Pay Transparency: A Looming Challenge for Employers
Major pay transparency laws are set to reshape the employment landscape in the coming years. Both the United States and the European Union have enacted legislation aimed at promoting pay equity and transparency.
U.S. State-Level Initiatives
Several U.S. states, including Illinois, Massachusetts, Minnesota, New Jersey, Michigan, and Vermont, have implemented new laws in 2025 to bolster salary transparency and combat gender-based pay discrimination. These states join a growing number of jurisdictions with similar regulations.
EU's Pay Transparency Directive
The European Union's (EU) pay transparency directive, which will take effect in 2026, requires companies to disclose gender pay gaps and justify any disparities exceeding 5%. This regulation applies to companies with over 100 employees in the EU, regardless of their headquarters location.
Employer Preparedness: A Significant Gap
Despite the impending changes, many employers are ill-prepared to comply with these new regulations. A recent Aon survey revealed that a staggering 75% of U.S. employers are not ready to adapt to the evolving pay transparency landscape.
Key Challenges for Employers
- Manager Training: Employers must invest in training managers to effectively address employee inquiries about pay, justify pay decisions, and communicate the company's pay equity philosophy.
- Salary Range Disclosure: Many employers currently do not disclose salary ranges to employees. However, the EU's directive mandates that employers provide pay ranges upon employee request, necessitating a shift in communication practices.
- Pay Equity Audits: To ensure compliance with new regulations, employers may need to conduct thorough pay equity audits to identify and rectify any pay disparities.
As pay transparency becomes the norm, employers must proactively address these challenges to avoid potential legal risks, maintain employee trust, and foster a fair and equitable workplace.