Transparent Compensation: What It Is, What the New Law Entails, and Who It Affects
Transparent compensation is a set of rules that require employers to establish, in an open and verifiable manner, how they pay their employees —from publishing salary ranges in job postings and prohibiting employers from asking job applicants about their salary history to regularly reporting on the gender pay gap. It is based on Directive (EU) 2023/970 of the European Parliament and of the Council on pay transparency, which the Czech Republic is implementing into the Labor Code through an amendment drafted by the Ministry of Labor and Social Affairs (MPSV).
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Simply put: The goal is for employees to have a better understanding of whether they are being compensated fairly, and for employers to be able to objectively explain and justify any differences in compensation. This is not about “equal pay for all,” but about equal pay for equal work or work of equal value.
Do you want the official text? Check out Directive (EU) 2023/970 on EUR-Lex or the Ministry of Labor and Social Affairs’ press release on the Czech proposal.
What the Law Introduces
- Salary range listed in the job posting / prior to the job interview
- Prohibition on Asking About a Job Applicant’s Salary History
- Gender-Neutral Job Postings and Recruitment
- a compensation system as an internal policy or collective bargaining agreement
- An employee’s right to information about their colleagues’ average wages
- Reporting on the Gender Pay Gap
- Assessment of compensation when the difference is 5% or more
Common Mistakes Made by Companies
- “This only applies to large companies”—disclosure requirements apply to everyone
- “The same job title is enough”—what matters is the nature and difficulty of the work
- “No one will disclose their salary”—confidentiality clauses regarding salary are prohibited
- “We don’t have to do this until 2028” – the compensation system has been in effect since 2027
- “The region is the reason for lower wages”—location alone isn’t enough
A typical response: “Can we justify why we’re paying this much?”
Glossary: Transparent Compensation from A to Z
There are several terms related to transparent compensation that are worth clarifying. Here is an overview of the most important ones, as defined by the directive and Czech law:
Gender pay gap (the difference in pay between women and men)
The percentage difference between the average pay of men and women. In the EU, it hovers around 12 percent; in the Czech Republic, it has long been around 15–18 percent, to the detriment of women. Reducing this gap is the main reason for the directive’s creation.
Work of Equal Value
Work that is comparable in terms of complexity, responsibility, and physical demands, even if it has a different job title. The comparison is based on objective criteria (qualifications, difficulty, working conditions, responsibility)—not on the job title. The principle of “equal pay for equal work” has been included in Section 110 of the Labor Code since 2007.
Salary range
The range of the starting salary offered, which the employer must disclose to the job applicant—ideally in the job posting, and no later than before negotiations on the employment contract begin. At the same time, the employer may not ask about the applicant’s current salary.
Compensation System
Formalized rules governing how an employer determines compensation—the form, components, and grading of compensation, as well as the classification of jobs into groups based on value. These rules must take the form of an internal regulation or a collective bargaining agreement and be based on objective, non-discriminatory criteria.
The Right to Information
An employee has the right, upon request, to receive information about their pay level and the average pay levels of colleagues performing the same or comparable work, broken down by gender. This is related to the ban on non-disclosure clauses regarding wages (effective in the Czech Republic as of June 2025).
Reporting (Pay Gap Report)
A periodic report by a larger employer on the gender pay gap for the previous calendar year. It must be published and submitted by April 30 at the latest. The scope and frequency depend on the number of employees.
Compensation Review
A more in-depth analysis that the employer must conduct if the report reveals a discrepancy of 5 percent or more for a particular job category that the employer cannot objectively justify or correct within 6 months. This analysis is conducted in cooperation with employee representatives and leads to corrective measures.
When Did the Law Take Effect: Timeline of Implementation
The deadline for transposing the directive was June 7, 2026. The Czech draft provides for so-called phased implementation —the obligations will take effect gradually to give companies time to prepare:
- June 7, 2026 – end of the transposition period for the EU directive
- January 1, 2027 – Effective Date of Basic Obligations (wage range, prohibition on inquiring about wage history, compensation system as an internal policy)
- January 1, 2028 – Disclosure Requirements for Employees, the System for Other Monetary Benefits, and the Start of Reporting for Companies with 150 or More Employees
- 2031 – Reporting requirements will be extended to employers with 100–149 employees
Note: This is a proposal currently going through the legislative process—specific dates may still change during the approval process. Always check with official sources for the latest information.
Who is affected: thresholds based on the number of employees
The basic rules (wage ranges, prohibition on asking about wage history, compensation systems, and the right to information) apply to all employers regardless of size. However, the scope of reporting varies depending on the number of employees:
- 250 or more employees – annual report, starting in 2028
- 150–249 employees – report every 3 years, starting in 2028
- 100–149 employees – report every 3 years, starting in 2031
- Fewer than 100 employees —no blanket reporting, but with individual disclosure obligations to employees
In other words: Even a small company must be able to provide an employee, upon request, with the average salary of comparable colleagues and may not ask job applicants about their previous salary.
What Employees and Job Seekers Gain
The directive strengthens the employee’s position in several ways:
- know the salary being offered before the interview
- not be forced to disclose my previous salary
- to receive, upon request, information about the average compensation of comparable colleagues, broken down by gender
- to know the criteria used to determine compensation and its increases
- to speak freely about one’s salary (prohibition on confidentiality clauses)
- seek redress, including compensation, if unequal pay is proven
The shift in the burden of proof is also important: if an employer fails to meet its transparency obligations, it will be up to the employer, in the event of a dispute, to prove that there was no pay discrimination.
How to Prepare for This Using a Workflow
Transparent compensation is not a one-time task, but rather a company’s ongoing ability to demonstrate why it pays the way it does. This is difficult to manage via email and spreadsheets—it works best as a structured process:
- Positions divided into groups based on job value, with clear criteria
- Salary ranges and hiring procedures, including discussions with owners and approval processes
- A compensation system as a living internal policy, not a document sitting in a drawer
- Records of employees’ requests for information and the responses to those requests
- Data for reporting and evaluating compensation on an ongoing basis, not at the last minute
- Everything is traceable (audit trail)
This is the difference between “we’ll manage somehow” and “we can prove it at any time.”
Frequently Asked Questions About Transparent Compensation
What is transparent compensation?
A set of rules that require employers to transparently establish and document their compensation systems and to prevent unjustified pay gaps between women and men. It is based on EU Directive 2023/970.
Since when has the new law been in effect in the Czech Republic?
The transposition deadline expired on June 7, 2026. The proposal provides for a phased implementation: basic obligations effective January 1, 2027; information and reporting obligations effective January 1, 2028; and, for the smallest companies subject to the requirements, effective in 2031.
Do I have to include the salary in the job posting?
You must inform the candidate of the offered salary (at least the range) no later than before the start of negotiations on the employment contract—ideally, already in the job posting. At the same time, you must not ask about the candidate’s previous salary.
Does this apply to small businesses as well?
Yes. Comprehensive reporting applies to companies with 100 or more employees, but the salary range, the prohibition on asking about salary history, and employees’ right to information apply to all employers.
What is work of equal value?
Work that is comparable in terms of complexity, responsibility, and physical demands—assessed based on content and difficulty, not on the job title.
What SmartFP can do
SmartFP helps by turning transparent compensation requirements into a workflow—complete with roles, notifications, document templates, electronic signatures, and traceability. Recruitment steps, the compensation system, employee requests for information, and reporting documentation all run as a managed process. The result is clarity, fewer urgent requests, and verifiable outputs that allow the company to demonstrate that it compensates fairly.