Pay Transparency

Insights

Implications for Employers

Directive fundamentals

From 7 June 2026, the EU Pay Transparency Directive will shift the paradigm regarding remuneration practices across the EU. It seeks to narrow the gender pay gap and ensure employees are paid according to the value their roles add. This focus on internal equity is a dramatic deviation from the primarily market-based approach to determining salary that has prevailed for decades. While reporting requirements vary, based on business size, all other provisions of the Directive apply to all employers. The Directive introduces compliance challenges, but also represents a cultural shift teeming with opportunity to enhance talent attraction, retention, and employee trust.

The implications are far-reaching

The shift to value-driven internal equity reshapes how organisations approach compensation. Key implications include:

Radical transparency: Employers must disclose salary ranges and be transparent about gender pay gaps and relative compensation between employees who perform work of equal value.
A cultural shift: Internal equity will become the primary means of salary determination. Transparency will drive demand for fairness and accountability as it bestows rights to information upon the workforce.
Reputational risk: Transparency and public reporting requirements will expose any pay disparities. If not proactively mitigated, this could undermine employee trust in the business and the employer's brand in the market.
Integrated implementation: Compliance-related changes must be aligned with HR systems, practices, and policies to ensure that they are supported, not undermined. Extensive value can be unlocked in this process.

Proactivity is key. Here’s what you should prioritise

To mitigate risk and capture value, organisations should act now:

Build internal capability: Train managers and HR teams on the new regulatory landscape, its implications for their work, and what is required of them to ensure compliance.
Create frameworks to evaluate jobs and determine pay: Evaluate all roles in the business, creating transparent, objective, and gender-neutral job categories and pay structures.
Conduct a pay equity audit: Use job evaluation data to identify any unjustified gender pay gaps and wage outliers. Address these.
Enable transparency: Responsibilise teams with all compliance, transparency and reporting tasks. Create and amend relevant policies and documents. Regularly inform employees of their right to information.

With the foundations for compliance in place, the next step is understanding how to derive maximum value from them with an engaged and motivated workforce.

Reimagining pay structures

Haphazard, subjective, and market-based pay decisions are a thing of the past. Pay structures must be:

Based on clear definitions of value: Compensation must be based on role value. At minimum, this must reflect the skills and effort required to perform within a given role, as well as the responsibility and working conditions associated with that role.
Enshrined in standardised frameworks: Frameworks must be consistently applied to categorise all roles according to their relative value. Resulting categories will correspond to salary bands. Without these, transparency and reporting obligations cannot be met, and pay decisions cannot be reliably defended.
Transparency and rigour: Employers must be transparent about how pay levels are determined, and the frameworks used must be objective and free from bias.

With rigorous tools and practices in place, you can respond with confidence and security to any claims of unfair pay and keep your employees’ trust.

Employee rights: A new standard of transparency

The directive empowers employees with access to critical pay data:

Right to pay information: Employees can request average pay levels for roles of equal value.
Right to salary transparency: Job applicants must be informed of salary ranges before interviews and cannot be asked about their pay history.
Right to redress: Employees can challenge cases of alleged pay discrimination and seek retroactive compensation. The burden of proof rests with the employer.

These rights will increase scrutiny and demand for fairness in compensation practices.

Reporting requirements

The directive introduces tiered reporting obligations for organisations employing 100 or more:

Public disclosure: In addition to transparency of certain data to employees, some businesses will also need to report to the regulator, making various pay data public.
Companies with 100+ employees: Must report gender pay gap data every three years (annually for businesses with 250+ employees).
Joint Pay Assessments: Are triggered when unjustified gender pay gaps exceeding 5%, which have been unresolved for 6 months or more. This results in the review and revision of pay structures, including the retroactive remediation of all discrepancies.

Proactive reporting can enhance trust and position the business as a leader in fairness, justice, and transparency, helping it to attract and retain talent.

We’re here to simplify compliance

The consequences of non-compliance – financial penalties, retroactive pay claims, legal fees, reputational risks, employment relations challenges, and adverse operational impact – can be reliably avoided through proactive preparation. With RSM Malta’s portfolio of bespoke services, the road to sustainable compliance is made simple. We support your organisation by:

Conduct pay audits to identify and rectify gender wage gaps and outliers
Create and review job categorisation frameworks and pay structures
Conduct rigorous, value-based job evaluations
Inform and equip key personnel to ensure compliance in the long term
Create reports to enable compliance with transparency and reporting requirements
Review and align relevant HR practices, including performance management and your rewards and incentives strategy

Proactive reporting can enhance trust and position the business as a leader in fairness, justice, and transparency, helping it to attract and retain talent.