When multinationals expand their operations into Europe, there are multiple people issues to be aware of, from navigating the diverse cultural landscape, including cultural norms, work ethics, and communication styles; to language barriers; and the complex labour market. One particular area of focus that has grown in importance recently is the pay equity- and transparency-related regulations that many multinationals with headquarters outside of Western Europe and North America may not be fully aware of. The EU Pay Directive comes into effect in 2026 – and non-compliance can cost not only the company’s reputation but also millions of euros in penalties.
When managing compensation and benefits, one key challenge is to strike the right balance between being market pay competitive, internally equitable, and able to recognise individual contributions (Figure 1).
For-profit organisations often tend to prioritise market competitiveness and individual contributions at the expense of internal pay equity. In its commitment to equal pay, the European Union (EU) is now using greater pay transparency and enforcement rights as the way to ensure employers deliver equal pay.
This chart highlights effective pay management as a three-way balancing act that focuses on:
What is the purpose of the EU Pay Transparency Directive?
The main purpose of the EU's Pay Transparency Directive, which comes into effect in 2026, is to address and reduce the gender pay gap within the EU by promoting transparency and ensuring equal pay for equal work or work of equal value.
Who and what is subject to this legislature?
All private and public sector employers in each of the 27 member states of the European Union, regardless of the size of operation, are subject to this law. The definition of pay in the Directive covers all pay including base, variable, benefits in cash and in kind.
What are the specific requirements?
The EU Pay Transparency Directive includes several key requirements, including:
These requirements are designed to create a more transparent and equitable pay structure, helping to reduce the gender pay gap and promote fair treatment in the workplace. Member states are expected to implement these provisions into their national laws, adapting them to their specific legal and organisational contexts.
There’s a broad spectrum of pay-related information that’s shared with employees, but the key aspects can be summarised by the six main stages (Figure 2) below.
This framework outlines the progressive stages of pay transparency within an organization, reflecting both employee awareness and regulatory expectations:
What is the timeline for compliance?
The EU Directive passed in 2023 and has given up to three years for the individual member states to transpose the requirements into local law – i.e. by 2026 at the latest.
Transposition progress: To date, two members states have issued draft regulations to adopt the Directive into local law: Sweden and the Netherlands. These draft regulations have largely followed the terms of the Directive. We are hearing of progress in many other EU member states towards issuing draft regulations.
Compliance for employers: Once the directive is transposed into national legislation, employers in member states will be required to comply with the new local rules. WTW will be providing updates on transposition through our Global News Briefs. It is important for employers and other stakeholders to stay informed about the specific timelines and requirements set by their national authorities, as these will detail the exact compliance dates and procedural requirements based on the transposed national laws.
What are the consequences of non-compliance?
If a company doesn't comply with the EU Pay Transparency Directive, it can face several, often severe, consequences:
Each EU country will have specific details on these consequences based on how they implement the Directive into their national laws.
There are several immediate actions for the headquarters of multinationals overseeing operations in Europe, including:
fullscreenEnlarge sample EU Pay Transparency Directive preparation roadmap
This roadmap outlines a phased approach to help organizations prepare for compliance with the EU Pay Transparency Directive:
The roadmap centers on data analytics, HR operations, and stakeholder engagement, ensuring organizations are prepared for transparent and equitable pay practices.
Practically, broader preparation activities will require:
If your organisation plans to or already operates in Europe, addressing the Pay Equity and Transparency Directive should be a key part of your Total Rewards agenda. It not only requires specific actions but also provides the opportunity to reap the broader benefits of internally consistent pay.
Furthermore, it provides headquarters with a unique opportunity to review their parent role towards international subsidiaries on their journey to ensure that HQs take ownership of HR strategies, programs, and policies that are most effectively managed from headquarters.
WTW has an expert team available to help you in your headquarters location and in Europe on all aspects of Directive preparation, including analytics, pay, benefits and communication. Further information on the Directive and our services can be accessed here: Pay Transparency Legislation.
