EU Pay Transparency Directive: Legal Risks and Compliance in the Czech Republic

The gender pay gap is not just a statistic, but a real legal risk leading to sanctions and litigation in the Czech Republic. With the adoption of the EU Pay Transparency Directive, companies face significant fines, exclusion from public tenders, and reputational damage under Czech law. If you do not have the gender pay gap under control, you face not only administrative burdens but a legal challenge that your legal team may not be able to resolve in time.

Quick Summary

• Growing Legislative Burden: (transposition by June 7, 2026) introduces mandatory gender pay gap reporting. Companies with 150 or more employees will have to start reporting in 2027 (for the year 2026), facing potential fines and the obligation to provide compensation for damages.
• Shift in the Burden of Proof: Contrary to previous practice, the burden of proof is now shifting to the employer (under Czech law). In the event of a dispute, the employer must prove that the pay gap is not discriminatory. If they fail to do so, discrimination is presumed to have occurred.
• Threats: Fines, Reputational Damage, Class Actions: Failure to comply will lead to sanctions from Czech authorities, loss of employee trust, and media scandals. These can damage a company's reputation for years and cause a drain of talent.
• Time for Preparation is Running Out: Implementing processes and rectifying pay inequalities requires 6–12 months. Without proactive steps, the effectiveness of the new legislation under the Czech legal system may come as an unpleasant surprise, and solutions under pressure will be significantly more expensive.

Why you must care about the gender pay gap – and why it cannot be ignored

The gender pay gap – generally defined as the difference in average remuneration between women and men – was long considered more of a Corporate Social Responsibility (CSR) issue. In the last decade, however, it has become an enforceable legal obligation in the Czech Republic.

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

The most important change: Directive (EU) 2023/970, which member states must transpose by June 7, 2026, fundamentally changes the rules of the game. You do not have to wait for an employee complaint, because from the effective date of the law, you must ensure transparency, reporting, and any corrective measures yourself.

In practical terms, this means that if you do not have a system for managing pay equality today, you risk not only a fine but also a loss of prestige. In an era where information spreads instantly, news that a company pays discriminately can cause irreversible damage with partners and investors.

Our attorneys in Prague at ARROWS deal with remuneration and compliance issues daily, and therefore know how to effectively avoid these risks.

Current Legal Framework: Where we are today and where we are headed

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

Basic Obligations under the EU Pay Transparency Directive

The new directive introduces five key areas of obligation:

• Pay Transparency during Recruitment: Companies must provide information about the starting salary or its range for a given position in the job advertisement or at the latest before the interview. At the same time, they may not ask the candidate about their previous remuneration history.
• Transparency during Employment: Employees will have the right to information regarding the criteria used to determine their pay and career progression. They have the right to request written information on their individual pay level and the average pay levels of employees performing the same work.
• Gender Pay Gap Reporting: Employers will be required to regularly report on pay differences. Companies with 250+ employees annually, companies with 150–249 employees every 3 years.
• Joint Pay Assessment: If reporting reveals a difference in average pay between women and men of at least 5% and the employer cannot objectively justify it, they must conduct a deep analysis. Rectification must take place in cooperation with employee representatives.
• Reversal of the Burden of Proof: In the event of litigation in Czech courts regarding equal pay, the employer will have to prove that discrimination did not occur. If the firm fails to prove that the difference is objectively justified, the court will rule against it.

MicroFAQ – Basic Obligations under the Directive

1. When must companies start reporting?
Companies with 150 or more employees will have to provide the first report by June 7, 2027 (for the year 2026) according to Article 34. Smaller companies under 100 employees do not automatically have this obligation under the directive, but Czech national legislation may extend it to them.

2. What counts as "remuneration" for reporting purposes?
Everything: base salary, bonuses, premiums, benefits (pension contributions, company car, meal allowances, etc.), and reimbursements. Anything the employee receives from the company in connection with the performance of work.

3. What risks await a company that fails to meet its obligations?
Financial fines from the Czech Labour Inspection Authority (currently up to millions of CZK in the Czech Republic under Section 10 and Section 24 of Act No. 251/2005 Coll., on Labour Inspection; these may be specifically adjusted with the implementation of the directive), the obligation to back-pay the wage difference, exclusion from public tenders, and significant reputational risk.

Legal and Financial Risks: What lies beneath the surface

It seems simple – you measure wages, find the difference, and fix it. The reality is much more complex and full of pitfalls that a lay perspective often overlooks. Our Czech legal team at ARROWS encounters these risks in practice and knows what to watch out for.

Dangers that often hide in the details

• "Objective justification" is not clear-cut: If you claim that an employee has a lower salary due to less experience, a court will scrutinize this thoroughly. You must have documented proof that this experience is relevant specifically to the given role and that this metric is applied equally to everyone under Czech law.
• Cumulative effect: The gender pay gap also develops over time. If women receive even just a 2% lower annual salary increase than men, the difference becomes vast after 10 years. Each year can thus establish 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 they are not burdened by so-called bias. If a system trained on historical data suggests a lower salary for a woman, the employer bears the responsibility.
• Benefits as part of salary: Benefits count. If a company provides higher-class company cars in positions dominated by men and lower-class cars where women are (at a comparable level of responsibility), a pay gap arises under Czech commercial standards.
• Missing documentation: If you do not have written criteria (wage regulations, career rules) by which you determine salaries, a court dispute will be based on factual practice. If that practice is inconsistent, the court will rule against the company.

Risks and how ARROWS law firm in Prague can help

Upcoming: A new legal scenario after June 2026

From June 7, 2026 (when the Czech transposition of the Directive must take effect at the latest), Czech companies must behave according to new rules. This means a series of changes in recruitment and during employment.

Recruitment phase: The end of secrecy

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

Who can you contact?

Mgr. Jakub Oliva, LL.M., MSc.

associate, partner

• oliva@arws.cz

JUDr. Barbora Kořenářová

associate

• korenarova@arws.cz

MicroFAQ – Recruitment and Transparency

1. Do I have to write specific numbers, or is a range sufficient?
A range is sufficient, but it must be objective and realistic. You cannot state "20,000 – 100,000 CZK" if it does not correspond to the reality of the position.

2. What if I work with a recruitment agency?
The responsibility for compliance with the law lies primarily with the employer. In the contract with the agency (recruiter), you must contractually ensure that they fulfill these obligations on your behalf.

3. How to do it without losing a negotiating position?
The range defines the boundaries. Within them, you can negotiate based on the candidate's experience. Transparency does not mean a fixed salary for everyone, but clear rules of the game.

During employment: The right to information

Employees will gain the right to ask. The employer will be obliged, upon request, to provide information in writing about their individual wage level and the average wage levels for categories of employees performing the same work. This requires having a perfectly processed internal categorization of positions to make it clear who is being compared with whom.

Reporting: First mandatory reporting from 2027

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

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 intentionally paying a woman less than a man in the same seat. It is often the result of hidden mechanisms that accumulate over time.

Main causes of the gender pay gap

• Labor market segregation: Women are often represented in lower-paid sectors or in lower positions, while men dominate in management. In reporting, this must be explained by structure, not discrimination. Correct setting of categories for comparison is key.
• Use of benefits and flexibility: If a company offers part-time roles, which are predominantly used by women, it can impact their career growth. If bonus rules are set up to disproportionately penalize part-time work, it constitutes indirect discrimination.
• Impact of maternity and parental leave: If a woman's salary is not adjusted for inflation or growth upon her return from parental leave, an immediate pay gap arises. The Directive mentions the right for an employee to return under conditions they would have had if they had not left.
• Non-transparent bonuses: The variable component of wages is often subjective. If measurable criteria do not exist, managers may subconsciously rate men better, leading to discrimination.

MicroFAQ – Causes and Documentation

1. If the pay gap is a result of having more women in junior roles, is it a problem?
It is not necessarily illegal if access to promotion is equal. However, the overall gap will appear in the reporting, which you will have to explain. If analysis shows that women are "stuck" in junior positions due to a so-called glass ceiling, it could be a legal issue under the Czech legal system.

2. How is "work of equal value" determined?
Four factors are evaluated: skills, effort, responsibility, and working conditions (see Article 4, paragraph 4). It is therefore not just about the job title, but about its content. An executive assistant may perform work of equal value to a junior manager under Czech law.

3. Can we justify pay differences based on performance?
Yes, differing performance is a legitimate reason for differing wages. However, you must be able to objectively prove this performance (evaluation systems, KPIs) and this system must be applied consistently to both men and women in the Czech Republic.

How to prepare: A practical plan until June 2026

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

Phase 1: Audit and analysis (months 1–3)

First, you must determine the actual state of affairs. It is necessary to aggregate employee data, divide them into groups performing the same work, and calculate averages and medians. Our Prague-based attorneys at ARROWS can help you set up the audit methodology, define categories of "work of equal value," and interpret the results through the lens of current Czech legislation.

Phase 2: Remediation and processes (months 4–12)

If the audit reveals unjustified differences, they must be addressed. Identified discriminatory gaps must be equalized, and clear rules for remuneration, bonuses, and promotions must be established. The ARROWS legal team will prepare a corrective action plan for you that minimizes legal risks and remains financially sustainable.

Phase 3: Implementation and communication (months 10–18)

Internal communication and technical system preparation are key in this phase. Prepare managers for the fact that employees will ask questions, and ensure that your payroll systems can generate the data required by the directive. If trade unions operate at your company in the Czech Republic, involve them early.

Implementation errors 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," while Germany has a law on promoting pay transparency with its own specifics. Our attorneys in Prague at ARROWS, thanks to their international reach and network of partner firms, can coordinate compliance projects across jurisdictions.

MicroFAQ – Multinational aspects

1. Do I have to report the pay gap for each country separately?
Yes. Reporting is submitted to the relevant national authority according to the employer's seat and is governed by the law of that country. You cannot "average out" the entire EU group.

2. Can we use a US diversity & inclusion policy?
Often not directly. In the US, it is legal and common to collect data on race or ethnicity for statistical purposes; in the EU (and the Czech Republic especially), you encounter strict GDPR and personal data protection rules (see Regulation (EU) 2016/679). A pay equity audit in the EU must comply with GDPR.

3. Who bears the responsibility?
Responsibility for compliance with labor law always lies with the local employer (a Czech s.r.o. or a.s.). The parent company may set the strategy, but the Czech entity pays the fine.

Why you should start now

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

• Implementation complexity: Changing a remuneration system in a large company takes months, sometimes even a year.
• Cost distribution: If you find it necessary to equalize wages, it is better to spread it over two budget periods than to face a one-off impact.
• Reputational lead: A company that introduces transparency proactively as a benefit will look better on the labor market than one that does so only under legal compulsion.
• Litigation prevention: By resolving inequalities now, you prevent lawsuits at the moment the data becomes public.

Conclusion

The gender pay gap and the new Pay Transparency Directive represent a fundamental change in labor law. Employees will gain powerful monitoring tools, companies will be under public scrutiny, and the burden of proof is shifting to the disadvantage of employers.

Ignoring these issues can lead to high fines, costly litigation in Czech courts, and damage to the company's reputation.

Our Prague-based attorneys at ARROWS have extensive experience with labor law and compliance. We know how to set up processes so that they are in accordance with the law while remaining functional for business.

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

FAQ – Frequently Asked Questions

1. If our pay gap is below 5%, are we safe?
In principle, yes, regarding the obligation for a "joint pay assessment." However, even a smaller difference can be discriminatory if it concerns a specific individual and is not justified. 5% is the threshold for mandatory collective analysis (according to Article 10 of the directive), not a threshold for the legality of discrimination. You must still ensure equal treatment under the Czech legal system.

2. What if we have a large pay gap in IT because we have more senior men?
That is a structural difference. Within reporting, you must be able to explain this and support it with data (breakdown by senior/junior categories). If you prove that men earn more because they are in more senior positions (and women have an equal chance to advance to these positions), it is defensible. The key is to compare like with like.

3. Do we have to publish the salaries of specific people?
No. The directive requires the publication of averages and medians for categories of employees, not the wages of specific named individuals. However, an employee has the right to know their own wage level and the average wage level of their comparable group.

4. What sanctions are realistically at risk?
In addition to fines from the Czech Labor Inspectorate (depending on the final Czech legislation), the primary risk involves civil lawsuits for wage equalization. If an employee succeeds, a Czech court may award back pay (up to 3 years retrospectively according to the statute of limitations under the Czech Civil Code), late payment interest, and compensation for non-material damage.

5. Does this also apply to small companies with fewer than 100 employees?
The direct reporting obligation under the directive does not (yet) apply to them, but member states may lower this threshold. However, what applies to all companies regardless of size is the prohibition of discrimination, the obligation of transparency during recruitment, and the employees' right to information under Czech law. Even a small firm can face litigation in Czech courts.

Disclaimer: The information contained in this article is for general informational purposes only and serves as a basic guide to the issue. Although we ensure maximum accuracy of the content, legal regulations and their interpretation evolve over time. To verify the current wording of regulations and their application to your specific situation, it is therefore essential to directly contact ARROWS law firm in Prague (office@arws.cz). We bear no responsibility for any damages or complications arising from the independent use of information from this article without our prior individual legal consultation and professional assessment. Every case requires a tailor-made solution; therefore, do not hesitate to contact our Czech legal team.

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