The Gender Pay Gap as a Legal and PR Risk

Why You Must Care About the Gender Pay Gap – and Why You Can't Ignore It

The gender pay gap—generally defined as the difference in average remuneration between women and men—has long been considered more of a corporate social responsibility (CSR) issue. In the last decade, however, it has become a legally enforceable obligation.

In the European Union, women earn, on average, about 13% less than men; in the Czech Republic, this gap has long hovered around 16–17%. This is not just a matter of fairness—under both EU and Czech law, an unjustified pay gap for the same work is illegal.

The most important change: Directive (EU) 2023/970, which Member States must transpose by 7 June 2026, fundamentally changes the rules of the game. You no longer have to wait for an employee complaint; from the date the law takes effect, you must proactively ensure transparency, reporting, and, if necessary, corrective measures.

In practical terms, this means that if you don't have a pay equity management system in place today, you risk not only a fine but also a loss of prestige. In an age where information spreads at lightning speed, news that a company engages in discriminatory pay practices can cause irreversible damage with partners and investors.

The lawyers at ARROWS law firm deal with remuneration and compliance issues daily, so they know how to effectively avoid these risks.

The Current Legal Framework: Where We Are Today and Where We Are Headed

The obligation of equal pay has existed for a long time (the Labour Code, the Anti-Discrimination Act, the Treaty on the Functioning of the EU), but the new directive translates it into a practical reality with specific deadlines, methodologies, and sanctions.

Key Obligations Under the EU Pay Transparency Directive

The new directive introduces five key areas of obligation:

• Pay transparency in recruitment: Companies must provide applicants with information about the initial salary or its range for a given position, either in the job advertisement or, at the latest, before the job interview. They are also prohibited from asking applicants about their pay history.

• Transparency during employment: Employees will have the right to information about the criteria used to determine their pay and career progression. They have the right to request, in writing, information about their individual pay level and the average pay levels for employees performing the same work.

• Reporting on gender pay gaps: Employers will be required to regularly report on pay differences. Companies with 250+ employees will report annually, while those with 150–249 employees will report every three years.

• Joint Pay Assessment: If reporting reveals a gender pay gap of at least 5% in the average pay for any category of workers, and the employer cannot objectively justify it, a in-depth analysis must be conducted. Remedial action must be taken in cooperation with employee representatives.

• Reversal of the burden of proof: In the event of a legal dispute over equal pay, the employer will have to prove that no discrimination occurred. If the company fails to prove that the difference is objectively justified, the court will rule against it.

Legal and Financial Risks: What Lies Beneath the Surface

It may seem simple—measure salaries, find a gap, and fix it. The reality is far more complex and fraught with pitfalls that a layperson's view often overlooks. The Prague-based legal team at ARROWS law firm encounters these risks in practice and knows what to watch out for.

Dangers Often Hidden in the Details

• "Objective justification" is not straightforward: If you claim an employee has a lower salary due to less experience, a court will scrutinise this thoroughly. You must have documented proof that this experience is relevant to the specific role and that this standard is applied equally to everyone.

• The cumulative effect: The gender pay gap also develops over time. If women receive an annual salary increase that is even just 2% lower than men's, the difference becomes vast over 10 years. Each year can thus give rise to a new claim if the system is set up incorrectly.

• Algorithms and automation: If you use software or AI to determine salaries or bonuses, you must guarantee that they are not subject to bias. If a system trained on historical data suggests a lower salary for a woman, the employer bears the responsibility.

• Benefits as part of pay: Benefits count. If a company provides higher-class company cars for positions dominated by men and lower-class cars for those where women are prevalent (at a comparable level of responsibility), a pay gap is created.

• Lack of documentation: If you do not have written criteria (a salary regulation, career progression plan) for determining pay, a court dispute will be based on actual practice. If that practice is inconsistent, the court will rule against the company.

What's Coming: The New Legal Landscape After June 2026

From 7 June 2026 (the latest date for the Czech transposition of the Directive to take effect), Czech companies must operate under new rules. This means a number of changes in both recruitment and during employment.

The Recruitment Phase: The End of Secrecy

For newly opened positions, you must state the starting salary or its range (e.g., "Salary: CZK 40,000 – 55,000") in the job advertisement or before contract negotiations. If you tell an applicant that "salary is negotiable" without providing a framework, you are violating the law under Article 5 of the Directive.

During Employment: The Right to Information

Employees will gain the right to ask questions. Upon request, the employer will be obliged to provide written information about their individual pay level and the average pay levels for categories of employees performing the same work. This requires having a perfectly developed internal categorisation of positions to clarify who is being compared with whom.

Reporting: The First Mandatory Report from 2027

Companies with 150 or more employees must submit their first report in June 2027. It will include, among other things, the overall gender pay gap (median and average) and the pay gap within categories of employees. If the gap in a category exceeds 5% and is not justifiable, a mandatory joint pay assessment is triggered.

The Gender Pay Gap in Practice: How It Arises and Why a Layperson Often Sees It Too Late

The gender pay gap is not just about a company deliberately paying a woman less than a man in the same role. It is often the result of hidden, cumulative mechanisms.

Main Causes of the Gender Pay Gap

• Labour market segregation: Women are often overrepresented in lower-paying sectors or junior positions, while men dominate in management. In reporting, this must be explained by structure, not discrimination. The key is to correctly define the categories for comparison.

• Use of benefits and flexibility: If a company offers part-time work, which is predominantly used by women, it can impact their career growth. If the rules for bonuses are set up to disproportionately penalise part-time work, it constitutes indirect discrimination.

• Impact of maternity and parental leave: If a woman's salary is not adjusted for inflation or general pay rises upon her return from parental leave, an immediate pay gap is created. The Directive mentions the right for an employee to return to conditions they would have had if they had not been on leave.

• Non-transparent bonuses: The variable component of salary is often subjective. If there are no measurable criteria, managers may subconsciously evaluate men more favourably, leading to discrimination.

How to Prepare: A Practical Plan for June 2026

There is still time to prepare, but the window is closing. We recommend the following approach:

Phase 1: Audit and Analysis (Months 1–3)

First, you need to determine the actual situation. It is necessary to aggregate employee data, divide them into groups performing the same work, and calculate averages and medians. The Prague-based legal team at ARROWS law firm will help you set up the audit methodology, define categories of "work of equal value," and interpret the results through the lens of current law.

Phase 2: Remediation and Processes (Months 4–12)

If the audit reveals unjustified differences, they must be addressed. Identified discriminatory gaps must be closed, and clear rules for remuneration, bonuses, and promotions must be established. The lawyers at ARROWS will prepare a remediation plan for you that minimises legal risks and is financially sustainable.

Phase 3: Implementation and Communication (Months 10–18)

In this phase, internal communication and the technical preparation of systems are key. Prepare managers for employees' questions and ensure your payroll systems can generate the data required by the Directive. If you have trade unions, involve them early.

Implementation Mistakes and How to Avoid Them

Specific Challenges for Czech and International Companies

For multinational companies, the situation is complicated by differing legislation in individual countries. Although based on a single EU directive, each Member State may implement it with variations.

You cannot apply a single global solution to all EU branches because you must respect local law.

France already uses its "Equality Index," and Germany has its Act to Promote Transparency of Pay Structures with its own specific requirements. The lawyers at ARROWS law firm, thanks to their international reach and network of partner firms, can coordinate compliance projects across jurisdictions.

Why You Should Start Now

Time is running out, and early preparation is a competitive advantage.

• Implementation complexity: Changing the remuneration system in a large company takes months, sometimes even a year.

• Cost distribution: If you discover the need for pay adjustments, it is better to spread the cost over two budget periods than to face a one-off impact.

• Reputational head start: A company that proactively introduces transparency as a benefit will look better in the labour market than one that does so only when forced by law.

• Dispute prevention: By resolving inequalities now, you will prevent lawsuits when the data becomes public.

Conclusion

The gender pay gap and the new Pay Transparency Directive represent a fundamental shift in labour law. Employees will gain powerful tools for oversight, companies will be under public scrutiny, and the burden of proof will shift to the disadvantage of employers.

Ignoring this issue can lead to hefty fines, costly lawsuits, and damage to a company's reputation. The lawyers at ARROWS law firm have extensive experience in labour law and compliance. We know how to set up processes that are both legally compliant and functional for your business.

Contact us at consultation@arws.cz to arrange an initial consultation on preparing for the new legislation.