EU Directive on equal pay and pay transparency: cut red tape, do not create new burdens.

Background

However important and right the fight against pay discrimination may be, the EU Directive on equal pay and pay transparency goes far beyond what is acceptable in its practical implementation. A massive new wave of bureaucracy is rolling out from Brussels towards businesses in Germany and Europe. For with the aim of promoting pay equity, new disclosure, documentation and reporting obligations are being introduced that interfere deeply with operational processes, remuneration structures and entrepreneurial freedom. Instead of targeting actual cases of discrimination, the directive primarily burdens law-abiding employers with additional administrative burdens, new liability risks and significant costs.

Time is of the essence, as the directive must be implemented by 7 June 2026. Given the current sluggish growth, any further burden on businesses is more than detrimental.

The following explains why the EU Directive on equal pay and pay transparency is a regulatory misstep and why nation states such as Germany should advocate for a suspension, revision and significant watering down of the directive.
 

Summary of the EU Directive on equal pay and pay transparency

The EU Directive on equal pay and pay transparency (Directive (EU) 2023/970) aims to strengthen the enforcement of the principle of ‘equal pay for equal work and work of equal value’. It must be transposed into national law by 7 June 2026. At the heart of the Directive are new transparency and reporting obligations for employers, extended information rights for employees, requirements for job advertisements, a ban on asking about previous salaries, and a reversal of the burden of proof in pay disputes. Companies with 100 or more employees must produce regular reports on gender pay gaps; where there is an objectively unjustified pay gap of at least 5 per cent, a joint pay review may be required.

In practical terms, this means that employers will in future be obliged to disclose the starting salary or a salary range as early as the application stage. Employees are entitled to information about their own pay and the average pay for comparable positions, broken down by gender. At the same time, the pressure on companies to document and justify their practices will increase significantly. 

From the perspective of the European Taxpayers’ Association (TAE), the aim of preventing genuine pay discrimination is fundamentally legitimate. However, the EU directive goes far beyond this. It creates new reporting obligations, increases legal uncertainty and intervenes deeply in established corporate remuneration structures.

Many companies are facing additional personnel, IT, consultancy and legal costs, without this automatically leading to a noticeable improvement in pay equity. The German government has itself acknowledged the bureaucratic burden and set up a commission to ensure implementation with as little red tape as possible. Furthermore, affected companies face draconian penalties. This is because the directive applies to all employment relationships and has retroactive effect.
 

Overview of penalties and costs for non-compliance

The Directive obliges Member States to provide for effective, proportionate and dissuasive sanctions in the event of breaches. These include, in particular, fines and other measures where employers fail to comply with their transparency, information or reporting obligations.

The Directive also stipulates that victims of pay discrimination are entitled to full compensation. This covers not only back pay but also variable remuneration components, benefits in kind and lost earnings.

The reversal of the burden of proof is particularly significant: in the event of a dispute, the employer must prove that there has been no breach of the principle of equal pay. This reversal significantly alters the legal situation to the detriment of companies. In the case of complex, performance-related or market-dependent remuneration structures, the risk of protracted and costly disputes increases significantly.

Added to this are the practical implementation costs. Companies must review remuneration systems, systematically evaluate roles, form comparison groups, set up data collection processes, adapt HR systems and produce reports. For small and medium-sized enterprises in particular, these requirements entail additional fixed costs, ongoing administrative burdens and a greater need for consultancy. The Directive therefore affects not only large corporations but, indirectly, large swathes of the economy.

National legislators are also under considerable legal pressure: if the Directive is not implemented on time, the Member State faces legal action under EU law. This explains the political time pressure, but does not justify hasty or excessive national implementation.

In an opinion piece in *Die Presse*, Dr Franz Schellhorn, Director of the think tank Agenda Austria, described the directive as a new “bureaucratic bomb” due to its potentially harmful consequences. In particular, he warns that Austrian companies, fearing lawsuits and sanctions, could standardise pay structures, simplify job profiles and reduce individual performance incentives. The Austrian draft legislation provides for minimum fines of up to 50,000 euros per case; furthermore, the defendant company would have to bear the legal costs regardless of the outcome.

If the legal costs are borne not by the party at fault but always by the company (the defendant), this would create a significant incentive for employees to file lawsuits en masse and without risk. This example illustrates how an already problematic directive can, through national tightening, become a particularly burdensome liability and bureaucratic apparatus.

Criticism from the Taxpayers’ Association

The Taxpayers’ Association criticises the EU Directive on equal pay and pay transparency on regulatory, economic and bureaucratic grounds:

Firstly: The directive relies on mistrust and general suspicion rather than targeted measures to combat abuse. Companies are not only held to account in specific cases of alleged discrimination, but are also burdened across the board with new information, documentation and reporting obligations.

Secondly: The requirements interfere massively with companies’ freedom of contract and HR policies. In practice, they create incentives to equalise individual pay differences, even where these are objectively justified, for example by performance, successful negotiations, skills shortages, professional experience or special responsibilities.

Thirdly: The directive jeopardises performance-related pay systems. If every deviation becomes open to challenge and can lead to legal disputes, the temptation grows to standardise pay models rather than appropriately rewarding performance and special qualifications.

Fourthly: The reporting obligations for companies with 100 or more employees, as well as the 5 per cent threshold for further audits, are too rigid. They also cover cases where statistical differences can be objectively explained and no discriminatory practice is present.

Fifthly: The reversal of the burden of proof shifts the liability risk one-sidedly onto employers. This fosters legal uncertainty, defence costs and conflicts, rather than enabling workable solutions.

Sixthly: The Directive is yet another example of European over-regulation. This is because in many countries – for example, in Germany – statutory provisions on pay transparency already exist, as does a high degree of collective bargaining coverage. Additional EU requirements therefore often lead to double regulation rather than adding value.

Seventh: The Austrian example shows where excessive national regulatory measures can lead: high minimum fines, unequal procedural costs and far-reaching legal disputes at the expense of businesses. Such a model must not serve as a template.

Proposals for reform

The Taxpayers’ Association calls for a fundamental correction of the current course:

  1. Implementation is suspended.

The national implementation of the Directive should not be tightened under political or time pressure. A critical reassessment of benefits, costs and proportionality is required prior to implementation.

  1. Revise the directive at EU level.

The requirements must be reduced to the core of protection against discrimination. What is needed is a targeted approach to actual, verifiable pay discrimination, not a blanket European system of monitoring and bureaucracy.

  1. Excluding national over-compliance.

No additional obligations, stricter liability rules or unilateral procedural disadvantages for businesses must be created. The principle must apply: no national tightening of rules that goes beyond what is mandatory under EU law.

  1. Collective agreements and existing regulations must be taken into account.

Where collective agreements, workplace co-determination rights and existing legal instruments already provide effective protection, exceptions, exemptions or protective provisions must be created.

  1. Explicitly protect performance-related pay.

Performance, experience, skills shortages, market conditions and individual responsibility must continue to be recognised as permissible criteria for differentiation with legal certainty.

  1. Raise thresholds and reporting requirements.

The reporting obligations for companies with 100 or more employees are too extensive. De minimis thresholds, simplifications and practical exemptions must be introduced, particularly for small and medium-sized enterprises.

  1. Ensure a balanced approach to the burden of proof and procedural law.

There must be no de facto prejudgement of companies. Enforcement must be fair, proportionate and resistant to abuse.

  1. In the long term: Abolish the Directive.

From the Taxpayers’ Association’s perspective, the best solution is the complete repeal of this Directive. Protection against wage discrimination can be guaranteed without a new European bureaucratic system.

Conclusion

The EU Directive on equal pay and pay transparency is a prime example of a political approach that pursues a legitimate goal with disproportionate means. Instead of focusing on combating specific cases of discrimination, it creates new bureaucracy, additional liability risks and interferes extensively with companies’ remuneration structures. It places a burden on companies, undermines performance-related pay models and threatens to trigger significant follow-up costs, particularly for small and medium-sized enterprises.

The Taxpayers’ Association therefore calls for the suspension, revision and significant watering down of the directive – ideally its complete abolition. Under no circumstances, however, should there be any so-called ‘cosmetic changes’ through additional national tightening of the rules.

It is now up to the President of the European Commission, Ursula von der Leyen, to seriously tackle the reduction of bureaucracy and the proclaimed strengthening of the European economy, and to politically reshape the EU Directive on equal pay and pay transparency.

Europe needs less top-down micromanagement and more trust in collective bargaining, company-wide and market-oriented solutions.

Anyone wishing to secure growth, competitiveness and performance-based fairness must not burden companies with ever-increasing documentation, reporting and liability obligations.

 

Further information 

Brussels/Munich, 12 April 2026