EU Introduces Stricter Rules for Equal Pay for Men and Women

The issue of (in)equality in pay between men and women is as old as the labor market itself, thus the problem has persisted since the time of the industrial revolution. However, it seems that Europe is set to put an end to it. In fact, in 2023, the EU Directive on strengthening the application of the principle of equal pay for men and women for equal work or work of equal value through pay transparency was adopted. Member states have until June 7, 2026 to transpose it into their national legislation.

Although the Directive was adopted two years ago, the issue of equal pay is not new. Domagoj Jakobović, compliance advisor at ATD Solutions, states that the Treaty on the Functioning of the European Union in Article 157 established that each member state must ensure the application of the principle of equal pay for men and women for equal work or work of equal value. The Directive builds upon the existing legal framework, primarily Directive 2006/54/EC on the implementation of the principle of equal opportunities and equal treatment of men and women in matters of employment and work. This earlier directive already prohibited direct and indirect discrimination in all aspects and conditions of pay and required that job classification systems be based on gender-neutral criteria.

Gender Pay Gap Still Present

However, it has been shown that these provisions are not sufficient to eliminate the gender pay gap, so the new Directive introduces more detailed mechanisms for transparency and enforcement.

– Despite this obligation, the gender pay gap remains present: according to Eurostat, the unadjusted gender pay gap in 2023 was 12 percent at the EU level, while in Croatia it was 7.4 percent. According to the Gender Equality Ombudsperson’s Report for 2024 (March 2025), the average gross salary in Croatia last year was 1,821 euros, with men earning 1,854 euros and women 1,782 euros – which means that the gender gap in average monthly gross salary was 3.9 percent. Although the gap has decreased in most sectors, in public administration and defense as well as mandatory social security, it was 13.3 percent, in other service activities 16 percent, and in administrative and support service activities 4.1 percent. Analysis indicates that the increase in these sectors is associated with higher salary growth in senior positions predominantly held by men. Inequalities also carry over into the pension system. According to DZS data for 2023, the average pension for men was 540 euros, while for women it was 449 euros, resulting in a gender gap of 17 percent in favor of men. Although this is less than the previous year (20.3 percent), the average pension for women is still 42 euros below the overall average pension and 44 euros below the poverty risk threshold for a single-person household – explains Jakobović, adding that one of the key reasons for the persistence of the gap is the lack of pay transparency.

In many member states, including Croatia, pay is still considered a private topic that is rarely discussed openly. Job advertisements often feature vague phrases like ‘stimulating compensation’ or ‘competitive salary’ without specifying concrete amounts. He states that the criteria for determining base salary, salary increases, or bonuses are often not formally established or clearly communicated. Such lack of transparency makes it difficult for workers to recognize and challenge inequalities, while leaving employers room to maintain the status quo.

Everything Transparent

Željka Košanski, HR advisor, and Vali Marszalek, Director of the ESG department at Forvis Mazars, explain that companies in the EU will have to report how much they pay women and how much they pay men for work of equal value.

– In cases of identified inequalities, i.e., when the pay difference exceeds the allowed threshold of 5 percent, employers will be required to take measures to eliminate them. Additionally, the Directive provides that in cases of violations of its provisions, employers may face financial consequences, from the obligation to pay damages to employees to sanctions imposed by member states. The Directive applies to a significant segment of employers. Mandatory reporting will start in 2027 for employers with more than 150 employees, and from 2031 for those with more than 100 employees. In practice, this means that companies will need to have clear systems for collecting, comparing, and reporting data on salaries and the criteria by which salaries are determined. Although detailed rules will be defined by national legislation and specific provisions may vary from country to country, this is not a reason to wait. Because other obligations, from clear salary criteria to the rights of employees and candidates to information, will come into effect as early as 2026. For this reason, this is not just a regulatory obligation, but also an opportunity for employers to critically review their pay and benefits systems. This not only achieves compliance with the Directive but can also enhance transparency, fairness, and employee trust. Furthermore, quality preparation opens up the possibility of optimizing tax costs and greater strategic management of the overall compensation package, from base salaries to variable rewards and non-material benefits – clarify Košanski and Marszalek.

Jakobović adds that there are several key areas of change for employers.

– Transparency in hiring processes is increasing. Employers will have to disclose the starting salary or salary range to candidates before the job interview, and they are prohibited from inquiring about the candidate’s previous salary. Stricter reporting requirements on the pay gap between women and men are also being introduced. Employers with at least 100 workers will have to prepare and submit reports on the gender pay gap at prescribed intervals. If it is found that the difference for equal work or work of equal value exceeds 5 percent, and there is no objective and gender-neutral justification, the employer, together with employee representatives, will have to conduct a joint salary assessment, determine the reasons for that difference, and develop a plan of measures to eliminate it. Additionally, workers gain the right to transparent insight into the employer’s pay policy. This includes information about job levels, salary ranges, criteria and opportunities for advancement, and rules for salary progression. They will also be able to request data on the salaries of colleagues performing the same work or work of equal value. Employers will no longer be allowed to prohibit workers from disclosing their own salary or inquiring about the salaries of their colleagues.

Provisions in employment contracts, regulations, or other internal acts that contain such a prohibition must be removed, and workers will be protected from any adverse treatment due to the exercise of this right. Furthermore, the legal dynamics in court proceedings are changing – the burden of proof shifts to the employer. In the case of a lawsuit for pay discrimination, the employer will have to prove that they acted in accordance with the principle of equal pay, whereas in previous practice, this burden was on the worker. The worker will have the right to compensation that represents the difference in pay during the violation, including damages. A novelty is also the possibility for authorized employee representatives to file such lawsuits on behalf of individual workers or entire groups of workers. Additionally, the Directive strengthens enforcement mechanisms and sanctions. Member states must ensure effective, proportionate, and dissuasive penalties for employers who fail to meet their obligations, including the possibility of monetary fines, corrective measures, and, in certain cases, exclusion from public procurement procedures. This clearly emphasizes that pay transparency is not just a recommendation, but an obligation whose violation will be sanctioned – says Jakobović.

Work of Equal Value

Košanski and Marszalek explain how the deadlines and frequency of reporting depend on the size of the employer. Employers with 250 or more employees will have to report annually, with the first report due by June 7, 2027. Employers with 150 to 249 employees will have to report every three years, with the first report also due by June 7, 2027, while employers with 100 to 149 employees will have to report every three years, with the first report due by June 7, 2031.

– Reports will have to contain detailed information on the overall pay difference by gender, differences in supplementary or variable components of pay, differences by categories of workers (for equal work or work of equal value), and the share of men and women in individual pay quartiles. Data is collected for a period of one year, and member states will determine whether this will be a calendar year or some other period. Additionally, employers are required to inform their workers annually that they have the right to request information about their own pay level, average pay levels by gender for workers performing equal work or work of equal value, and the steps to exercise that right. However, it is important to clarify several basic terms and criteria. Equal work refers to situations where two employees perform the same job under the same or similar conditions, with equal levels of complexity and responsibility or can be substituted for each other.

Work of Equal Value is a broader concept and encompasses situations where two individuals may not perform the same job and cannot substitute for each other, but their work has equal ‘weight’ for the organization. The value of work is measured according to gender-neutral criteria such as skills (which include knowledge, experience, qualifications, and competencies required for the job); responsibilities (the level of responsibility the job carries, for example, responsibility for budgets, teams, strategic decisions); working conditions (the conditions under which the job is performed, physical demands, exposure to risks, work environment); and effort, which includes the effort required to perform the job (physical, mental, emotional strain, environmental conditions). If necessary, other criteria that are important for a particular job may also be included, and national law may further define them. In this context, pay includes not only the base salary but also all supplementary or variable components expressed as annual gross pay and the corresponding gross hourly rate. This includes bonuses, allowances, incentives, overtime pay, in-kind benefits (company car, health insurance), and all other forms of payment related to work. How this broad definition of pay from the Directive will be transposed into Croatian national legislation remains to be seen. Employers will need to monitor developments and adjust their systems in accordance with the final legal solutions in Croatia. However, here is an example: an IT specialist and a marketing specialist may not perform the same job, but if it is shown that they require a similar level of skills, responsibilities, working conditions, and effort, they can be considered work of equal value. The pay difference between such jobs must be objectively justified – clarify Košanski and Marszalek.

Various Models

Jakobović discusses what obligations exist before hiring. He states that Article 5 of the Directive stipulates that the employer must provide information about the starting salary or salary range for the job the candidate is applying for no later than before the first interview with the candidate. This includes the base salary and, where applicable, allowances or other compensation. This obligation does not necessarily mean that every advertisement will publicly contain the salary range. The Directive allows for the information to be provided in other ways, such as in initial email communication or a phone call with the candidate. Many member states in their legislative proposals go further and require the salary range to be included in the advertisement itself.

– For example, Belgium and Sweden have already announced that they will opt for this stricter model, as it has been shown that publicly published ranges increase equality of access and reduce the risk of discrimination. Article 6 prohibits employers from asking candidates for information about their current or past salaries during the hiring process. The Directive also requires that job descriptions, advertisements, and hiring criteria be gender-neutral. This implies avoiding phrases and requirements that could exclude or discourage candidates of a certain gender. For example, instead of saying ‘we are looking for a young and energetic person’ (which may imply age discrimination), the emphasis should be on ‘a person with project management experience’ or ‘the ability to work in a dynamic environment’. Article 7 grants every employee the right to request and receive information from the employer about their personal pay level (including base and allowances), average salaries or salary ranges for workers of the opposite sex performing the same work or work of equal value. This information must be provided within a maximum of two months from the date of the request. Member states may stipulate that the request is made directly to the employer or through employee representatives or equality bodies (in Croatia, this is the Gender Equality Ombudsperson). The two-month deadline may seem long, but in practice, employers who want to avoid doubts and public pressure will strive to respond more quickly. This means that it will be necessary to establish an internal process – who receives the request, who processes it, how data is aggregated while protecting individuals’ privacy. Additionally, the employer must make available to workers the criteria by which salaries and salary increases are determined. These criteria must be objective, gender-neutral, and non-discriminatory (level of education and qualifications, job complexity, work performance measurable by objective indicators, years of experience in the relevant field, additional competencies and certifications). The Directive does not specify an exact list of criteria, but the employer must be able to justify and apply them consistently. In practice, this means that many companies will need to revise or create a pay policy or job classification system – says Jakobović, adding that one of the most important and culturally challenging provisions is the explicit prohibition of any provisions in employment contracts, regulations, or other documents that prohibit workers from disclosing or discussing their pay.

No Penalties for Workers

This means that confidentiality clauses regarding pay become null and void. Employers may not penalize, reprimand, or otherwise treat a worker negatively for disclosing their pay or asking a colleague about theirs.

The instructions provided by the Directive are quite clear, as is the tacit habit of not discussing, asking about, or debating pay levels. Salaries fall into the category of ‘taboo topics’, so how will companies and people adapt in practice? Košanski and Marszalek state that this is one of the common misconceptions.

– In formal discussions – yes, salaries are rarely discussed openly. However, in practice, they are a frequent topic in hallways, corridors, and group chats. People talk, compare, and speculate, but most often without accurate and verified information. The Directive does not come to ‘open’ a topic that does not exist, but to bring order to a conversation that is already taking place. This means less speculation, more clear criteria, and reliable data. And ultimately, this strengthens trust, both among employees and between employees and employers. Many Croatian companies are not yet ready.

The reason is not only a lack of knowledge about the details of the Directive but also the fact that many organizations do not have clearly established foundations for job classification, pay grades, and objective criteria for determining salaries and raises. Salaries have often been determined ‘by people’, rather than by the value of the work. However, the implementation of the Directive will not affect all companies equally. Some will adapt more easily, while others will face significant challenges, depending on their size, industry, and existing level of formalization of HR processes. Companies that already operate in international systems or are part of highly regulated industries, such as the financial sector, pharmaceuticals, or parts of IT, will likely adapt more easily to the new requirements. These companies often already have developed and formalized systems for job evaluation, structured pay grades, and transparent HR processes, which is a result of compliance with global standards or specific industry regulations.

On the other hand, greater challenges are expected in industries with a wide range of qualifications and working conditions. In these sectors, the definition of work of equal value may be more complex due to the diversity of jobs, skill levels, and working conditions. Additionally, small and medium-sized enterprises that have not previously needed to implement formal pay management systems will face new administrative burdens and potentially significant additional costs. For them, establishing clear criteria, job classification, and systems for collecting and analyzing pay data will be a significant undertaking. Practical challenges may include defining categories of workers, grouping jobs of equal value based on objective evaluation rather than titles, introducing clear criteria – what is valued and how, for base pay, raises, bonuses, and other compensation. Collecting and analyzing data, not only on base pay but also on all supplementary and variable payments by gender and by job categories. Changing communication from ‘it is so’ to ‘it is so because…’.

Although it seems bureaucratically demanding, the Directive can also be an opportunity for significant improvement in business results. Transparent pay systems reduce the risk of disputes and reputational damage, but also directly impact business indicators by increasing employee satisfaction and retention, reducing turnover and recruitment costs, strengthening the employer brand, and attracting talent more easily, they emphasize, along with several questions for companies. Do you have documented criteria for assessing the value of work that are neutral and applicable to all jobs? Can you justify the pay difference between a man and a woman in the same or equivalent job and support it with concrete data? Do you know how to define equal work between two different jobs, for example, between an IT analyst and an accountant? Do you have a system that allows employees to request and receive information about average salaries categorized by gender – in a transparent manner? Would you, in the case of a legal review or employee inquiry, be able to reliably defend and argue the fairness of your pay system? If companies are unsure of the answers, it is time to start acting. Because the Directive is not a project that can be rushed. It changes the way organizations view pay – and the way they talk about it. If a company does not yet have clearly established criteria, classification, and evaluation of jobs, it is time to implement them.

Amendments to the Law

How demanding the entire adjustment is confirmed by Jakobović, who states which laws will need to be amended: work is underway on the draft amendments to the Labor Law (ZOR), amendments to the Gender Equality Act and/or the Anti-Discrimination Act, and the preparation of a new subordinate act that will define the methodology for reporting and job classification based on the principle of ‘equal value of work’. The draft law is expected to be released for e-Consultation in the fall of 2025, and adoption in the Parliament must follow no later than spring 2026 to give employers at least a few months to adjust. This means that there are less than ten months left to adopt all the legal and subordinate regulations necessary for the new pay transparency rules to come into effect by June 7, 2026, at the latest. The report must cover a specific set of data: the difference in average pay between women and men for the same work or work of equal value, expressed as a percentage of the average pay of men; the difference in median pay between women and men; differences in average allowances or bonuses by gender; differences in median allowances or bonuses by gender; the share of women and men in each pay quartile, from the lowest to the highest paid 25 percent of workers; the share of women and men who received a bonus or allowance.

– Data must be presented by categories of jobs that encompass ‘the same work or work of equal value’. This means that the employer must first conduct a classification of jobs according to a methodology that is objective and gender-neutral. The challenges are significant, from methodologies for assessing ‘equal value of work’ (in Croatian practice, job classification is often not sufficiently developed to be used for comparisons under the Directive) and technical preparation for reporting to cultural change (the prohibition of pay secrecy and the right to information will be a challenge in an environment where 69 percent of workers reported that there is a formal or informal prohibition on discussing pay, according to a survey by MojPosao) to communication and education. In countries and sectors where discussing pay is traditionally taboo, employers will have to explain for the first time why someone earns what they do and how that amount is reached. This is a change that transcends labor law and touches on people management, reputation, and decision-making processes. Croatian business practice has long relied on an implicit rule: pay is not discussed publicly, and differences, if they exist, are rationalized by individual circumstances. The Directive replaces this framework with a model in which pay becomes the result of policy, not a moment, power relations, or negotiation skills. Policy implies principles (objectivity, gender neutrality), criteria (competencies, complexity, responsibility, working conditions), and procedures (evaluation, approval, revision) – Jakobović asserts, adding that the mechanism activated at >5 percent unexplained pay gap is not a mere formality.

This is internal ‘due diligence’, involving employee representatives. More specifically, the Management/Supervisory Board must be at the table; HR that leads the methodology and processes; maintains contact with managers and employee representatives; the legal department that ensures compliance with the Directive, data protection, and evidential readiness; finance that models costs, plans corrections, and synchronizes with the budget cycle; IT/Analytics that integrates HRIS, payroll, and reporting tools; and the Workers’ Council/syndicate. He emphasizes that for suppliers working in public procurement, reputational and regulatory risks are heightened. The Directive provides that non-compliance with the principle of equal pay may reflect on the qualifications of the bidder. Private clients, especially international ones, increasingly demand equality policies and basic indicators from partners. A transparent, documented pay system becomes part of the license to operate in complex value chains.

– The good news: most of the measures the directive requires are as organizationally rational (clearer criteria, cleaner data, predictable processes) as they are legally necessary. The bad news: improvisation at the deadline almost certainly increases the cost of compliance and raises legal and reputational risks – concludes Jakobović.