Pay transparency in Portugal: what the European directive changes for companies
Category: Structure
Reading time: 5 minutes
For years, pay opacity operated as an implicit policy in most organisations. Different salaries for similar roles, unexplained progression criteria and disparities that existed but were never discussed.
The deadline for Member States to transpose the EU Pay Transparency Directive — Directive (EU) 2023/970 — into national law was 7 June 2026. The Directive introduces requirements that significantly change what companies can — and cannot — do regarding pay. The precise rules and enforcement mechanisms applicable in Portugal depend on the national legislation that gives effect to it.
For many Portuguese organisations, the question is no longer whether they will have to change. It is whether they will be ready when change is required.
What the Directive says — and what changes in practice
The EU Pay Transparency Directive is built around four main areas:
- Transparency before recruitment. Employers must provide candidates with information about the initial pay level or pay range for the role. This information must be provided in the job vacancy notice, before the interview or otherwise in a way that enables an informed and transparent negotiation. Employers may not ask candidates about their pay history.
- Workers’ right to information. Workers have the right to request information about their individual pay level and the average pay levels, broken down by sex, for categories of workers performing the same work or work of equal value.
- Reporting obligations. Employers with at least 100 workers will periodically report information about the gender pay gap, including complementary and variable components of remuneration, according to a phased timetable.
- Burden of proof. In pay discrimination proceedings, where a worker establishes facts from which discrimination can be presumed, the employer must prove that no discrimination occurred.
The implementation timetable
| Company size | First reporting deadline | Frequency |
|---|---|---|
| 250 or more workers | By 7 June 2027 | Annually |
| 150 to 249 workers | By 7 June 2027 | Every three years |
| 100 to 149 workers | By 7 June 2031 | Every three years |
| Fewer than 100 workers | No EU-level reporting obligation | — |
National legislation may extend reporting obligations to employers with fewer than 100 workers.
An employer must conduct a joint pay assessment with workers’ representatives when reporting reveals a difference of at least 5% in the average pay level between female and male workers in any category, the difference cannot be justified by objective, gender-neutral criteria and the employer has not remedied it within six months of submitting the report.
What compliance actually requires
Complying with the Directive is not simply a matter of producing a report. It means having the foundations needed to ensure that the report can be defended.
This is where most organisations will encounter the real problem: they do not have those foundations. Their roles are not sufficiently well defined to determine what constitutes “work of equal value”. They do not have documented criteria explaining existing pay differences. They do not have a pay structure capable of supporting the analysis that will be required.
For these organisations, the Directive is not merely a reporting requirement. It exposes a structural problem that already existed — and that now carries legal consequences.
Why this is more than a legal issue
The immediate response of many companies will be to treat pay transparency as a communication or compliance issue: hire a lawyer, adjust job vacancies and produce a report.
This response addresses the symptom, but not the problem.
Research into the effects of pay transparency shows that organisations with inconsistent pay structures — where unjustified differences exist — face two consequences when transparency increases: greater pressure to equalise pay and greater dissatisfaction among workers who discover that they are paid less than comparable colleagues. Neither consequence can be managed through communication alone.
Sustainable pay transparency depends on clear criteria: well-defined roles, consistent pay bands, documented progression criteria and a review process that people can understand. Without these foundations, making pay more visible does not create fairness — it exposes inconsistency.
What is really at stake for Portuguese SMEs
Companies with fewer than 100 workers are outside the Directive’s minimum reporting obligations, unless national legislation provides otherwise. However, they are not excluded from the pre-employment transparency requirements or from workers’ right to information.
There is also a competitive dimension that is not written into the law: candidates entering the labour market with greater pay literacy will be less likely to choose companies that cannot explain what they pay and why.
For organisations that have grown enough to have differentiated roles, progression criteria and varied pay levels, pay transparency is no longer merely an ethical choice. It is a risk management issue.
Conclusion: the Directive is an opportunity to put the house in order
Companies that reach 2027 without a defined pay structure will not have a reporting problem. They will have a foundational problem — and the report will make it visible to workers, candidates and, eventually, the competent authorities.
The most intelligent response is not to wait for national legislation and then react. It is to use this period to build what should already exist: clear roles, documented criteria and a pay rationale that the organisation can defend honestly.
At VAGAR, we work precisely on these foundations — through our Structure service, focused on role and policy architecture, and our Results service, focused on pay structures and merit criteria. Two services, one coherent foundation.
Schedule a pay structure diagnostic
Evidence base
Mas, A. (2017). Does disclosure affect CEO pay setting? Evidence from the passage of the 1934 Securities and Exchange Act. Princeton University Working Paper.
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