Equal work, or work of equal value, should as a rule mean equal pay. But how are pay gaps actually calculated, and what kind of differences are acceptable? In this article we walk through how pay gaps should be interpreted, how benefits are treated in the calculation, and what happens if pay gaps emerge.
In this article:
- What does pay mean under the directive?
- How is the pay gap calculated?
- How are benefits treated when calculating pay gaps?
- What happens if pay gaps emerge?
Want the full picture of the EU Pay Transparency Directive? Read our info pack: EU Pay Transparency Directive: Info Pack for Employers
The EU Pay Transparency Directive (2023/970) sets strict gender pay gap reporting obligations for employers with 100 or more employees. Employers with at least 250 employees must submit their first report by 7 June 2027 and annually after that. Employers with 150–249 employees report from the same date every three years, and those with 100–149 employees start by 7 June 2031. Exact rules and timelines are set in each member state’s national legislation, so always check how the directive has been transposed in your country. Our complete guide to the EU Pay Transparency Directive covers all employer obligations in detail. The goal is to root out unjustified pay gaps, which means employers must be able to show what their pay differences are based on.
What does pay mean under the directive?
Under the directive, pay means the ordinary basic or minimum wage and all other components and benefits the employee receives from their employer, whether in cash or in kind. When calculating pay gaps, you therefore look at total compensation, including all direct and indirect benefits. When reporting, however, you must separate what is base pay and what are complementary or variable components on top of it.
How is the pay gap calculated?
For the purposes of the directive, the pay gap is calculated as the percentage difference between average and median pay, broken down by gender. Pay is analysed by category of workers: you compare the pay of colleagues doing the same work or work of equal value. The calculations must be done for every category of workers performing work of equal value, separating base pay from complementary or variable components such as benefits. These components include, for example, bonuses, benefits in kind, lunch benefits, commissions and overtime compensation.
How are benefits treated when calculating pay gaps?
How is pay interpreted if one employee wants to use a lunch benefit and another doesn’t? Does that create an unjustified pay gap? If employees doing work of equal value can choose to take a benefit or decline it, what matters is that the opportunity to choose is equal. The key is that the benefit is offered on objective, non-discriminatory and gender-neutral grounds. If one employee declines the lunch benefit, their pay may appear lower in reporting than that of a colleague who accepted it. The directive doesn’t outright prohibit pay differences, but they must be justifiable. In this case the gap is justifiable and acceptable, as long as the employer can show that the difference stems from the employee’s own choice and the offer was made on equal terms.
What happens if pay gaps emerge?
If the calculations reveal a pay gap of at least 5% within the same category of workers, and it cannot be explained by objective, gender-neutral criteria, the employer is required to act. Pay differences can exist, but they must be based on objective criteria such as years of experience, performance or responsibilities.
If there is no justification for the gap and the situation isn’t corrected within six months, a joint pay assessment between the employer and employee representatives is triggered (Article 10 of the directive). If the employer spots the difference itself and corrects it on its own initiative, no joint pay assessment is needed. A joint pay assessment isn’t a punishment. It’s a consequence of poorly defined pay practices. Companies that prepare for the directive’s obligations in time and make sure their pay practices are in good shape will rarely, if ever, have to wrestle with one.
Manual calculation is a risk: automate the smart way
From now on, employers need to be increasingly precise about how pay develops, where gaps exist and what they’re based on. For companies and organisations this means processes and practices need to be in order. Continuously calculating pay gaps, allocating benefits and watching the 5% risk threshold in Excel is time-consuming and highly error-prone.
Evenpay is a software solution that helps you manage pay transparency sustainably and securely. It helps you meet the directive’s obligations with ease and builds an excellent foundation for smart, working pay practices far into the future. Administrative work goes down while pay gaps stay under control. Emerging gaps are spotted early, can be justified, and can be acted on when needed.
Want to hear more about Evenpay? Book a free 30-minute demo and let’s go through how Evenpay could make managing pay gaps easier in your company or organisation!
