Pay Transparency: The New European Framework and Its Practical Implications for Employers

Directive (EU) 2023/970 places pay transparency at the heart of European labour policy, but it does so on ground that is already familiar in Portugal: the principle of equal pay for equal work or work of equal value is enshrined in the Constitution (Article 59), is further developed in the Labour Code (including, among others, Articles 23, 24, 25, 31 and 270) and was given its own specific instruments by Law No. 60/2018. What is now required of employers is not adherence to a new ideal, but the construction of mechanisms that render it verifiable and enforceable — before and after recruitment — with practical consequences when the figures do not align with the criteria.

The deadline for transposing the Directive expires on 7 June 2026 and, until the national implementing legislation is published, the details regarding reporting deadlines, channels and formats, sanctions and any transitional arrangements remain unsettled. Even so, the essential framework of the European regime is clear and allows organisations to put their house in order in a timely and methodical manner. At the recruitment stage, the new rule requires employers to disclose the starting salary or the applicable pay range for the post prior to the interview — and at the very latest prior to the offer — with the collection of candidates' salary history being expressly prohibited. In job advertisements and role descriptions, the language must be gender-neutral and the selection criteria objective and verifiable, consistent with the requirements of the post to be filled.

Internally, employers must have clear, objective and accessible criteria for determining remuneration and career progression, covering both fixed and variable pay components, and based on factors that genuinely measure the value of the work, such as qualifications, skills, experience, responsibility, effort and working conditions. Gender neutrality cannot be guaranteed by declarations of intent: it requires job evaluation methodologies that prevent indirect discrimination and historical biases which, under the guise of neutrality, undervalue predominantly feminised roles. It is therefore advisable that the relevant factors and their weightings be transparent, tested and subject to periodic review, with documentation enabling audit. It is worth highlighting the distinction between the legal minimum and good governance practice: the Directive mandates pre-contractual transparency and objective criteria; the adoption of internal pay bands is not, in itself, a legal obligation, but it is frequently the tool that renders decisions predictable, explainable and consistent with the transparency required.

In this new phase, workers' right to information also acquires sharper contours: any worker may request, in writing, information on their own remuneration and the averages — disaggregated by sex — of categories performing equal work or work of equal value, with the employer required to respond within a short timeframe (two months) and to inform workers annually on how this right may be exercised. This regime interfaces with data protection law: what is at stake is not access to the individualised remuneration of identifiable colleagues, but the provision of aggregated information broken down by comparable categories, with an appropriate legal basis and in compliance with the principles of the GDPR, including data minimisation and, where necessary, anonymisation.

Furthermore, transparency extends beyond the organisation through statistical reporting: entities with 250 or more workers will be required to report annually on pay gap indicators, including mean and median differences in base salary and variable pay components, quartile distribution and rates of access to variable pay; entities with between 150 and 249 workers will report every three years; and those with between 100 and 149 workers will become subject to triennial reporting from 7 June 2031. Without prejudice to what the Portuguese legislature may define regarding deadlines and formats, it is reasonable to anticipate that the first reporting obligations will relate to reporting periods following transposition, with natural priority given to larger entities. More than a mere publication obligation, this reporting mechanism acts as a trigger: where a pay difference of at least 5% is identified within a given category, is not justifiable by objective criteria and is not corrected within six months, a joint pay assessment must be conducted with workers' representatives in order to identify causes, adopt corrective measures and measure outcomes, with appropriate documentary records.

The reinforcement of workers' protection is another defining feature of the regime: in the event of a breach of the principle of equal pay, the worker is entitled to full reparation, including retroactive pay differences, correlative variable pay components, pecuniary and non-pecuniary damages and interest. In procedural terms, the worker's position is facilitated where there are facts indicating discrimination or a breach of transparency obligations, with the reversal of the burden of proof being admitted. The absence of transparency does not, in itself, constitute proof of discrimination, but it weakens the employer's legal position. Protection against retaliation is further reinforced, as is the standing of representative bodies, with a natural increase in the potential for collective litigation, particularly in sectors with a high density of collective bargaining agreements. As regards sanctions, it will fall to the national legislature to establish fines and ancillary measures that are effective and dissuasive, with integration into the labour administrative offences regime and a central supervisory role for the Authority for Working Conditions (ACT) being the expected outcome.

None of this can be considered in isolation from what already exists in Portuguese law and collective bargaining. Coherence between internal criteria and the categories and pay scales set out in collective bargaining instruments is decisive in avoiding substantive contradictions between what is proclaimed and what is practised, particularly in sectors with a high density of collective agreements. Data protection requires clear legal bases, data minimisation processes, anonymisation techniques where relevant, and governance of retention periods, records and responsibilities. Across all these dimensions, documentation is the silent cornerstone of compliance: pay positioning decisions, progressions, allocation of variable pay and exceptions must be objectively reasoned, recorded and traceable. In the event of judicial or administrative scrutiny, the difference between an allegation and a favourable outcome frequently turns on what is — or is not — documented.

Preparation can and should begin now, with proportionality and focus. Clear executive coordination, supported by a cross-functional team bringing together human resources, legal, finance, information systems and data protection, makes it possible to map existing policies and practices, audit data at the appropriate level of granularity (by role, category, business unit and sex) and produce a preliminary pay gap analysis controlled for relevant factors. From there, a gender-neutral job evaluation methodology is selected and implemented; variable pay components are reviewed to eliminate opacity and anchor payments to objective metrics; and, where the size and complexity of the organisation so warrant, pay bands are designed by job family and level, with written criteria for positioning and progression. In parallel, recruitment processes are adjusted to include pay ranges and eliminate references to salary history; interviewers and decision-makers are trained; procedures for responding to information requests are structured with GDPR-compliant timeframes and templates; and reporting capability is built through a governed and secure data repository capable of calculating means, medians, quartiles and variable pay coverage, and generating internal reports on a regular basis. Where unjustified gaps are identified, corrective plans with realistic targets and timelines are put in place; annual pay reviews and promotions are examined for bias; and joint assessments are prepared for when the legal thresholds are triggered.

The regulatory and litigation risk is real — fines, mandatory audits, public disclosure of infringements in serious cases, retroactive payment of pay differences and compensation — and is compounded by reputational risk and the impact on talent attraction and retention. Mitigation requires early action, clear criteria, well-organised data and consistent documentation. Even prior to transposition, the Directive may influence the interpretation of existing law through consistent interpretation with EU law, which further reinforces the value of more transparent and carefully documented choices from the outset.

The European framework allows time to do this well, and Portuguese law provides the foundation to do it safely. For employers, the challenge is one of compliance, but also of management: paying fairly, being able to explain why, and being able to demonstrate it. A significant part of internal trust and external competitiveness is at stake.

LEGALWORKS monitors the transposition process and supports organisations in conducting gender-neutral job evaluations, designing pay structures compatible with collective bargaining arrangements, preparing for reporting obligations, coordinating with data protection requirements, and building robust documentation that will withstand the scrutiny that is to come. Until the national implementing legislation is published, heightened caution is recommended in the interpretation of existing law in conformity with EU law, with particular attention to the sectoral implications in areas where collective bargaining carries greatest weight.