Pay transparency: acting now is already overdue

For many years, the way companies set salaries, allocated progressions or adjusted recruitment proposals was largely shielded from the view of those on the outside - and, in many cases, also from the view of those on the inside. This margin of discretion was treated as normal. In many organisations, it was simply part of the culture.

Directive (EU) 2023/970 (the “Directive”) has changed that paradigm, imposing a profound transformation in the way companies set, communicate and justify remuneration. What is now at stake is the obligation to explain, substantiate and demonstrate, using objective criteria, how salaries are set, how progressions are decided and how pay differences are justified.

This is why, in this area, whatever companies do now is already overdue. The transposition deadline expired on 7 June 2026 and, as has become Portugal’s repeated practice, the Directive was not transposed within the established timeframe. But that is not the only reason for the urgency. The problems the Directive seeks to address already exist within organisations: accumulated inequalities, unclear criteria, informal practices, pay structures that are difficult to justify and decisions taken without proper traceability.

Key obligations for public and private sector employers:

Recruitment

The most visible change is, perhaps, the one affecting recruitment. Companies are required to disclose the initial pay or pay range before any interview, and are prohibited from requesting a candidate’s pay history - precisely because that history was, for years, one of the most effective mechanisms for perpetuating inequalities (Article 5 of the Directive).

This means it is no longer viable to invite candidates to lengthy processes, assess profiles, test availability and only reveal figures at the end. This may appear straightforward on paper, but it requires reviewing procedures, job advertisements, interview scripts, recruitment practices and even the preparation of those conducting selection processes. In many organisations, the first difficulty will not lie in the legal rule itself, but in the fact that the organisation has never formally defined consistent salary ranges for particular roles (Article 5 of the Directive).

Internal pay structure

The central issue does not lie solely in what happens at the point of entry. It lies in what already exists within the organisation. The Directive requires a review of base salaries, supplements, bonuses, benefits, job classification and progression criteria. The analysis must be integrated: it is not enough to verify whether two people in the same category earn the same, it is necessary to understand whether different roles correspond, in practice, to work of equal value and whether existing differences can withstand objective scrutiny (Articles 4 and 6 of the Directive).

This is where many companies will realise that the problem does not lie solely in isolated deviations. It often lies in the model itself. There are organisations where pay policy was never formally conceived, it simply evolved. There are progressions based more on habit than on criteria. There are supplements whose rationale no one can confidently explain. There are pay differences resulting from old negotiations, urgent hiring decisions or simple negotiating leverage.

All of this, which was for a long time tolerated as part of management practice, now represents risk.

Existing contracts and clauses

One of the most common mistakes is to assume that these requirements apply only to new hires. That is not the case. Existing contracts also come under scrutiny. Clauses relating to remuneration, pay confidentiality and progression may need to be reviewed (Articles 6 and 7 of the Directive). More than that: even where the problem does not lie in the clause itself, it may lie in the practice that has developed around it.

The same applies to progressions. In many organisations, pay differences do not arise at the point of hiring, but over time, as some employees advance faster than others, without the criteria being sufficiently clear, consistent or documented. The Directive targets precisely this: progression can no longer be a largely unscrutinised internal decision, it now requires consistency, traceability and justification.

Internal information and comparison

Pay transparency does not mean that all salaries become public. It does mean, however, that workers gain stronger tools to determine whether they are, or are not, facing an unjustified pay difference. Workers acquire the right to access information about their own remuneration and the average pay levels of comparable categories, broken down by sex, as well as the criteria for remuneration and progression (Article 7 of the Directive).

This has two immediate consequences. The first is legal: where there was previously opacity, there is now a basis for challenge. The second is organisational: where there was previously silence, there is now comparison, a perception of inequality and internal pressure to explain decisions.

Pay Reporting

Employers with 100 or more workers are subject to the obligation to periodically report pay disparities between men and women, covering, amongst other elements, the pay gap, variable components, the median and the distribution by pay quartile (Article 9 of the Directive).

The deadlines are staggered by size:

• Employers with 250 or more workers must report annually from June 2027;
• Employers with between 150 and 249 workers, every three years from the same date;
• Employers with 100 to 149 workers, from June 2031;
• Employers with fewer than 100 workers are excluded from this obligation, unless national law provides otherwise.

Burden of proof and liability

Another aspect that many companies still underestimate is the role that workers’ representatives and trade unions may come to play in this context. The Directive reinforces access to information and the relevance of the joint assessment of pay disparities in certain cases, enhancing the capacity for collective intervention. Where a significant pay difference exists without objective justification, the matter ceases to be merely an issue between worker and employer, it can become a trade union, reputational and even strategic concern.

In the event of litigation, the Directive provides for the reversal of the burden of proof, with particular stringency where the employer has not complied with its pay transparency obligations (Article 18 of the Directive). In practical terms: where a company cannot demonstrate, with confidence, why a pay difference exists, it no longer faces a communication problem. It faces a problem of proof.

Added to this are effective and dissuasive sanctions, including full compensation with no pre-set upper limit (Articles 16 and 23 of the Directive). It is also worth noting that pay transparency is a cross-cutting matter: it involves legal, HR, compliance, management, finance and information systems. Those who attempt to resolve this with a template change in job advertisements or an internal note on pay equality will fall far short of what the Directive requires.

What employers should do

Almost all companies will eventually adapt. The real difference will lie in whether they do so preventively or reactively. Those who prepare early can review criteria with greater composure, correct asymmetries gradually, organise internal data, train teams and reduce exposure. Those who wait until legal or trade union pressure becomes concrete will have less room to manoeuvre, less time and, in many cases, greater cost. In particular, we recommend:

1. Audit of the existing pay structure;
   
   
2. Definition or review of pay grades;
   
   
3. Review of contracts and internal policies;
   
   
4. Creation of traceable progression criteria;
   
   
5. Training of teams;
   
   
6. Adaptation of recruitment processes.

Pay transparency is not merely another compliance obligation. It is a test of organisations internal robustness. And, as with almost all serious tests, the problem rarely lies on the day of assessment - it lies in the time that was not put to use beforehand. For many companies, the question is no longer whether this issue will arrive. The question is whether, when it fully arrives, there will still be time to address it calmly.

Our team continuously monitors developments in European employment law and is equipped to support companies in analysing their pay structures, reviewing contracts and defining internal policies in compliance with the Directive.

For more information about our Labour practice, please contact our team.