The overlooked factor in pay transparency: Why benefits matter under the EU Pay Transparency Directive

In 2023, the European Union adopted the EU Pay Transparency Directive (EU PTD)—a transformative regulation aimed at closing gender pay gaps and increasing transparency in compensation practices. With enforcement beginning in June 2026, organizations with employees in EU member states must prepare to meet a new standard of openness and accountability.

Key requirements of the EU Pay Transparency Directive

1. Recruitment transparency: All job candidates must be informed about the pay rate and pay range for the position they are applying for. Employers may not ask applicants about their salary history. This ensures that candidates have a clear understanding of the compensation they can expect from the outset.
2. Employee access to pay criteria: Every EU employee must have easy access to the criteria that determine their pay. This includes understanding how their pay and benefits levels are determined and what factors influence them.
3. Right to request pay information: Employees have the right to ask for their individual total pay and the average total pay, broken down by sex for those in the same category of worker. This includes not only base salary but also variable pay, benefits and allowances.
4. Gender Pay Gap Reporting: Gender pay gap reporting will be required for employers with more than 100 employees. This transparency is crucial for fostering trust and ensuring that any discrepancies are addressed. Where pay reporting by category of worker reveals a gap of at least 5% between the average total pay levels for men and women, and when the employer cannot justify the gap after taking into account objective reasons and has not taken action to remedy within 6 months of reporting, employers will have to carry out a pay assessment, in cooperation with workers' representatives, with unjustified gaps remedied.

Where do benefits fit in?

The EU PTD defines “pay” broadly to include all benefits in cash or kind—from pensions and bonuses to car allowances and insurance. This means benefits are not optional in compliance efforts — they are central.

Why benefits can impact pay gaps

A simplified example below illustrates how benefits can significantly affect total compensation:

• A male employee earns €50,000 and receives €3,500 in pension contributions and a €5,000 car lease, totaling €58,500.
• A female peer earns €49,000, opts out of the pension plan, and receives no car lease—totaling €49,000.

Result: A 2% base salary gap becomes a 12% total compensation gap.

A simplified example illustrates how benefits can significantly affect total compensation.

Challenges and considerations

1. Data collection: One of the primary challenges is collecting and integrating data from different regions and systems. Many organizations have decentralized data management, making it difficult to gather the necessary information. It's essential to establish a clear methodology for data collection and ensure that all relevant stakeholders are involved.
2. Change management and education: The EU PTD will have a significant impact how and what organizations share with their employees regarding their pay and benefits. Leaders and managers must be prepared to communicate the findings and any necessary adjustments to employees. This requires a robust change management and communication strategy.
3. Benefits inclusion: The EU PTD includes all forms of compensation, including benefits and allowances. This means that organizations must consider the cost of benefits, such as company cars, meal allowances and tuition reimbursement, in their pay gap analysis. The utilization rate of benefits can also affect the total pay gap, and it's important to account for this in the analysis.
4. Global consistency: Taking a wholistic view of the global regulatory landscape supports organizations who strive to provide all employees, regardless of location, with a consistent and fair employee experience.

Steps to get ready

1. Form a working group: Establish a cross-functional team to oversee the implementation of the EU PTD. This team should include representatives from HR, compensation, benefits and legal departments.
2. Conduct EU dry run analytics: Outline the methodology that should be applied to your workforce, job segments, total pay elements and conduct dry run analytics to identify any pay gaps within the employing entities category of workers.
3. Develop a change management and communication plan: Prepare leaders and managers to address questions and concerns from employees. This involves educating them on the EU PTD and the organization's approach to compliance.
4. Implement adjustments: If pay gaps of more than 5% are identified within a category of workers, the organization will need to work with employee representatives to remediate any pay gaps that exist.
5. Continuous monitoring: Once the initial analysis and adjustments are made, organizations should continue to monitor and report on pay gaps to ensure ongoing compliance and fairness.

Conclusion: A strategic imperative

The EU Pay Transparency Directive is not just a compliance requirement—it’s a catalyst for rethinking total rewards. Organizations that proactively integrate benefits into their pay transparency strategies will be better positioned to:

1. Ensure fair and equitable compensation
2. Mitigate legal and reputational risks
3. Build trust with employees and stakeholders

When organizations embed benefits within their fair pay ambitions and guiding principles, they move from reactive to proactive, from transactional to transformational. This approach ensures that all employees receive fair, inclusive and meaningful rewards.

Authors

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Bhavi Patel

Senior Director, Integrated & Global Solutions
Global Benefits Specialist

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Mariann Madden

North America Pay Equity Co-Lead

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