The EU Pay Transparency Directive (Directive (EU) 2023/970) is one of the most significant changes to labor law in the European Union in the past two decades. Its transposition into national laws is required by 7 June 2026, the date by which all Member States must have aligned legislation in place.
In conversations with clients, I often hear that someone is struggling with where to even begin, what the actual obligations are, and whether any of this applies to a small or medium-sized company without a dedicated internal HR function.
The answer is: yes, it applies to everyone. This blog provides clear answers to three key questions: why the Directive is being introduced, what its most important elements are, and what you can do to start preparing in time.
Why Is the EU Pay Transparency Directive Being Introduced?
The principle of equal pay for equal work or work of equal value has been part of European law since the founding treaties of the 1950s. Despite this, the gender pay gap has not narrowed significantly. According to the data cited in the Directive itself, the gap across the EU stood at 13% in 2020, with only minimal improvement over the preceding decade.
The core problem the Directive identifies is straightforward: the existing prohibition on pay discrimination had not achieved its intended effect because pay structures were so opaque that workers could not even recognize unequal treatment, let alone prove it.
In Croatia, the same indicator stands at around 11%, which is below the EU average, but that does not mean the Croatian situation is necessarily better. This figure is the unadjusted gender pay gap, which measures only the difference in average gross hourly earnings across the entire labor market. It says nothing about what happens within individual organizations, because it does not account for occupational differences, the sectoral concentration of women in lower-paid activities, the impact of career breaks due to care responsibilities, or the representation of women in senior and managerial roles.
A lower overall percentage may therefore reflect the specific structure of the labor market rather than an actual absence of inequality within individual companies and workplaces. Moreover, available data show that the gender pay gap in Croatia has not been narrowing since 2010 – it has been gradually widening.
From experience, I can say that this opacity in pay structures is the most common reason why organizations believe they do not have a problem, even when they do.
The Directive addresses this in two ways:
- it introduces concrete pay transparency obligations that apply to all employers, and
- it strengthens enforcement mechanisms to protect workers when those obligations are breached.
It is no longer sufficient simply not to discriminate – employers must be able to demonstrate it through documented, objective criteria.
Who Does the EU Pay Transparency Directive Apply to, and From When?
The most common misconception I encounter in conversations with clients is that the Directive only applies to large companies. I noticed this with a client who was convinced that nothing applied to them because they employed fewer than 100 people.
The EU Pay Transparency Directive applies to all employers in both the public and private sectors, regardless of size. The only difference is the scope of the pay reporting obligation, which depends on the number of workers employed. All other obligations apply to everyone.
The Directive covers all workers who have an employment contract or employment relationship as defined by national law. This includes part-time workers, fixed-term workers, agency workers, platform workers, and trainees. What matters is not how the relationship is labelled or whether a written contract exists, but whether work is actually being performed. The Directive also extends to job applicants, from the very beginning of the recruitment process.
Regarding timelines, Member States, including Croatia, must transpose the Directive into national legislation by 7 June 2026. This means that amendments to the Labor Act and other relevant regulations must enter into force by that date. The Ministry of Labor, Pension System, Family and Social Policy is working on the necessary legislative amendments, and it is clear that the majority of employers will need to begin preparations well before that date in order to be compliant from day one.
What Are the Key Obligations for All Employers?
Regardless of the number of workers employed, every organization in Croatia will need to meet the following requirements, which flow directly from the Directive. In practice, it often turns out that these are the obligations that require the most preparation time, because they touch on fundamental HR processes that most small and medium-sized companies have never formally structured.
- Pay transparency prior to employment: Every job applicant must receive information about the initial pay or pay range for the position they are applying for, before the interview or at the point of the published job notice. Employers may no longer ask candidates about their current or previous remuneration. In practice, it often turns out that these questions were a standard part of almost every job interview, which makes this one of the first and most visible changes to everyday recruitment practice.
- Gender-neutral job advertisements and recruitment procedures: All job advertisements must use gender-neutral language, and selection procedures must be conducted in a non-discriminatory manner that does not undermine the right to equal pay.
- Workers’ right to pay information: Every worker has the right to request and receive, in writing, information about their individual pay level and the average pay levels, broken down by sex, for categories of workers performing the same work or work of equal value. Employers must respond within two months and must inform all workers annually that this right exists and how to exercise it.
- Objective and documented pay-setting criteria: All criteria used for determining pay and pay progression must be objective, gender-neutral, and accessible to workers. From experience, I know that this is the most demanding part of the preparation process for most SMEs, because they rarely have a formal job classification structure and the reasons why someone receives a particular salary are often not documented anywhere. The Directive sets out four key criteria for assessing the value of work: skills, effort, responsibility, and working conditions. Additional criteria may be used where relevant, but these four are the baseline for job evaluation.
- Prohibition of pay secrecy clauses: Workers may not be prevented from disclosing their pay for the purpose of enforcing the principle of equal pay. Pay confidentiality clauses currently found in a large number of employment contracts will need to be removed, and workers must be protected against any adverse treatment if they exercise their rights under the Directive.
What Are the Reporting Obligations?
In addition to the obligations that apply to all employers, the Directive introduces graduated timelines for mandatory pay reporting on the gender pay gap, differentiated by workforce size. I often hear that someone is struggling to understand exactly what this reporting must contain and to whom it applies, so here is a clear overview:
- More than 250 workers: first report by 7 June 2027, then annually
- 150 to 249 workers: first report by 7 June 2027, then every three years
- 100 to 149 workers: first report by 7 June 2031, then every three years
- Fewer than 100 workers: no mandatory pay reporting obligation, but all other obligations under the Directive apply
The pay report must include data on the gender pay gap and the gender median pay gap, the proportion of male and female workers in each pay quartile, and differences in supplementary or variable pay components such as bonuses and allowances. The accuracy of the report must be confirmed by the employer’s management, and workers’ representatives have the right to access the underlying methodology.
Where the gender pay gap within any category of workers exceeds 5% and cannot be justified on the basis of objective, gender-neutral criteria, the employer must initiate a joint pay assessment with workers’ representatives within six months. That assessment must result in concrete measures to remedy the unjustified pay differences within a reasonable period of time. Labor inspectorates and equality bodies may be involved in this process.
A particularly significant legal change is the reversal of the burden of proof: in the event of a dispute, it is the employer who must demonstrate that no discrimination occurred, not the worker bringing the claim.
If the employer has failed to meet its pay transparency obligations, this burden automatically shifts to them. In addition to financial penalties, which may be based on annual gross turnover, courts may order structural remedies such as a review of the pay-setting system, the adoption of an action plan, or mandatory training for HR staff and management. Repeated infringements may result in exclusion from public procurement procedures.
What Can You Do to Start the Compliance Process?
In practice, it often turns out that organizations that start earlier face significantly less stress and lower costs than those that wait until the last moment. Compliance is not a one-off task but a process that requires a structured approach and takes weeks or months, depending on the size and sector of the organization. Here are 5 concrete steps any company can take right now.
- Conduct an internal audit of employment contracts and pay policies. Review whether pay secrecy clauses exist and whether your pay structure has documented criteria. If neither exists, that is your starting point.
- Initiate a job classification and job evaluation process. Even if you are convinced that all roles in your organization are already clearly defined, a deeper analysis is warranted: every job description must include objective evaluation criteria. I have noticed this with clients who were certain their roles were well defined, only to find during the review that not a single written job description contained objective evaluation criteria. Classification based on skills, effort, responsibility, and working conditions is the foundation of the entire compliance framework. Do not overlook soft skills as a legitimate evaluation criterion.
- Review your recruitment process. Go through your job advertisements and the standard questions asked during interviews. Remove questions about previous remuneration and ensure that every job notice includes information about the pay level or pay range.
- Train your HR team and management. I often hear that someone is struggling with how to explain to managers why they can no longer make pay decisions without documented criteria. Training is not optional – it is a prerequisite, because it is managers who make day-to-day pay decisions, and ignorance of the law does not exempt anyone from the obligation to comply and to communicate clearly.
- Establish an internal grievance mechanism. Workers must have a clearly defined channel through which they can raise questions or complaints related to pay equality, without fear of negative consequences. The Directive explicitly prohibits the victimization of workers who exercise their rights.
The EU Pay Transparency Directive Is Not a Threat but an Opportunity for Better HR
Organizations that treat the EU Pay Transparency Directive as a compliance burden will find the adjustment process more costly and more difficult than those that approach it as an opportunity to put their own remuneration system in order.
A transparent, documented, and equitable pay structure reduces legal risks, attracts better candidates, builds trust within teams, and reduces employee turnover over the long term.
I hope this text was useful to you, and if you have additional questions, feel free to contact me.
Andrea Čerina
HR Consultant
