Navigating the EU Pay Transparency Directive

The EU Pay Transparency Directive (EUPTD) introduces binding measures to enhance pay transparency and promote fair compensation practices across all EU member states. While implementation timelines and approaches to transpose the EUPTD into national law vary by country, companies face similar challenges in preparing for compliance. This article provides a multinational perspective, covering the EUPTD’s core objectives, country-specific insights, and practical steps to meet transparency requirements across Europe.

The EUPTD establishes, for the first time, uniform and legally binding standards across all EU member states aimed at promoting pay equity through enhanced transparency. The Directive will enter into force on 7 June 2026, with the first reporting obligations due by 7 June 2027. Key requirements include:

Mandatory pay transparency measures before and during employment

• Disclosure of salary information: Employers must provide information on salary ranges or starting salary during the recruitment process. Questions about applicants’ previous remuneration are prohibited.
• Information obligation: Employers are required to proactively inform employees about the objective, gender-neutral criteria used to determine, set, and develop compensation.
• Right to information: Employees have the right to access information on their individual pay as well as the average pay for comparable roles, broken down by gender.

Regular gender pay gap reporting obligations consisting of two distinct reporting layers

• Overall pay gap reporting: Employers must report on gender pay gaps covering both basic and variable pay. Reports must include mean and median gender pay gaps, the proportion of female and male employees receiving variable pay, and the distribution of women and men across pay quartiles.
• Worker category reporting: In addition, employers are required to report gender pay gaps according to worker categories, broken down by basic and variable pay components. Where an unexplained gender pay gap of 5% or more is detected and cannot be justified by objective, gender-neutral criteria, or where such a gap is not remedied within six months of reporting, a joint pay assessment must be conducted with employee representatives. Employers are required to implement corrective measures.
• Reporting thresholds and deadlines: Employers with 250 or more employees must report on their gender pay gap annually, with the first report due by 7 June 2027. Employers with 150 to 249 employees are required to report every three years, also starting on 7 June 2027, while employers with 100 to 149 employees must report every three years beginning on 7 June 2031. Employers with fewer than 100 employees are generally exempt, unless national legislation provides otherwise.
• Sanctions for non-compliance: Financial penalties may apply in cases of non-compliance with reporting obligations.

A recent case and court decision from German already demonstrates the increasing legal and financial risks associated with unequal pay. These risks are expected to intensify with the implementation of the EUPTD, particularly where reward structures, and pay-setting mechanisms are not reviewed, corrected, and documented before pay data becomes transparent through the first mandatory reporting on 7 June 2027.

Under EUPTD, employees will be entitled to enforce equal pay rights in court, while the burden of proof will lie with employers, who must demonstrate the absence of both direct and indirect pay discrimination. If employers are unable to rebut a presumption of gender-based disadvantage, they may be required to implement ongoing pay adjustments, pay salary differentials retroactively, and compensate affected employees for non-material damage. Beyond these legal and financial consequences, equal pay violations also carry substantial reputational risks, potentially undermining employer branding and long-term recruitment and retention efforts.

The upcoming EUPTD is particularly demanding for multinational companies because it creates not one rulebook, but many. While the Directive sets minimum standards, each member state can add stricter national obligations, resulting in a regulatory patchwork that multinationals must navigate if they operate in multiple EU markets. This is not only a challenge for European firms, but also for global companies with subsidiaries or employees in the EU.

That is why a global strategy, rather than a series of ad hoc local solutions, is increasingly becoming the smart approach. We see many multinationals steering preparation centrally, building a single, consistent data foundation and technology solution that can serve all relevant countries. A key challenge in this process is determining which data points to include, balancing comprehensiveness with practical feasibility. The reporting requirements in the EUPTD should serve as a guiding framework, but compliance shouldn’t stop at the Directive’s minimum standards; data strategies should also align with the strictest national legislation.

Sweden already shows why this matters. National rules are expected to require deeper pay analyses, including the impact of parental leave. Collecting and integrating parental leave data is therefore essential to ensure local compliance. In practice, this means that central HR governance becomes the backbone for global reporting and technology systems, while local HR teams should be empowered to apply specific legal requirements and produce compliant country-level reports.

With only a few months to go before the Directive takes effect, and with many national laws still unpublished, the EUPTD remains the only stable reference point. At the same time, continuous monitoring of national developments is essential, and the global data model must be flexible enough to integrate additional data points later. This is where the global network of KPMG firms becomes extremely valuable for our clients. Combining reward strategy, legal, and data perspectives, we started early to jointly work on solving the complex challenges our clients are expected to face. Through this network, we stay up to date on the latest national legal developments and can bring this knowledge directly into our work with clients.

As one of Europe’s largest economies, Germany’s approach to implementing the EUPTD is attracting particular attention, as it is widely expected to set an important reference point for other member states. In Germany, the legislative process is currently expected to be initiated by the end of 2025; as of now (March 2026), no draft bill has been published. The recent publication of the final report of an Expert Commission advising the German government therefore provides valuable early insight into how national implementation may unfold – not only in Germany, but potentially beyond.

A central message of the report is clear: Implementation should follow a “low bureaucracy” and pragmatic approach, closely aligned with the Directive. For employers, this signals a regulatory direction that prioritizes practical feasibility over formal complexity. For example, the Commission advises using the Directive’s definition of work of equal value instead of introducing a separate national definition. The same pragmatic mindset is evident in the Commission’s recommendations on the employee right to information and gender pay gap reporting. Limiting individual information requests to once per year and encouraging simplified reporting, particularly for small and medium-sized organizations, through templates, digital tools, and alignment with existing reporting obligations such as sustainability reporting, clearly reflects an effort to balance transparency with operational manageability.

Of particular relevance for companies across Europe are the Commission’s recommendations on how to treat benefits under the EUPTD. By proposing to include only remuneration components that are directly linked to work performance and clearly identifiable, such as base salary and variable pay, the Commission takes a proportionate stance. Excluding voluntary, optional, or non-cash benefits, as well as payments not linked to performance, addresses a key practical challenge faced by many organizations: Benefit data is often fragmented, difficult to standardize, and resource-intensive to analyze, while potential benefit-related pay gaps are typically smaller than those in fixed or variable pay. At the same time, a pragmatic approach does not mean ignoring benefits altogether. Even under this model, organizations would be well advised to conduct a basic as-is review, map benefit recipients, and document allocation principles to help ensure defensibility.

In the Netherlands, implementation of the EU Pay Transparency Directive is already taking shape through a published draft bill transposing the Directive into national law, with the legislator aiming for entry into force as of 1 January 2027. This proposal builds on the Netherlands’ long‑standing equal pay framework, which already enshrines the principle of equal pay for equal work or work of equal value and is supported by a strong system of employee participation through works councils. The draft legislation broadly follows the structure and minimum requirements of the Directive, rather than introducing a fundamentally new or more restrictive national regime. Nevertheless, the practical impact for employers should not be underestimated. Expanded employee rights to pay information, detailed gender pay gap reporting, and the potential obligation to conduct joint pay assessments will significantly increase the need for clearly defined, well‑documented, and objectively justified pay structures, policies, and decision‑making processes.

Despite differences in national legislation, companies face a set of recurring challenges in implementing pay transparency. These range from defining worker categories, handling different elements of pay, ensuring accurate, accessible HR and payroll data to fostering a cultural shift toward transparency. To address these challenges, we recommend companies take several steps on the path to pay transparency:

The timeline is clear. Compliance with the EUPTD is required by June 2026, with mandatory reporting starting in June 2027. Organizations that postpone preparation risk being pushed into reactive compliance; at a point where structural weaknesses can become visible, costly, and difficult to remedy. Pay transparency is no longer a distant HR topic, it has become an immediate strategic priority.

While national implementation may vary, the central requirement is the same across Europe: Employers must be able to clearly explain, justify, and defend how pay decisions are made. Organizations that act early, by establishing robust job and pay structures, building reliable data foundations, strengthening governance, and actively managing the cultural shift toward greater transparency, will not only help reduce legal and financial risk, but also turn readiness into a competitive advantage. 

Our five-step approach provides a pragmatic roadmap for navigating pay transparency across Europe. Supported by the KPMG global network and combined experience of reward strategy, legal, and data specialists, we help organizations understand where they stand today and what to tackle next on the path toward pay transparency.