The Gender Pay Gap is the difference in total remuneration between men and women in the same Category of Workers.
There are many factors at play and a pay gap in itself is not an issue if it can be explained by objective, gender-neutral factors - this is what is known as the "explained gender pay gap".
If a portion of the pay gap cannot be objectively justified, you are dealing with a so-called "unexplained gender pay gap" - which in technical terms is referred to as the Equal Pay Gap.
If your Gender Pay Gap exceeds 5%, and the joint assessment identifies an Equal Pay Gap your company will need to take measures to eliminate the gap.
The main purpose of the EU Pay Transparency directive is to raise awareness among employers about the principle of equal pay. This principle has been at play for many years in EU legislation but despite this the Gender Pay Gap has not changed much over the past decade. With this new demand for gender pay reporting, European employers are thus being nudged to evaluate and monitor pay structures and policies systematically to ensure fairness in remuneration and eliminate pay discrimination.
It also raises awareness and among the employees and empowers them to act against gender-bias and discrimination in remuneration and provides authorities and other stakeholders with relevant information about the gender pay gap in your company, in the community and on a European level. The public reporting aspect also allows for monitoring and comparison across sectors.
As a company, you are entitled to provide explanations of any identified gender pay differences in your report, and if gender pay gaps cannot be explained by gender-neutral objective criteria you must take measures to rectify the problem.
When looking at the deadlines below, please note that the directive allows member states to implement their local legislation at a quicker pace and also make regular reporting mandatory for companies with fewer than 100 employees if they find it locally relevant.
With the Pay Transparency Directive, the European companies are now encouraged through legislation to review their pay structures and be transparent about their findings. Transparency actuates pay fairness for women and men working in same jobs or jobs of equal value and it empowers potential victims of discrimination to exercise their rights.
The required reporting on gender pay comprises total remuneration and not just the base salary component. In the publication of the directive by the Official Journal of the European Union they list a number of examples of variable pay components that should be included in the total remuneration analysis: bonuses, overtime compensation, travel facilities, housing and food allowances, compensation for attending training, payments in the case of dismissal, statutory sick pay, statutory required compensation and occupational pensions. They emphasize that this is not a complete list; your company could be working with additional pay components that you will need to take into account.
If your Gender Pay Gap report concludes a pay gap of at least 5% between men and women in any given Category of Workers, you must review your findings with the workers' representatives. If together you conclude that the pay gap can be explained by gender-neutral, objective criteria all is well.
However, if it turns out that you have an Equity Pay Gap of 5% or more you need to carry out a joint pay assessment unless you can effectively remedy the difference in pay level within 6 months from the publication of the report.
A Joint Pay Assessment is an evaluation of your company's gender pay gap that is carried out by the employer together with the workers' representatives. If your company does not have designated workers' representatives your employees should dedicate someone for this purpose.
The Joint Pay Assessment should result in a revision of the company's pay structures thus eliminating gender-based pay discrimination within a reasonable period of time, yet to be specifically defined in local legislation.
First, you run a Gender Pay Gap analysis, or you can book an Equal Pay Audit through us. Once you have an overview of your current pay landscape, you begin to create a plan for addressing any issues that have been uncovered. This can be done in many ways; some things are easily fixed during your ordinary salary review process while other things may need an out of cycle review or can only be addressed in stages.
Please keep in mind that the EU Pay Transparency Directive still needs to be transposed into local legislation and thus might differ slightly from country to country. However, ceteris paribus, this is what the directive says about the reporting requirements in terms of content.
The reporting requirement concerns companies with more than 100 employees; however, this could be less depending on the local legislation.The information in the report will be used by the authorities to publish country wide reports on gender pay, which in turn are used by Eurostat to monitor the development of the gender pay gap across all member states.
As an employer, you can publish your report on your website, in your annual report or some other publicly available channel and there will likely be additional local requirements about how to report to the authorities. The report must be made available to all employees and workers' representatives.
The Directive asks that the report contains the following information:
The EU Pay Transparency Directive also stipulates that employees, workers' representatives and the authorities can ask the company for additional details and clarifications regarding the data, including explanations concerning any gender pay gaps. As a company you will need to be able to respond to such inquiries within "reasonable time", which is yet to be defined. If any gender pay gaps turn out to be equal pay gaps you will need to fix the issues in 6 month in collaboration with workers' representatives and the authorities.
Experiences from Sweden and Iceland, where similar legislation was already implemented, shows that for most companies the reporting requirement sets high demands on their job structure and systems in order to ensure compliance. Building your job hierarchy with title structures and salary bands requires Rewards expertise and extensive experience to ensure against the costly pitfalls of the project. Thus, we highly recommend getting help, if you do not yet have a job structure in place. Once your job structure is in place, there are many advantages to subscribing to an equity software that allows you to run real-time reporting, comparisons and enables better ongoing monitoring of your equal pay landscape.
The EU Pay Transparency Directive tasks companies with Gender Pay Reporting and eliminating Equal Pay Gaps.
In order to ensure that remedial actions take place if an Equal Pay Gap is identified, the directive stipulates a so-called Joint Pay Assessment in cases where your gender pay reporting:
The purpose of the Joint Pay Assessment is to fix the problem and prevent it from reoccurring.
This deep-dive into the salary data must include:
You are obliged to share this elaborate report with your employees and workers' representative, as well as the authorities.
The Joint Pay Assessment should lead to specific measures that can ensure fairness, and these must be implementet "within a reasonable time period" in cooperation with the workers' representative as pertaining to local legislation. The authorities can be included in this process.
The measures taken must include an analysis of your existing gender-neutral job evaluation and classification systems - a.k.a. your job structure or job architecture - or the establishment of such if you do not have those in place already. This is to ensure against any unfair pay discrimination.
Hence, it would be wise to be prepared before the requirements enter into force in your country.
Knowing the Equal Pay Gap exists is the very first step toward rectification; hence you begin by running an equal pay analysis either in a spreadsheet or in an equal pay software.
To run the equal pay analysis, you need to have a job structure (also known as a job architecture or a job classification system) in place to ensure that the positions compared are of equal value to your organization.
Depending on the size and complexity of your organization you can either create the job classification system yourself, bring in an interim expert to build it or use AI-powered solutions. If you choose the latter, we recommend that you conduct a manual sanity check, as the AIs still make too many mistakes to blindly depend on their classification. The purpose is to fix unfairness and you don't want to run the risk of creating new or different discriminating pay gaps in the process.
Once you have run the Pay Gap Analysis and refined your model, so it matches your company's compensation strategy, you have the necessary overview of your current pay landscape. Then it is time to review the cases that shows an Equal Pay Gap and plan for their elimination - the equal pay gaps that is; not the people ;)
It is important to look at this from all perspectives, as the solution is (at least) two-fold: Addressing existing unfairness and ensuring against new equal pay gaps. The latter is done through a review of your policies, especially around parental leave and part time employees, to make sure all employees, regardless of their work circumstances, have access to promotions and are included in the salary review cycle.
Workplace equity is a principle many companies are already aiming to achieve regardless of the new pay transparency legislation. This is because workplace equity is the more feasible direction in the long run. Being a fair employer is good for your employee satisfaction and retention rates, as fairness motives and creates trust. Many studies have shown that a diverse workforce leads to higher creativity and more opportunities; it ensures a better work environment, higher productivity and is thus good for the bottom line. In short, you could say that:
Pay Equity isn't just the right thing to do - it's good business too
Transparency is the main driver of equity. With pay transparency you empower your current and future employees to take responsibility for their own career growth, as the different paths and goals become clear.
Seen in the long perspective, pay equity is not even an added cost for your company. Here and now it may require adjustments in the remuneration of some individuals, but without such adjustments, chances are those individuals would have left your organization for greener and more fair pastures, which would incur additional recruitment and training costs, as well as loss of valuable knowledge.
One of the requirements of the EU Pay Transparency Directive is to publish an equal pay report. In this report you will naturally want to go one step deeper to explain the salary differences by role to highlight the actual differences between gender. With the legislation comes a requirement that if your company's Gender Pay Gap exceeds 5% and cannot be justified by gender neutral factors, you have to carry out a pay assessment in collaboration with workers’ representatives and worst case you may need to compensate employees who have suffered gender pay discrimination going back to their time of employment. Depending on local legislation you might also get fined or face other measures.
The purpose is to look at jobs that are “like for like” and this will be an essential part of the analysis. However, comparing equal job or jobs of equal value requires a strong job architecture, which takes time to build and refine. In that perspective three years is not a long time; hence, we recommend that you start planning for the implementation of the report as soon as possible.
The Job Architecture provides a solid foundation to work with pay transparency and pay equity. It is a structure that facilitates compliance with most of the requirements in the Pay Transparency Directive, as it enables cross-function comparison by level, salary bands and clear and communicable career paths.
When creating the Job Architecture, you start by dividing your employees into Categories of Workers by function and level and settling on the appropriate salary bands as per your remuneration strategy.
Then you describe each position using objective criteria. The minimum requirement set forth by the European Union are skills, effort, responsibility and working conditions. However, you may also want to include elements such as educational background and professional and training requirements. All these factors are not equally relevant for a specific position and should thus be weighted depending on their relevance.
When a company under the Pay Transparency legislation requirements have positions that do not correspond to any internal comparables within your organization, the Pay Transparency Directive says to use a hypothetical comparator, thus enabling your employees to evaluate their individual pay. However, working with a Job Architecture that employs a levelling structure allows you to compare any employee across your organization, even when they are the solo person in a specific function, as they can be compared to colleagues in different jobs that have equal value to the organization.
Each function in your organization is evaluated on its relative contribution criteria, which provides you with an objective and gender-neutral way to show your employees how they compare and also enables you to provide a hypothetical comparator, if needed, based on levels.
Working with a Job Architecture that includes salary spans gives you a vital overview of your pay landscape in real-time and facilitates comparison of salaries across functions with truly similar positions. The added bonus is that the Job Architecture also enables your Hiring Managers to define the role more precisely, including responsibilities and expectations, and include a pay range in the job ad.
As the Job Architecture enables comparison of jobs of equal value across the entire organization, across functions and job families, based on objective, gender-neutral criteria, it also eliminates the risk of Equal Pay Gaps and provides a warning flag if (unintended) discrimination occurs at any level.
In other words, the Job Architecture enables the much sought-after transparency and can be instrumental in ensuring against Equal Pay Gaps and unfairness in remuneration.