pay structure

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If we open any HR portal, we will find a news article about pay transparency on nearly every homepage, which is hardly surprising. In my opinion, the 2023 directive requires a level of transparency from companies that is unprecedented in labour law and fundamentally reshapes the way companies and their employees communicate with one another— in my view, for the better.

The topic itself is not new. In fact, the principle that men and women should receive equal pay for equal work was already set out in the 1957 Treaty of Rome establishing the European Economic Community. In Hungary, the Labour Code also contains numerous provisions aimed at preventing discrimination based on gender.

The real change in recent years is brought by Directive (EU) 2023/970 to strengthen the application of the principle of equal pay for equal work or work of equal value between men and women through pay transparency and enforcement mechanisms (“EUPTD”), which recognises that pay systems are not transparent and therefore employees are unable to enforce their claims. Accordingly, it imposes specific disclosure, information, and reporting obligations on employers.

The EUPTD is therefore a kind of enforcement directive, and to our knowledge, the Hungarian draft law already prepared by the ministry does not significantly expand or tighten these rules, as they are already quite detailed in themselves.

We are aware that some of our clients have been dealing with this topic at group level for quite some time, while others have started processing it independently due to a lack of background support or while waiting for Hungarian legislation. In many cases, we provide assistance in this area, but we also consider it important to summarise—briefly and in newsletter form—how this project should be approached.

Naturally, we have reviewed numerous service providers’ approaches and implementation models that may be viable, but our position is primarily based on the specific provisions of the EUPTD, guidance and working documents of EU expert bodies, as well as relevant case law of the Court of Justice of the European Union, which is binding on Member States. We do this because we believe this approach provides the highest level of legal certainty for companies aiming for compliance.

Key steps in the EUPTD compliance process for all companies from 7 June 2026:

Identification of individuals classified as employees and wage components

Although the concept of “employee” may seem straightforward at first, the EU definition is significantly broader than the Hungarian legal concept. Accordingly, any legal relationship falls under labour-law assessment in which a person: (i) for a certain period; (ii) under the direction of another person; (iii) performs work / provides services; and (iv) receives remuneration (wage) in return.

Accordingly, employers must proceed carefully, as among their contractual arrangements, freelancers, interns, cooperative workers, or agency workers may all fall within the scope of the EUPTD project, as well as board members.

It is also of key importance which remuneration elements the company includes in the assessment. Based on EU terminology and case law, not only base salary and bonuses, but also benefits in kind (e.g. company-provided additional leave, travel passes, personal use of company equipment, internal mobility opportunities), as well as group-level benefits (ESOP, MRP, VSOP systems) fall under the scope of the EUPTD.

Defining compensation components can provide a competitive advantage—for example during a recruitment process—but at the same time, it will be necessary to take a more holistic approach to the issue, as there have historically been significant differences between individual employees, and trade secrets and personal rights may also be compromised in the process.

Establishing or reviewing job and pay structures

Although the existence of a job structure is not a formally required obligation, in my view the compliance process cannot be completed without it. All reporting and disclosure obligations are based on the employer’s accountability regarding which employee performs what work (as defined in task-definition section of the job description). At the same time, companies are expected to assess what skills, effort, responsibility, and working conditions are associated with each role.

Once the baseline data (employees, remuneration, and job roles) is available, it becomes possible to assess how objectively the pay structure has been established. The remuneration assigned to each role must therefore be evaluated: to what extent it is based on objective criteria, and whether any differences between identical roles can be justified. This base data will also form the foundation of the salary increase strategy, as employees will need to be informed about career advancement opportunities in the future.

For many companies, carrying out the above task is a challenge because it forces mid-level managers to confront the fact that the compensation of certain employees cannot be justified rationally, while other employees with long-term stable performance have not received appropriate salary increases or adjustments. While it will be easier to build such systems going forward, correcting existing discrepancies or identifying the reasons behind them is a process that requires more time and significant HR resources. The good news is that this task can be managed as a project, and EU guidance materials support companies in accelerating the process.

Companies that already have a pay structure in place should review their job roles and employee categories based on the EUPTD framework to prepare for their reporting obligations

Administration, administration, administration

A key objective of the EUPTD is that employers must be accountable. Therefore, companies must establish information procedures in four directions:

towards job applicants

towards employees

in consultations with employee representatives

towards supervisory and regulatory authorities

Most of the detailed Hungarian regulations are expected in this regard, as defining specific deadlines, appointing the responsible authority, and specifying the sanctions applicable in the event of non-compliance typically fall within the competence of the national legislator.

Employers are required to present pay data derived from the aforementioned structure on a very broad scale, in each case including a percentage-based comparison of the gender pay gap.

As several misunderstandings and pieces of misinformation often arise in this regard, it is important to emphasize that the vast majority of the above tasks are mandatory only for companies of a certain size starting this June. The SME sector is granted relief in that the reporting to authorities and employee representatives will be introduced in stages, as follows:

250+ employees	from 7 June 2027, annually thereafter
150–249 employees	from 7 June 2027, every three years thereafter
100–149 employees	from 7 June 2031, every three years thereafter
1–99 employees	voluntary

General approach of the EUPTD

Based on our experience to date, it is equally important that—without claiming to be exhaustive—the following aspects be discussed and considered prior to implementation and to note that the EUPTD implementation should not be viewed as a standalone, isolated project:

employee curiosity

new market players and services (new benchmarking opportunities, competency mapping, process management)

role of publicity

impact on market competition

transformation of internal procedures

opportunities offered by AI

specifics of executive compensation systems

I believe that for colleagues working in internal HR or legal departments, this will be an extremely exciting and professionally challenging period. Although implementing the EUPTD within a Hungarian organisation will certainly require significant time investment, its long-term effects (e.g. more efficient recruitment, standardisation and accountability of selection and evaluation criteria, transparent corporate HR culture) will ultimately be positive and supportive of everyday cooperation. We of course continue to support our clients throughout the process, as interpreting the detailed rules together and assessing related labour law (and broader legal) implications raises many practical questions for which it is worth preparing the correct answers in advance.

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