Pay Transparency Directive: On its background and the possibilities for exemption from some of its provisions
The European Union’s Pay Transparency Directive 2023/970 brings significant changes for employers (and employees). The aim of the regulation is to promote the principle of “equal pay for equal work” and to highlight gender pay gaps. Although the largest administrative burdens will fall primarily on larger employers with at least 100 employees, smaller companies will not be unaffected either. EU member states must implement the Pay Transparency Directive into their national legislation by 7 June 2026, which means that these rules will likely be applicable to domestic employers starting from next summer.
Companies with fewer than 100 employees are not subject to the regular pay gap reporting obligation and are not required to conduct joint pay assessments with employee representatives if there is an unjustified difference of at least 5% between the average pay levels of female and male employees. Furthermore, these employers will not be required to submit data to the authorities or disclose pay differences. The opposite is true for larger employers, who, in addition to pay assessments, must also develop corrective and preventive measures to ensure equal pay in accordance with the directive. We note that Hungarian regulations may also lay down rules that are stricter than those in the directive, and may even impose the same rules on all employers, but the likelihood of such stricter regulations is very low. Regardless of this, the long-term impact of the directive is likely to affect these employers as well, since, as explained below, employees may request information about their pay.
Rules from which there are no exceptions
It is important to note that the general transparency rules of the directive apply to all employers, regardless of size. Job applicants must always be informed in advance of the starting salary or salary range, and gender-neutral language must be used in both job advertisements and job titles. Applicants may not be asked about their previous or current pay. The criteria used to determine the remuneration, pay levels and pay increases of employees must be defined by each employer in an objective and gender-neutral manner and made easily accessible to employees. At the request of the employee, employers will be required to disclose data on the employee’s individual pay level and the average pay level of colleagues performing the same or equivalent work, broken down by gender. Furthermore, contrary to current general market practice, employees will not be prohibited from discussing their pay with each other or even disclosing it. It is important to note that in the event of a legal dispute, the employer will have to prove that there was no discrimination.
How should the number of employees be calculated?
Presumably, from the date of entry into force of the legislation, the number of employees will have to be determined based on the definition in Act XXXIV of 2004 on small and medium-sized enterprises and the promotion of their development (SME Act), so even smaller employers may be subject to the stricter provisions of the legislation due to the group level calculation.
What does it mean in practice?
While larger companies will have to regularly collect data, prepare reports, and take action based on them, for smaller businesses, the regulation means ensuring transparency in their day-to-day operations. Although they have no administrative reporting obligations, they will have to operate their labor market presence and internal remuneration systems in a much more transparent manner in the future.
For this reason, it is advisable for all employers to start preparing for the legislative changes, especially in case of certain HR processes.
dr. Zsófia Somlóvári / dr. Bence Tóth
