Multiple pay transparency laws are going into effect in the next year or two, but most companies are woefully unprepared.
Five states in the U.S. plan on implementing new pay regulations in 2025, and the European Union’s Pay Transparency Directive goes into effect in 2026. Companies are admitting, however, that they’re not quite ready for these new rules. Around 75% of employers report being unprepared for upcoming pay transparency regulation, according to a new survey of 626 U.S. employers with workers based both inside and outside North America by financial services firm Aon.
“Companies say they’re a little behind, and the reality is, they're a lot behind,” Brooke Green, head of North American talent solutions for Aon, told Fortune. “There’s this false sense that companies have a lot of time to get ready, especially in regards to some laws that don't go into effect until 2026. But when you look at the timeline of the actions that are required to become compliant, it’s pretty compressed.”
In 2025, Illinois, Massachusetts, Minnesota, New Jersey, Michigan, and Vermont, will join a growing number of states that have enacted pay transparency laws over the past few years, including California, Colorado, Connecticut, and New York. For many of the upcoming U.S. regulations, companies will have to publicly post salary ranges for open positions. Most organizations at this point already have ranges or at least guidance for each position, Green notes, even if they’re not yet public. She adds that she doesn’t expect that to be a huge lift.
The EU’s new law, however, will require that companies more thoroughly inspect how they do equity reporting. Companies with at least 100 employees in the EU must also track and disclose information about gender pay gaps across the organization, regardless of where the organization is based, the law states. This will also apply to U.S.-based companies with a large EU presence. If a company discovers a pay gap of 5% or higher between genders, it will have to conduct a pay assessment in collaboration with workers representatives. Only 51% of employers have conducted such an analysis, and of those that have, 84% have identified some sort of disparity, according to the Aon study.
Pay equity will also be measured differently under this new EU law. In the U.S., that usually means giving folks with the same job the same kind of pay. However, under the new EU regulations, instead of comparing individual roles, companies will have to compare pay across broader categories of an organization. For example, pay for all “directors” would be compared cross-functionally, regardless of whether they work on different teams or departments.
Companies need to prepare sooner rather than later for the coming regulatory changes, Christine Hendricksen, an employment lawyer, and VP of strategic initiatives at Syndio, which consults on pay transparency, tells Fortune. “Now is the best time for companies to take a look at their own policies,” she says. “You can just imagine how what's happening in the EU is now the road map for what will happen at the state level, and we're already seeing that.”
For both the new North American and EU pay transparency laws, companies must prepare managers in particular to understand how to respond to employee questions, according to Green. For the EU regulations, if a worker would like to see the range of pay for their position, the manager must comply and be prepared to either defend that person’s compensation, or advocate for them. A majority of employers (63%) say they don’t currently communicate salary ranges to their employees, the Aon study found, and of those who do disclose, 61% only do so when required by law.
“The manager is going to be the first line of defense; they need to be prepared to explain why employees are paid the way they are within the range and what options are available for them if there is a gap present,” says Green. “You have to educate your managers about how you people are paid at your company.”
