Insights

In less than 18 months, a new European Union directive will come into force to tackle the gender pay gap.

Across the EU, women earn 13% less than men on average. The new directive, which comes into force in June 2026, promotes fair pay practices by increasing transparency and accountability. One impact of this transparency is that pay bands must be disclosed early in the hiring process. It also paves the way for existing gaps within an organisation to be revealed. 

Research shows that 63% of companies do not currently communicate salary ranges to employees, and sixty-nine per cent do not have a pay transparency communication strategy. With only 18 months to go until the legislation comes into force, only about half of companies have conducted an independent pay equity analysis.

While the UK government currently only mandates gender pay gap reporting for companies with 250 or more employees, this change to EU legislation impacts smaller businesses. It also has the potential to create a knock-on effect as companies seek to implement a standardised approach to hiring inside and outside the EU.

The requirements for employers include:

• Organisations with 100 employees or more must disclose the gender pay gap yearly and make certain information visible at job interviews.
• Pay gaps that exceed 5% and can not be explained by legitimate factors prompt a joint pay assessment and action plan.
• Disclosure mandates to give employees access to information in a bid to encourage fairness. This means employees will be able to request mean pay levels by gender for employees carrying out similar work.
• Increased transparency so that employees understand their pay levels and job seekers can see pay ranges.

In practice, this means that employers must disclose salary ranges and are prohibited from inquiring about a candidate's pay history (EY). The law also requires the employer to explain differences in pay where they occur. However, it does distinguish between explained pay gaps (differences in skills and experience, for example) and unexplained pay gaps where no reason is evident.

As defined in the EU Directive, pay doesn’t just mean compensation; it means retirement and health benefits, bonuses and perks. And transparency doesn’t just refer to showing salary ranges in job postings; it means doing the challenging but important work of analysing and reducing the pay gap for people doing similar work. In short, pay transparency means changing the way companies hire, compensate and reward employees. Organisations will need to link titles to pay consistently, and perks and allowances outside of basic remuneration must have a clear rationale.

How to prepare

• Conduct an independent pay equity analysis to assess the situation in your workforce.
• Review the job architecture within your organisation, including the roles, job families and salary bands.
• Plan the training of HR, TA and hiring managers on the new legislation.
• Draft careful, personalised communication which acknowledges and addresses potential questions and frustrations.
• Create time for further conversations to address any disparities. 

This article is intended to provide a general overview and should not be relied upon for guidance specific to your organisation. For tailored support, contact us directly at hello@talentinsightgroup.co.uk