar roles. Instead, employers need to show they’re equitably compensating jobs that are yielding equal value, even when job profiles may be completely different.

To meet this requirement, employers must adopt a gender-neutral methodology that evaluates roles based on four core factors: skills, effort, responsibility, and working conditions. Organizations may implement point-factor evaluation systems, such as those used in the UK or Canada. Alternatively, they can adapt existing job architectures to align with the new framework. Either way, this process will likely demand significant manual input, brainstorming, and collaboration across different functions. It also presents a structural challenge because most HR systems don’t have detailed data on attributes like effort or working conditions.

Further uncertainty stems from how member states will define “work of equal value” in their transposition laws. While the directive outlines the four core factors, it also allows for the consideration of additional criteria such as mental stress, decision-making, or degree of autonomy. As a result, the weighting and interpretation of these factors may vary across jurisdictions, adding another layer of complexity for multinational employers.

Finally, the directive permits the use of “hypothetical comparators” when no real comparator exists within the organization. This opens a difficult line of questioning for employers. Should they try to construct an internal comparator using existing roles, even if imperfect, or rely on a hypothetical one? And if the latter, what should that comparator look like—that is, what job characteristics, compensation benchmarks, or reference points should be used to make it credible? The lack of clear guidance in this area increases legal uncertainty and complicates internal alignment, particularly for employers operating across multiple jurisdictions and diverse labor markets.

2. Ambiguity in Compensation Definitions

Another area of potential complexity lies in determining what forms of compensation must be included in the pay equity analysis and how that compensation should be measured.

In general, the directive adopts a broad definition of pay that includes “wages, salaries or any other consideration, whether in cash or in kind, which workers receive directly or indirectly.” This includes less obvious components like meal vouchers, stock options, and employer contributions to pensions or insurance. The wide scope may require employers to consolidate data from multiple HR, payroll, and benefits systems, some of which may not be linked or standardized.

The directive doesn’t explicitly state whether pay equity analysis should be based on actual pay received or target pay. But it does suggest a preference for actual pay. This implies that organizations will likely need to base comparisons on what employees were actually paid, not just what they were eligible to earn. This is especially important for roles with large variable pay components. Examples include sales or executive roles where target and actual pay may diverge substantially and jobs that have equity as a part of the employees’ compensation. That said, some national transpositions may provide further guidance or flexibility on when it’s appropriate to use target pay—particularly for newer roles or jobs without sufficient historical earnings data.

To allow meaningful comparisons across different contract types and working patterns, the directive calls for pay to be expressed as both gross annual pay and gross hourly pay. This introduces the need to standardize, i.e., annualize different forms of pay to a 12-month full-time equivalent. Though this may seem like a simple math problem, there are several situations which raise questions and thus add complexity.

Full and part-time employees. For full-time employees, multiplying monthly gross pay by 12 may suffice, if all relevant pay elements are included. But should part-time employees be adjusted to full-time equivalent? For example, should someone working 20 hours per week in a 40-hour role have their pay scaled accordingly? And if so, should the comparison be made on actual hours worked, contracted hours, or a moving average?

Employees on unpaid or parental leave. How should these employees be treated? Should their pay be adjusted to reflect what they would have earned at full time? What if leave is gender-disproportionate, potentially skewing gender pay comparisons?

Irregular workers or freelancers. For roles with variable hours or piece-rate pay, what could be a stable unit for comparison? Should it be based on gross hourly earnings or something else?

Bonuses and allowances. Should bonuses or allowances that are received sporadically be prorated or averaged carefully? If bonuses are performance-based or non-guaranteed, should the employer use average payout or most recent actual payout?

Equity compensation. How should equity compensation be treated? Which value (target value, grant date value, or realizable value) provides the most stable comparison and is also compliant?

Neither the EUPTD nor any of the drafts transposed so far provide clear guidance on these questions. Therefore, at least for the time being, the answers are judgment calls that companies may need to make in advance and document clearly. This also calls for robust statistical analysis, rigorous sensitivity testing, and strong expertise in compensation. Without guidance from national laws, inconsistencies could arise between organizations—or even within an organization across departments or countries.

3. Remediation Dilemmas: What to Fix and How Far to Go

Another ambiguous aspect of the directive arises from the trigger of joint pay assessments and the required remediation that follows. The legal text states that “the joint pay assessment should be carried out if employers and the workers’ representatives concerned do not agree that the difference in average pay level between female and male workers of at least 5% in a given category of workers can be justified on the basis of objective, gender-neutral criteria”.

This leaves several open questions.

What, exactly, counts as a valid justification?

Seniority, education, performance metrics, geographic differentials, or market scarcity might seem defensible. But without clear guidance, each of these can be challenged. The “objective” test is also context-specific. A metric might seem neutral on paper but have indirect discriminatory effects in practice (e.g., valuing continuous service without accounting for maternity leave). The result is a tricky balancing act for employers. Under-explaining risks triggering unnecessary joint pay assessments, while over-explaining may invite scrutiny from unions, equality bodies, or courts.

How should employers justify pay differences?

Even after fixing on the objective, gender-neutral criteria, the method for justifying pay differences is vague. It’s unclear if this justification requires a narrative outlining individual circumstances, a data-driven analytical approach such as regression analysis, or some combination of both. Narrative explanations allow flexibility to describe contextual factors and individual situations, but they can appear subjective and may lack the quantitative evidence needed to demonstrate gender neutrality, leaving justifications open to challenge.

By contrast, analytical methods like regression analysis offer a more rigorous, data-driven, and objective way to quantify the impact of various factors on pay. This approach provides stronger evidence of gender neutrality, though it comes with nuances—such as data quality and model design—that we’ll discuss shortly.

How much justification is enough to avoid a joint pay assessment?

The directive doesn’t clarify whether partial justification of the gap below the 5% threshold is enough to prevent the assessment. For example, out of a raw 8% gap, suppose that objective factors such as performance differentials or labor market demand can explain 5% of the gap. In that case, the remaining 3% “unexplained” gap raises a critical question. Should the residual 3% gap be compared to the 5% threshold, or is the assessment triggered with a positive residual gap? Given this uncertainty, employers should take a cautious, proactive approach. The safest assumption is that only a fully explained gap might prevent a joint pay assessment. One practical step is to conduct a pre-directive pay equity audit and review all job classes in advance. This allows employers to identify potential gaps, implement corrective measures, and reduce the number of roles for which justification will be needed once the directive comes into effect.

Which gap must be addressed, the total (unadjusted) gap or only the unexplained (adjusted) portion?

The total gap is a straightforward, easily understandable figure. The adjusted gap, however, results from complex statistical models accounting for factors like experience, role, and education. Focusing only on the adjusted gap might be harder to explain internally and externally, potentially causing confusion or skepticism among employees and stakeholders. Additionally, if remediation targets the adjusted gap, this could leave substantial overall (unadjusted) pay disparities uncorrected, which may perpetuate perceived inequities or morale issues. Conversely, if employers aim to close the unadjusted gap, they risk remediating differences that are explained by objective factors, leading to over-compensation or distortions in pay structures.

How much remediation is sufficient? Is it enough to reduce the gap just below 5% to avoid the audit trigger, or should the unexplained gap be closed entirely to 0%?

If remediation aims only to reduce the gap just below 5% (let’s say 4.99%), female employees will still earn less than their male counterparts. So the pay gap will persist in practice, albeit legally tolerated. This could undermine the directive’s goal of substantive pay equity and leave room for ongoing dissatisfaction or claims. If remediation aims to close the gap entirely to 0%, employers will demonstrate a strong commitment to equity, but other job groups may be disadvantaged. For example, job classes with a raw pay gap of 4.99% wouldn’t trigger mandatory remediation and might be overlooked, leaving inequities unaddressed in those groups.

This vagueness mirrors a broader pattern in EU equal pay law. Earlier legislation, such as Article 157 TFEU and Directive 2006/54/EC, also established the right to equal pay but didn’t quantify how much of a gap must be remediated. As a result, courts have often focused on whether the employer can explain the gap, not on how much of it must be closed. In practice, this has led to settlements or non-specific remedies, rather than clear thresholds.

The directive’s threshold-based enforcement may inadvertently encourage strategic compliance over systemic equity, prompting employers to “manage down” a few problem areas while leaving smaller (but still meaningful) gaps in place. This could also breed internal inequities or erode trust if employees sense that only the most obvious gaps are addressed.

As more member states transpose the directive into national law, we may expect more detailed guidance or judicial interpretation to clarify these critical questions. Until then, employers are left navigating a legal gray area—one that demands looking beyond minimum compliance toward more principled, proactive approaches.

4. Small Sample Size Regression

An often underappreciated obstacle in pay transparency efforts is the analytical complexity involved in explaining pay gaps. While employers are expected to account for differences using neutral, job-related factors, the tools available often fall short, especially in organizations with fragmented or small job structures.

The most common method used to explain pay gaps is regression analysis, which assesses whether differences in compensation can be attributed to neutral, job-related factors such as experience, tenure, or performance. But there’s a catch. Regression relies on one key condition: sufficient data. Without enough observations, statistical models become unstable, results become unreliable, and conclusions become difficult to defend.

One possible solution is to group similar job roles together to create larger analytical cohorts. But this raises a difficult tradeoff between statistical reliability and job relevance. While combining, say, various engineering titles into a single category might produce a larger sample size, it risks masking important differences in responsibilities, skill levels, or compensation structures. Worse, aggregation may introduce noise, where pay variations are no longer truly comparable or interpretable.

There are also legal and ethical implications to consider. Over-aggregation may create the appearance of due diligence while failing to detect real disparities within smaller job groups. Conversely, too much disaggregation can lead to job classes that aren’t large enough to analyze, leaving gaps unexplained and unaddressed.

Wrap-Up

The EU Pay Transparency Directive is beginning to take shape at the national level. In the interim, however, a number of ambiguities and open questions remain. We expect more clarity as we get closer to the June 2026 deadline, but employers shouldn’t wait until then to get their pay equity house in order. A proactive stance toward assessing job comparability, data availability, and other building blocks of a robust analysis can help employers get on top of the process and lay the groundwork for a strategic, defensible solution.

We’re happy to elaborate on any of the points raised in this article. If you’d like to continue the conversation in the context of your own organization, please contact any of the authors.