EU Pay Transparency Directive

EU Member States are in the process of transposing the EU Pay Transparency Directive (2023/970) into national law ahead of the 7 June 2026 deadline.

The Directive aims to promote gender pay equality. In our recent Insight, we outlined the key standards and provided a status update on implementation across Member States. 

The critical question now is: how can an Employer of Record (EOR) meet these requirements? 

EU Pay Transparency Directive key standards 

Global organisations have long relied on Employer of Record (EOR) services as a convenient way to ‘employ’ individuals in new jurisdictions without establishing a local entity. Under this model, the EOR becomes the legal employer, both contractually and statutorily, assuming responsibility for payroll, benefits, and employment rights. The client simply pays the EOR a monthly payment to cover the salaries, taxes and EOR fee. The client avoids any local footprint but takes on the day-to-day management of the individual (as if it was their employee). 

The arrangement isn’t perfect, and we have already highlighted its limitations and risks in prior Insights. 

For an EOR against a backdrop of increased regulatory scrutiny the EU Pay Transparency Directive presents the biggest challenge yet.

Can an EOR comply?

If we look at the standards set out in the above table it raises an obvious question , how can an EOR realistically comply?  

The requirement for candidate transparency: EORs typically have no involvement in recruitment and are engaged only after a candidate accepts an offer– therefore at this stage only the client can control compliance, yet under the Directive the EOR bears responsibility as the formal employer.

The requirement for employee transparency: Employees can request pay information and gender-based average pay data for work of equal value. EORs employ individuals across hundreds of unrelated organisations, making it unclear how they can assess roles of ‘equal value’. To be meaningful employees will expect comparisons within the client’s organisation, the one they actually work for.

Access to pay criteria: Transparency on pay-setting and career progression criteria is required, but these aspects are controlled by the client, not the EOR. Can the EOR truly meet this obligation?

Gender pay gap reporting and joint pay assessments: if an EOR reports gender pay data across its entire workforce, the figures will be meaningless, drawn from disparate industries with no ability to address gaps within client business units.

It's worth noting that for most clients a direct employment relationship would avoid the gender pay gap reporting obligations under the Directive given the headcount trigger is 100 employees, however using an EOR aggregates the headcount across all clients exposing each client to reporting requirements.     

What happens next?

Compliance will ultimately depend on how Member States transpose the Directive into local law.

Article 2 (1) of the Directive states that it ‘applies to all workers who have an employment contract or employment relationship as defined by law, collective agreements and/or practice in force in each Member State with consideration to the case-law of the Court of Justice’    

Whether implementing legislation will account for the EOR model remains unclear. Draft laws published so far do not address this issue, leaving courts to interpret the position.

Uncertain times lie ahead for any business using an EOR in the EU, given the degree of daily control the client risks being assessed as the de facto employer and faces a significant risk of blurred liabilities under the Directive.

If you have any questions or need further assistance please get in touch.