Pay Transparency for SMEs: Small Businesses Across Europe Must Act Too

"This doesn't apply to us. We only have 30 employees."

We hear this regularly — from managing directors, HR managers, and accountants at small and medium-sized enterprises. And it's wrong.

The EU Pay Transparency Directive (EU) 2023/970, which must be transposed into national law by 7 June 2026, does differentiate by company size — but only for reporting obligations. The directive's core obligations apply to all employers. Regardless of whether you have 5, 50, or 5,000 employees.

And SMEs are more vulnerable than they think. In small teams, pay differences surface faster. Without formal employee representation, there's no buffer. And the automatic reversal of the burden of proof for transparency violations applies — even in a 10-person company.

This article clarifies: which obligations apply to SMEs? Why are small companies particularly affected? And how do you implement the requirements pragmatically — without unnecessary red tape?

The misconception: "The thresholds will save us"

The most common misunderstanding about the Pay Transparency Directive concerns the thresholds. Yes, the directive defines size limits: 100, 150, and 250 employees. But these thresholds apply exclusively to the periodic reporting obligations — i.e. the publication of the seven gender pay gap metrics.

• 250+ employees: Annual reporting (from 7 June 2027)
• 150–249 employees: Every 3 years (from 7 June 2027)
• 100–149 employees: Every 3 years (from 7 June 2031)
• Under 100 employees: No reporting obligation

Many SMEs read this staggering — and consider the topic done. That's a dangerous mistake. Because all other obligations of the directive apply regardless of company size. And there are quite a few.

What even a 5-person business must do

From 7 June 2026, the following applies to every employer — from the trades to tech startups:

• Salary information in job postings or before the interview
• Ban on asking about previous salary
• Gender-neutral job titles and postings
• Transparent, objective, and gender-neutral pay criteria
• Individual right to information for all employees
• Removal of pay secrecy clauses
• Annual notification of employees about their right to information

No reporting obligation does not mean no obligation. It just means you don't have to publicly disclose your gender pay gap. Everything else? Applies.

Why SMEs may actually be more exposed

Paradoxically, small companies are in some respects more vulnerable than large corporations. Here are five reasons:

1. In small teams, differences surface faster

In a corporation with 10,000 employees, a colleague's salary is an abstract number. In a team of 15? After the first shared lunch, everyone has a pretty good idea who earns what. The smaller the team, the faster information spreads — and the faster questions arise.

2. Pay secrecy clauses become void

Many SMEs rely on contractual secrecy clauses to prevent pay discussions. From 7 June 2026, these clauses are void (Art. 7 para. 5). Employees may freely discuss their pay. This isn't an optional concession — it's a protected right. Clauses that restrict it become unenforceable. Full stop.

3. No formal employee representation as a buffer

In large companies, much goes through employee representatives — works councils in Germany, staff delegations in Luxembourg, or equivalent bodies elsewhere. Complaints are channelled, conflicts mediated, information filtered. Most SMEs don't have these structures (though notably in Luxembourg, staff delegations are mandatory from just 15 employees). Without formal representation, if an employee notices a pay disparity and feels treated unfairly, the next step is a lawsuit — not an internal mediation.

4. The pair comparison works in small businesses too

Courts are already applying the directive's principles. In Germany, the Federal Labour Court clarified on 23 October 2025 (case no. 8 AZR 300/24) that a pair comparison with a single colleague of the other gender is sufficient to establish a presumption of pay discrimination. No statistics, no group comparison. In a 20-person company, it's enough if a female employee finds a male colleague who performs the same or equivalent work and earns more. The burden of proof then shifts to the employer. As the directive takes effect across the EU, this principle will apply in every member state.

5. Automatic reversal of the burden of proof

Art. 18 of the directive makes matters worse: for violations of transparency obligations — such as when a company fails to fulfil the right to information or cannot demonstrate gender-neutral pay criteria — the burden of proof reverses automatically. Without the claimant even having to present circumstantial evidence. The employer must then prove that no discrimination exists. For an SME without a documented pay structure, that's virtually impossible.

Concrete obligations for SMEs under 100 employees

Here's the complete overview of what the directive specifically requires from companies with fewer than 100 employees:

Salary information in job postings (Art. 5)

Applicants must be informed about the salary range or starting pay before the job interview. This can be included in the job posting itself or communicated through other means. The key point: the information must be available before salary negotiations begin. This also applies to postings on platforms like Indeed, LinkedIn, or national job boards.

Ban on salary history questions (Art. 5 para. 2)

Employers may no longer ask applicants about their previous salary — neither directly nor indirectly. Phrases like "What do you currently earn?" or "Please state your salary expectations based on your current salary" are prohibited. The rationale: existing pay inequalities should not be carried from one employment relationship to the next.

Gender-neutral job titles (Art. 5 para. 3)

Job postings and job titles must be formulated in a gender-neutral manner. What many companies already practice will become a legal requirement.

Transparent pay criteria (Art. 6)

Employers must disclose the criteria used to determine pay and career progression. These criteria must be objective and gender-neutral. For SMEs with fewer than 50 employees, the directive includes a potential easement: member states may exempt them from the obligation to also disclose criteria for pay progression (promotions, grade increases). How each country will implement this option remains to be seen.

Individual right to information (Art. 7)

Every employee — in every company, regardless of size — has the right to request information about the average pay level of comparable colleagues, broken down by gender. The employer must respond within two months. In several member states, existing legislation limited this right to larger companies — for example, Germany's Pay Transparency Act restricted it to companies with 200+ employees. Those thresholds fall with the EU directive.

Removal of all pay secrecy clauses (Art. 7 para. 5)

Contractual clauses prohibiting employees from discussing their pay become void. Employees may freely communicate about their compensation. Existing clauses should be proactively removed from all contracts — don't wait for the next contract revision.

Annual information obligation (Art. 7 para. 3)

Employers must inform their employees annually about their right to information — including the specific steps they can take to exercise this right. A brief information letter or email suffices, but it must demonstrably take place.

Pragmatic implementation for SMEs: 5 steps

The good news: implementation for SMEs doesn't have to be a major project. With five concrete steps, you can build the foundation — without an army of consultants or months of workshops.

Step 1: Review employment contracts — remove secrecy clauses

Go through all existing employment contracts and templates. Every clause that prohibits employees from discussing their pay must go. This isn't an optional recommendation — from June 2026, it's mandatory law. Don't use the next contract revision as the trigger — act now. The mere existence of such clauses can be interpreted as a sign of non-compliance.

Step 2: Update job postings — define salary ranges

Define a salary range for every position in your company. This doesn't have to be a scientific analysis — but a well-founded estimate based on market data, internal consistency, and objective criteria. Integrate these ranges into all job postings. And train everyone who conducts interviews: asking about previous salary is off limits from now on.

Step 3: Build a simple compensation structure

You don't need a complex job grading system with 30 levels and 200 function groups. What you need is a comprehensible structure: What functions exist in your company? What levels exist within those functions (e.g. Junior, Senior, Lead)? And what's the salary range for each combination?

Document the criteria for assigning someone to a particular level — skills, experience, responsibility. This doesn't have to be a 50-page manual. A clear overview with transparent definitions is enough as a starting point.

Step 4: Define the information request process

From June 2026, every employee can request information about the average pay of comparable colleagues. You have two months to respond. Define now: Who is responsible? In what format will you respond? What data will be used? And how will you ensure the deadline is met?

In an SME, this can be the managing director or the person responsible for HR. The crucial thing is: the process must exist before the first request arrives.

Step 5: Documentation — justify every pay decision in writing

This step costs little and protects a lot. From now on, you should document every pay decision in writing — for new hires, promotions, pay rises, and also when rejecting pay adjustment requests. Why does employee A receive this salary? What objective criteria underpin the decision?

In a dispute, this documentation is your line of defence. Without it, you're defenceless in a lawsuit — and the automatic reversal of the burden of proof does the rest.

Government support is coming — but waiting is not an option

Art. 11 of the directive obliges member states to provide technical support and training for SMEs to help them comply.

Some countries are already ahead: in Luxembourg, the LOGIB tool is available as a free, state-provided analysis instrument that enables companies to calculate their gender pay gap. Luxembourg also benefits from existing infrastructure — employee delegations with semi-annual reporting from just 15 employees, and the ITM (Inspection du Travail et des Mines) as supervisory authority. In Germany, the expert commission recommends free tools and interfaces with common software such as DATEV or AGENDA. Other member states are expected to follow suit.

But: the core obligations apply from 7 June 2026 — with or without support tools. Secrecy clauses must be removed, job postings updated, information processes established. Waiting for the government to provide a tool is not a strategy — it's a risk.

Moreover: the data baseline for 2026 is already being established. Even if your SME has no reporting obligation below 100 employees — your pay decisions in 2026 can be subject to information requests and lawsuits. Every decision you make today must be explainable tomorrow.

The advantage of small structures

There's a silver lining too: SMEs are often faster and more agile than large corporations. Where a multinational needs months to roll out a global compensation policy, a mid-sized business can adapt its structures in weeks.

A simple, transparent compensation system is not a disadvantage for an SME — it's a competitive advantage. In recruiting, it signals fairness and professionalism. For existing employees, it builds trust. And in a lawsuit, it provides a documented foundation that no court can ignore.

Leverage the advantage of small structures: less complexity, faster implementation, more direct communication.

SMEs can prepare too — and turn it into an advantage

The Pay Transparency Directive is not just a topic for corporations. It affects every employer in the EU. The core obligations apply from June 2026 — for everyone. The courts don't wait for company size. And your employees have a right to information that they will use.

The good news: with the right steps, implementation for SMEs is manageable. No mammoth project, no six-figure consulting budget. Just pragmatic measures that protect your company — and position it as a fair employer.

Based in Luxembourg and advising SMEs across Europe, we support small and medium-sized enterprises with the pragmatic implementation of the Pay Transparency Directive — from contract review through compensation structure to the information request process. Structured, efficient, and tailored to SME needs.

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