How to turn EU Pay Transparency Rules into a competitive advantage

The EU Pay Transparency Directive is here - find out what it means for your company and why early action matters.

In brief

• The EU Pay Transparency Directive requires companies to disclose pay data, ensure fairness, and adopt transparent HR processes.
• Proactive compliance can strengthen trust, improve employer branding, and turn pay transparency into a strategic advantage.
• Organizations must invest in data readiness, policy updates, and cultural change to meet the June 2026 deadline effectively.

The EU Pay Transparency Directive marks a turning point for European companies - not just as a regulatory requirement, but as a strategic opportunity to strengthen employee trust, optimize pay policies, and position themselves as an employer of choice in a competitive talent market.

Although Denmark has had an equal pay law since 1976,^[1] women still earn, on average, 13.9% less than men.^[2] This challenge is not unique to Denmark; across the EU, women earn an average of 12% less per hour than men^[3]. The EU Pay Transparency Directive addresses this issue by creating greater transparency on pay and empowering employees to secure fair compensation.

With the implementation deadline in June 2026, Danish companies have an opportunity to get a head start on transforming transparency requirements into tangible business benefits. Organizations that act proactively can not only ensure compliance but also build a stronger employer brand and improve employee retention at a time when talent is a critical competitive differentiator.

What the directive requires from companies

The directive introduces concrete obligations that change how companies handle pay. During recruitment, salary ranges must now be disclosed in advertised positions, and questions about candidates’ previous pay are no longer permitted. Employees gain the right to request information about average pay levels for comparable roles broken down by gender, as well as the criteria used for pay and career progression.

These requirements call for a transformation of human resources (HR) processes and pay policies, and for many companies, an adjustment or activation of existing data infrastructure. It is not just about being able to deliver the required information but about ensuring that the data shared can be justified through objective and gender-neutral criteria.

When companies implement these requirements strategically, value is created through:

• Documented fairness that strengthens the company’s reputation
• Increased employee trust when transparency replaces uncertainty
• Objectively based pay structures that reduce bias and inconsistency
• A structured approach to talent recruitment based on clear criteria

Pay as a strategic asset

One of the most significant changes is the requirement for pay transparency reporting. Companies with over 250 employees must report annually on gender-based pay differences, while companies with 100–249 employees must report every three years. If the reported pay gap exceeds 5% and cannot be objectively justified, the company must conduct a joint pay assessment in collaboration with employees. This assessment must include a review of pay structures and policies, an analysis of gender-based pay differences, and the identification of corrective measures.

To comply with the new reporting requirements, companies must be able to extract, structure, and analyze pay data in a way that enables gender-disaggregated reporting and assessment of pay differences. For some companies, this may require investments in new analytical tools and processes, while others may already have the necessary infrastructure in place and should instead focus on activating and utilizing existing data.

Employee empowerment and immediate impact

Once the directive takes effect, employees gain the right to request insight into pay levels for comparable roles and the criteria used to determine their own remuneration. Companies should expect to receive many of such requests and ensure they can provide clear, well-structured responses. Having transparent documentation ready is key to meeting legal obligations and avoiding uncertainty or mistrust.

If differences of more than 5% between male and female employees cannot be objectively explained, employers may be required to conduct a joint pay assessment. This mechanism gives employees and their representatives a direct role in addressing inequalities and highlights the importance of companies to have transparent and well-documented pay structures. Preparing in advance helps organizations respond with confidence and demonstrate accountability in a way that builds trust with employees.

A shift in organizational culture

Implementing pay transparency requires a cultural shift in many organizations where pay has traditionally been a sensitive and closed topic. The directive makes this shift mandatory. Leaders and HR professionals must now be able to communicate clearly and transparently about pay, both internally with employees and externally with stakeholders.

This cultural shift involves concrete challenges:

• Managers and team leads must be equipped to engage in objective and constructive conversations about pay
• HR processes need to be structured to support transparency and consistency across the organization
• Communication strategies must be developed to address both internal and external stakeholders

When companies master this transformation, strategic value is created through increased employee trust, clearer expectation alignment, and a more professional approach to compensation. The organization becomes better equipped to attract and retain employees who value clarity and fairness in the work environment.

How to prepare for EU Pay Transparency compliance

Preparing for compliance with the EU Pay Transparency Directive can involve five key steps: assessing current pay practices, ensuring data readiness, updating HR policies, training leaders and HR teams, and developing clear communication and reporting strategies.

1. The first step is to assess current pay practices. This means mapping existing pay structures and decision-making processes to identify any gaps compared to the directive’s requirements. Understanding where your organization stands today is essential for building an effective compliance roadmap.
   
   
2. Data readiness is another critical component. Companies must ensure they have the infrastructure to support gender-disaggregated reporting and pay gap analysis. For some, this may require upgrading systems or implementing new tools, while others may focus on activating and optimizing existing capabilities.
   
   
3. Updating HR policies and processes is equally important. Recruitment practices should be revised to include salary range disclosures and remove questions about previous pay. Organizations also need to define clear, objective criteria for pay and career progression to ensure fairness and consistency.
   
   
4. Training plays a key role in successful implementation. Managers, team leaders, and HR professionals must be equipped to communicate transparently about pay and handle employee requests for information confidently and consistently. This cultural shift requires clear guidance and practical tools for those on the front line.
   
   
5. Finally, organizations should develop communication and reporting strategies. Internal communication plans help employees understand the purpose and benefits of pay transparency, while external strategies ensure compliance reporting is accurate and timely. Establishing these processes early reduces risk and builds trust.

Starting now allows organizations to avoid last-minute compliance challenges and turn this regulatory requirement into a strategic advantage.

Early action not only ensures readiness but also strengthens employer branding, and fosters a culture of fairness and transparency. Once the directive takes effect, many employees are likely to request insight into pay data and criteria for remuneration. Companies that prepare clear, accessible information and processes in advance will be able to handle these requests efficiently, avoid uncertainty, and demonstrate a genuine commitment to fairness.

The EU Pay Transparency Directive represents a structural change in how companies must operate going forward. The directive requires concrete actions and investments, but when these are implemented strategically, they create value through improved processes, better data insights, and a stronger organizational culture.

Are you ready to transform pay transparency into a competitive advantage for your company? Contact our EY professionals for a conversation about how we can help you navigate the requirements and strengthen your pay strategy.