Pay transparency is set to take effect in the EU. Here’s what HR should know.

Pay transparency legislation taking effect in the European Union this June is set to have a major impact on multinational firms with employees in EU member states.

If HR teams have been slow to get up to speed on this one, it may be partly because EU countries have been dragging their feet on it, too. As of June 1, just four EU member states—Italy, Slovakia, Malta, and Lithuania—had adopted legislation to carry out the requirements of the EU Pay Transparency Directive, according to tracking from pay equity software firm Trusaic. Sweden has already said it will be late on passing a law in accordance with the directive.

“We’re all working with 80% information until things come into law,” Steve Guyer, head of rewards and career advisory with Aon’s North America Talent Solutions, said.

What’s certain is that starting on June 7, employers with workers in the EU will have to, at a minimum:

• Share information about the starting salary or pay range for open roles with job seekers
• Respond to employee inquiries about average pay levels and criteria for determining pay at their organizations
• Refrain from asking job candidates about their salary history
• Prepare to report their gender pay gap either annually (for employers with 250+ workers) or every three years (employers with 150–249 workers). Those reports will be due starting on June 7, 2027.

EU countries may enact legislation that goes even further than these requirements, Guyer said. In the meantime, employers should prepare to comply with the minimum EU-wide requirements, “then build in that flex to finish it out when things are transposed at the local, member state level,” he said.

Checking in with managers. Ahead of the EU directive taking effect, HR teams can “assess the preparedness of [their managers].” Guyer said. Just 8% of employers in North America said their managers were “highly ready” to have pay transparency conversations, while 4% of employers in the EMEA region reported this level of readiness, according to a recent Aon pulse survey.

Having conversations with employees about pay today is more complex than it was a decade ago, Guyer noted. “The level of transparency in the marketplace,” he said, “causes them to have a lot more questions than they ever have.” In conversations with their managers, workers may want to know how pay ranges were built, and whether they’re market competitive, he said. Outside the US, additional types of compensation, like meal and location allowances, might come into play, too.

To make sure managers are ready to answer these questions, Guyer recommended developing toolkits and training about the EU directive specifically, including information about details such as elements of pay, how pay ranges are created, and “differentiating factors” that can affect where a worker falls within the pay range. Putting these details in a living document may help account for changes in the law.

HR teams should ensure “managers are equipped to have conversations with employees who are going to come back with questions,” Brian Levine, a partner and pay equity consulting leader with Merit Analytics Group, said. In light of what transparency reveals, workers are likely to ask, “Why am I paid what I’m paid?” So “ensuring that managers have the tools and the training to respond to those inquiries is going to be really important.”

Room for improvement. Back in March, Tauseef Rahman, a partner with professional services firm Mercer, said he continued to be surprised at “how some US organizations are just starting to appreciate the breadth and depth” of the EU directive.

Indeed, the EU requirements go further than pay transparency laws now in effect throughout much of the US, as businesses will be held publicly accountable for their gender pay gaps. EU member states are required to impose penalties on employers that are found in violation of the directive, and fines could range from “hundreds to millions of euros,” Wenchao Dong, senior director of global practice and policy with the CHRO Association, wrote in a blog post.

Satisfying minimum pay transparency standards on a country-by-country basis may keep employers compliant, but this strategy can be hard to communicate to employees, “because you have to explain why you have chosen not to do something in another country where it’s not required.”

Policies like the EU directive, Rahman previously told HR Brew, may challenge organizations “to rethink transparency as a topic much more strategically.”