EU Pay Transparency Directive: What Latvian companies need to know

In brief:

• The EU Pay Transparency Directive reinforces the principle of equal pay for equal work or work of equal value and provides greater clarity on how remuneration is determined within companies.
• The directive applies not only to salaries and job advertisements but also to bonuses, allowances, other benefits, job evaluations, and employees' rights to receive information about their pay.
• The process of transposing the directive into Latvian law is ongoing, but companies should already evaluate how they currently determine salaries, award additional benefits, and justify pay differences.

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Pay transparency is an increasingly discussed topic in the European Union, driven in part by the Directive (2023/970) on pay transparency. Its goal is to strengthen the principle of equal pay for equal work or work of equal value while making the principles of remuneration within companies more transparent.

Various misconceptions have already emerged regarding the directive. For instance, it is often assumed that companies will be required to publish all employees' salaries or that two people in the same role must receive the exact same amount. In reality, the regulation is broader. It affects not only job advertisements and salary ranges but also how roles are evaluated within a company, how remuneration is set, how bonuses and other benefits are awarded, and how employees can obtain information about their pay.

EU member states were required to transpose the directive into their national legislation by June 7, 2026. In Latvia, as part of this process, the Ministry of Welfare has prepared the Draft Law on Pay Transparency, which is still undergoing the legislative process. Therefore, the specific application procedures for the Latvian regulation may still be refined, but the core principles of the directive are already known, and it is worthwhile for companies to understand what they will mean in practice.

Why is pay transparency necessary at all?

The principle of equal pay is not new. The Latvian Labour Law already stipulates that women and men are entitled to equal pay for the same or equal-value work. The new directive primarily focuses on making this principle practically enforceable—that is, ensuring that a company's remuneration system is understandable, comparable, and based on objective criteria.

This approach is also linked to the persistent gender pay gap. Eurostat data shows that in 2024, the average gross hourly earnings for women in the European Union were 11.1% lower than for men. In Latvia, this figure was 16.8% in 2025, according to CSB provisional data. 

These figures do not in themselves mean that women and men are paid differently for identical work. The indicator used by Eurostat is the so-called unadjusted gender pay gap, which does not take into account profession, experience, working hours, education, and other factors. However, it does show that pay gaps still exist and that the formal existence of an equal pay principle is not enough on its own.

For this principle to be implemented in practice, it must first be clear what a company understands by remuneration and how the value of a specific job is determined.

Remuneration is more than just a monthly salary

When discussing pay transparency, it is important to note that the directive defines "remuneration" more broadly than just base salary. It also includes various variable and additional elements of pay that an employee receives in connection with their work—for example, bonuses, allowances, overtime pay, certain benefits and perks related to transport, housing or catering, training reimbursements, and occupational pension contributions. This can be either a cash payment or a benefit in another form.

This nuance is essential because the total remuneration of two employees can differ even if their base salaries are similar. One may have a larger annual bonus, while another may have company-provided benefits or allowances. Therefore, when assessing whether a pay system is fair and whether differences are justified, it is not enough to look only at the monthly salary figure.

This means that a company must be able to understand and explain how various elements of remuneration are awarded. If the principles for awarding bonuses, allowances, or other benefits are not clear, differences can emerge over time in these very areas that are later difficult to justify. However, before comparing pay, a more fundamental question must be answered: which jobs can be compared at all?

The same job title does not necessarily mean work of equal value

A job title does not always indicate how complex the work is, how much responsibility it entails, or what skills it requires. Therefore, the directive focuses not only on the job title but on the actual value of the work. To determine whether jobs are equal or of equal value, companies must use objective and gender-neutral criteria. The directive specifically highlights skills, effort, responsibility, and working conditions, while also allowing for other factors relevant to the specific job to be taken into account.

In practice, this means that two people with the same job title may have different pay. For example, one project manager may have ten years of experience, greater responsibility, and more complex projects, while the other has just started at the company. Different pay in such a situation is not in itself contrary to the principles of the directive. What is essential is that the company can explain what objective criteria were used to determine this pay.

This is precisely why one of the things companies will need to organize is their job structure and job evaluation principles. Is it clear how different jobs differ? Is it clear what duties, skills, and responsibilities correspond to a specific pay level? And are similar criteria applied to similar situations?

Once these principles are clear, they become important not only for the pay of existing employees. They also influence how a company determines the pay for a person it is planning to hire.

Transparency begins before the employment relationship

One of the most visible changes from the directive will relate to recruitment. Candidates will have to receive information about the initial pay or its range, determined based on objective and gender-neutral criteria. This information must be provided in sufficient time for the candidate to make an informed decision about the job offer.

A significant change is also that an employer will not be allowed to ask a candidate for information about their previous pay. Thus, salary negotiations should not start with the question of how much a person earned in their previous workplace, but with what pay corresponds to the specific position and its requirements.

Consequently, the company itself must be clear about why a specific pay level has been set for a particular position and in what cases it may differ. Job advertisements and job titles must also be gender-neutral, and the selection process must be non-discriminatory.

However, the principle of transparency does not stop the moment a candidate becomes an employee. Even during the employment relationship, a person will have more opportunities to understand how their pay is structured and how it looks against the backdrop of the company's overall system.

What will an employee be able to find out about their pay?

The directive provides for an employee's right to request information about their individual pay level and the average pay levels for their category of employees, broken down by gender. Employees will also have the right to receive information about the criteria used in the company to determine pay, pay levels, and pay progression.

This does not mean that a company must provide an employee with a list of colleagues' salaries along with their names. The goal is to enable employees to understand how their pay compares to that of individuals performing the same work or work of equal value, while simultaneously protecting personal data. Companies will be required to inform employees of these rights and must respond to information requests within a reasonable timeframe, no later than two months.

Larger companies will be required to report

The directive also mandates regular pay gap reporting for larger employers. Requirements depend on the number of employees: for companies with 250 or more employees, the first report is due by June 7, 2027, and annually thereafter; for companies with 150–249 employees, by June 7, 2027, and every three years thereafter; and for companies with 100–149 employees, every three years starting from 2031. The directive does not set such reporting as a mandatory minimum for companies with fewer than 100 employees, although member states may establish broader requirements.

These reports will not be limited to a single overall pay gap percentage. The intention is to analyze both mean and median pay gaps, differences in variable and supplementary pay components, the proportion of women and men receiving such components, and the distribution of employees across pay levels.

This approach allows for an examination not only of whether a gap exists, but also of where it originates. For example, total pay may be similar, but a significant discrepancy may appear in bonuses or other variable pay components.

What happens if an unjustified discrepancy is identified?

If a pay gap of at least 5% between women and men is identified in any category of employees, and the employer cannot justify it with objective, gender-neutral criteria or rectify it within six months, a joint pay assessment must be conducted in cooperation with employee representatives.

Therefore, 5% is not, in itself, a threshold that automatically triggers a finding of a violation. What matters is an unjustified discrepancy—a situation where a company cannot explain why the pay of one group differs from that of another.

At the same time, the directive provides for stronger employee protection mechanisms. If pay discrimination is identified, employees will have the right to claim full compensation for damages incurred, including back pay and, in certain cases, related lost benefits. Protection against adverse treatment for exercising these rights is also provided.

Thus, the directive does not merely create an information-sharing system; it also establishes specific mechanisms for addressing situations where transparency reveals unjustified discrepancies.

How prepared are companies themselves for the directive?

Given the scope of the directive, it is not surprising that many companies are still developing their approach to pay transparency. While the results of various studies conducted in Europe are not entirely comparable due to differences in survey methodology and question phrasing, the overall trend is clear.

Littler In the 2025 European Employer Survey, only 24% of companies indicated that they were highly prepared for the new requirements. Aon in its study on pay transparency readiness, found that 13% of companies considered themselves prepared. Meanwhile, Mercer in its 2026 study, found that only 9% of European companies indicated they already had a full pay transparency strategy in place.

This does not mean that other companies have done nothing. However, these data clearly show that there is still a significant gap between understanding the directive and having a fully organized pay system. This is also crucial for Latvian companies, as implementing the directive is not just a matter of fulfilling one new requirement—it will require the ability to look at the compensation system as a whole.

Where should a company begin?

The most practical starting point is to understand how compensation is currently structured within the company. What principles are used to determine salaries? How are bonuses, allowances, and other benefits awarded? How are decisions regarding salary increases made? Are similar criteria applied to similar roles? And does the company have the data available to compare compensation across different categories of employees?

Such an overview allows you to quickly identify where the company’s processes are clear and where further investigation or solutions are needed. For one company, the biggest issue might be job classification; for another, it could be the bonus system; and for a third, it might be the fact that compensation information is scattered across different systems, making it difficult to consolidate.

This is precisely why preparation for the new requirements should not be delayed until you are forced to respond to a specific information request or submit your first report. The sooner a company reviews its roles, compensation criteria, and pay-related data, the easier it will be to comply with the specific requirements of the new regulation. 

Transparency does not mean equal pay for everyone

The goal of the Pay Transparency Directive is not to ensure that everyone with the same job title receives the same salary. It is about ensuring that a company has clear and objective principles for evaluating work and determining pay, and that these principles are understood by both the employer and the employee.

This means it will become increasingly important for a company not only to know how much each employee earns but also to understand why that compensation is set at that level. How is the salary level determined? Why does one employee receive a higher bonus? How are experience, skills, and responsibility evaluated? And does the company make consistent decisions in similar situations?

This is where pay transparency becomes more than just a new requirement for employers. It can help companies refine their compensation systems to ensure they are understandable, justified, and consistent in the long term.

Therefore, it is worth starting your preparation for the directive’s requirements not with the question, "What are we obligated to do?" but with a simpler one: "Do we clearly understand how compensation is structured in our company?" If the answer is "yes," the new requirements will be easier to implement. If the answer is less certain, this is a good time to start organizing your system.

Frequently asked questions

Does the Pay Transparency Directive mean that all salaries will become public?

No. The directive does not require companies to publish the names of individual employees and their specific salaries. Employees will have the right to receive information about their own pay and the average pay levels for their category of employees, broken down by gender. 

Will two people in the same role have to receive the same salary?

Not necessarily. A difference in pay is not a violation in itself, provided there is an objective and gender-neutral justification for it. For example, compensation can be influenced by experience, skills, level of responsibility, or working conditions. What is essential is that the company has clear criteria for determining such differences.

When will companies have to report on pay gaps?

This will depend on the number of employees in the company. For companies with 250 or more employees, the first report is due on June 7, 2027, and annually thereafter. For companies with 150–249 employees, the first report is due by the same deadline, and every three years thereafter. Companies with 100–149 employees will be required to report starting in 2031 and every three years thereafter. Reports will be based on compensation data from the preceding period.