Pay transparency in EU - Guide for employers on implementing pay transparency
What does the Pay Transparency in EU prescribe? A detailed guide for employers and HR professionals on the implementation of pay transparency, the reduction of the gender pay gap, and the specific steps required to establish a transparent, consistent, clear, and sustainable compensation strategy and income management.
Pay transparency in EU
- Guide for employers on implementing pay transparency
Compensation is one of the most sensitive topics in the workplace—yet it is often one of the least consciously managed areas. Leaders frequently make decisions regarding raises, offers, or bonuses without clear, systemic compensation strategies or processes, and without objective criteria to support those decisions. Instead of relying on structured procedures, decisions are often based on feelings, sympathies, or “gut instincts.” This not only leads to unfair treatment of employees but also undermines the organization’s long-term performance.
As an HR professional or leader, you have probably already read articles about the EU’s Pay Transparency Directive, but let me emphasize: this is not the time to lean back. This is a topic employers cannot prepare for in a “firefighting mode”. In this article, we provide a detailed guide for employers and HR professionals on how to prepare for and implement salary transparency in Hungary.
Why (and how) you should start addressing pay transparency now?
When an employer lacks a well-thought-out salary strategy and related policies, HR professionals regularly encounter situations where managers make pay decisions based on personal impressions rather than objective criteria. Raises are often not determined by the job’s complexity, responsibilities, required problem-solving abilities, leadership skills, measurable performance outcomes, achievement of business objectives, market benchmarks, or the employee’s position within the pay range. Instead, the justifications tend to sound like: “It’s been a long time since they got a raise,” “They’re a nice person,” “They work very hard,” or “They are indispensable.” While the good intentions are not in doubt, this kind of practice systematically generates inconsistency, rewards poor performance, fails to reward high performers, creates unfairness, fuels pay tensions, and leads to demotivation.
To make matters worse, a 2023 study found that women’s gross salaries in the European Union are still on average 12% lower than men’s—and in Hungary, this gap is nearly 18%.
The directive introduces significant new requirements in several key areas:
Employers must inform applicants of the salary range for the position in the job advertisement or before the first interview, and it will be prohibited to ask about their previous salary. This change will radically transform recruitment communication – the practice of stating “salary to be agreed” in job postings will no longer be acceptable.
2. Employees’ right to information – transparency for existing employees
Employees may request information on “their individual pay level and the average pay levels, broken down by gender, for categories of workers performing the same work or work of equal value. This also means that “quiet pay discrepancies” can no longer remain hidden.
A compensation strategy and system of compensation processes cannot be quickly put together with a template downloaded or communicated two months before the deadline. This alone will not ensure compliance, especially if the organization has not yet taken sufficient steps to develop a compensation strategy.
Job evaluation, structuring of positions, creation of salary bands, data collection, leader education, and organizational alignment are all highly time- and resource-intensive processes.
Those who act now may still manage if they already have a basic system and a developed compensation strategy; those who wait will later find themselves rushing to patch together something that cannot be improvised.
The situation must not be underestimated, because even the best-prepared employers cannot say “we are already compliant,” even if they believe they operate with a well-established compensation strategy and performance evaluation system. Since there has been no EU legal requirement until now to analyze gender pay gaps, it can be assumed that many employers have not addressed this issue or carried out such analyses. For this reason, every organization—from multinational companies to medium size businesses—will face significant challenges.
The greatest difficulty will not be the technical submission of the report, but the creation of the underlying system. Without salary bands, a clear job structure, and a job evaluation framework, transparency simply cannot be achieved.
It is advisable to prepare now, as this will become one of the most important HR development areas in the coming period—not only for compliance, but also for employer branding, retention, and fair operations.
If you have not yet worked on developing your compensation strategy, start by assessing the current situation. Prepare reports and conduct analyses! Review the job roles within each organizational unit, examine how they relate structurally to one another, and identify the compensation packages associated with them. Consider the principles you currently use to determine salaries, increases, bonuses, etc., as well as what you take into account when hiring a new employee or during annual salary reviews. Analyze where you currently stand with your compensation strategy, understand the essence of the regulation, and clarify what you need to achieve. Don’t forget to also analyze gender pay gaps across different positions.
The transition to the pay transparency directive is a complex process involving multiple professional areas. It is worth carefully considering and implementing the following well-coordinated steps. The list is not necessarily exhaustive, as each organization will adapt and expand the tasks based on its unique characteristics, culture, and level of maturity. Take a step back and start at the beginning:
✅Define corporate values
The foundation of successful implementation is leadership’s commitment to open, fair, and equitable pay. Clearly articulating these values will facilitate the representation, coordination, and realization of every subsequent step toward transparency.
Once the frameworks are established, one of the most important tasks is the education. We cannot expect managers to know exactly how to make fair, legal, and transparent pay decisions on their own. For managers, this is one of the most difficult tasks: while they enjoy granting raises, it is equally one of the hardest aspects of their role because it involves making and communicating unpopular decisions – especially when it comes to money.
Most managers are not HR professionals, nor do they need to be – but they have enormous responsibility in performance evaluations (determining ratings and related salary decisions). HR must educate and support every manager so they can fulfill their leadership tasks and credibly represent and consistently communicate the company’s principles and strategy.
Employees must also be informed about rules, policies, expectations, business objectives, and performance requirements, as well as transparently about compensation principles and regulations.
As HR professionals, consultants, and leaders, we have a responsibility for how our organization treats people – and within that, how it handles pay. Pay is not just a number but a message: it reflects what we value, what performance we reward, whom we appreciate, and how fair and consistent we are. If this message is inconsistent, distorted, or unfair, it undermines motivation, engagement, and, in the long run, both performance and loyalty.
The implementation of pay transparency is not solely HR’s responsibility. All of these tasks can only be achieved through close cooperation among HR, legal, leadership, and controlling. Transparency is not merely a set of rules but a tool to strengthen company culture and a key to employee satisfaction. Don’t wait for the mandatory deadline – start now. Shall we help?
Sources (at the time of publication, the legislation had not yet been implemented in Hungarian law)
1. Salary transparency must be ensured for job seekers as early as the recruitment stage
3. Reporting obligations on pay data
Employers will be required to regularly report on pay equality. The obligations will be introduced gradually based on company size:
Employers with at least 250 employees must submit reports by June 7, 2027, and thereafter annually.
Employers with 150–249 employees must submit reports by June 7, 2027, and thereafter every three years.
Employers with 100–149 employees must submit reports by June 7, 2031, and thereafter every three years regarding the gender pay gap.
If the report reveals a pay gap exceeding 5% that cannot be justified with objective, gender-neutral criteria, companies must take measures in the form of a joint pay assessment conducted together with employee representatives.
4. Employees' right to compensation
Employees will be entitled to compensation if pay discrimination can be proven. In all cases, the employer will bear the burden of proof to demonstrate that it has not violated EU rules on equal pay and pay transparency. While large corporations generally already operate with more carefully considered pay principles, in Hungary small and medium-sized enterprises still have significant work to do to comply with the EU directive.
Why is it necessary to act now to comply with pay transparency, and why is waiting until 2026 not enough?
✅Establish compensation principles
Building on your values, define the objective principles by which salaries will be determined (for example, based on job evaluation, experience, or market competitiveness). These principles serve as guiding standards for future decisions.
✅Develop a job evaluating system
A genuine job evaluation goes beyond job titles, taking into account required professional knowledge, job content, expectations, decision-making levels, responsibilities, budget accountability, problem-solving requirements, and the employee’s relational network. To avoid subjective comparisons of positions, you need a clear job evaluation methodology that defines the relative value of roles and positions them against each other. Assess roles using market methodologies (e.g., HAY) and then organize them into structures and levels.
✅Create salary bands
Each role should have salary bands that not only reflect market benchmarks but also ensure internal equity and external competitiveness.
✅Develop an income management and compensation strategy
You must create a compensation strategy aligned with your company’s overall business and HR strategy—one that is transparent, consistent, sustainable in the long term, and compliant with both legal requirements and the principles of pay transparency:
Consider which objective factors you can apply when determining pay and annual salary adjustments. These may include:
Professional knowledge and competencies
Seniority level
Job complexity and its place in the structure (job evaluation)
A transparent, measurable, and objective performance management system—for example, performance reviews based on business and personal development goals set at the beginning of the year, as well as behavioral competencies. Goals must be defined according to the SMART framework, so that performance can be evaluated based on measurable criteria rather than subjective judgment. If your current performance evaluation does not function effectively and fails to adequately differentiate performance, your compensation strategy will not work either.
Market positioning
Steps to measure and reduce existing pay disparities
Measures to reduce gender pay gaps and keep them below 5%
✅Establishing a salary increase budget
To operate income management, you need an annual salary increase budget that is consciously managed, continuously monitored, and financially aligned with expected business results and market conditions. This enables leaders to plan effectively.
Additionally, establish clear procedures for hiring new employees, promotions, lateral moves within the same job level, annual salary increases, commission and bonus determinations, and ensure that all other elements of compensation are covered.
✅Integrating recruitment and selection strategy
Since the EU pay transparency directive also affects recruitment, salary ranges and evaluation criteria for open positions must be communicated transparently in the recruitment and selection process.
✅Compensation policy compliance with legal requirements
To ensure compliance with the labor code and EU legislation, you will need to involve a labor law expert in both the development and regular review of your compensation policy. Until the legal expert confirms the “green light,” it is not advisable to communicate or implement any changes.
✅Treat it as an HR project – process management and change management
During the introduction of new elements, comprehensive project management is essential. This includes defining project goals, tasks, deadlines, responsibilities, and overseeing both implementation and follow-up.
✅Continuous monitoring, data collection, and analysis
Continuously collect and analyze data on salaries, workforce movement, and performance evaluations to support system refinement and measure the effectiveness of the policy.
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