DIY Guide: Conducting an EU Pay Transparency Pay Gap Audit

If your company has a gender pay gap greater than 5% in any job category and you have 100 or more employees in EU countries, you could face legal risks under the EU’s Pay Transparency Directive, effective June 2026.

This article breaks down the key elements of the 5% pay gap threshold, how to calculate your gender pay gap, and the steps you can take to check how ready you are for compliance. Plus, learn how tools and processes can simplify the journey to compliance.

What Is the 5% Pay Gap Threshold?

The EU’s Pay Transparency Directive requires companies to take action when the gender pay gap exceeds 5% within any job category of workers performing equal or equivalent work.

If this threshold is exceeded, companies must:

• Remedy the gap within six months, or

• Conduct a joint pay assessment with employee representatives to address the issue.

How to Calculate Your Gender Pay Gap Under the Directive

To work out whether you have a gender pay gap of 5% or more in any job category, you need to:

1. Create a Job Framework or Architecture 

Think of job architecture as the foundation of your compliance with the EU Pay Transparency Directive. It’s a data structure for organising jobs into comparable categories based on objective factors including:

• Role responsibility level - include the nature and scope of both formal and informal duties. Tasks like managing people or information, handling equipment and overseeing financial resources. 

• Skills needed for the role - this includes knowledge, abilities and attitudes.

• Effort levels - consider the physical, emotional or mental energy needed to meet the workload and demands of the role.

• Working conditions - assess the environment and other factors like working hours, physical workspace, processes and tools.

This list covers the elements needed to ensure gender-neutral role assessments. You can add additional elements but you must ensure they are gender neutral. It’s worth noting that the EU Pay Transparency Directive states: “In particular, relevant soft skills shall not be undervalued.” 

Typically, each job category is made up of a job family (grouping roles with similar skills and tasks) and a job level (grouping roles based on the required level of skill, responsibility, and effort, working conditions for the role). You will need to decide on the right number of families and job levels for your organisation. You can find out more in our article on building a compliant job levelling framework.

Once you’ve settled on your approach, the framework must be applied across the entire organisation to level each job. This work creates a matrix of roles, grouped by job family and level (or grade) so you can easily identify which roles do work of equal or equivalent value. 

2. Collect detailed compensation information

Now it’s time to get all your pay gap dataset together. Article 9 of the EU Pay Transparency Directive details the reporting data inputs. These include: 

• Base salary for all workers expressed as an FTE.

• Details of any bonuses and incentives.

• Overtime pay, housing and food allowances, payments in the case of dismissal, statutory sick pay and statutory required compensation.

• The cash value of benefits like health insurance, pension contributions, and company car allowances.

• Additional perks like stock options, profit-sharing plans and other non-monetary benefits.

The good news is, you may already have some or all of this data for any national gender pay gap reporting requirements your government may require. 

3. Bring it all together

Once your data is collected, match the roles from your job architecture with the corresponding pay data to build a complete pay gap dataset. Use this data to identify whether there are any gaps greater than 5% in any job category. 

You’ll need to calculate and report:

• The overall mean and median gender pay gap.

• The mean and median gender pay gap for additional or variable pay components.

• The proportion and percentage of female and male workers receiving additional or variable pay components.

• The proportion and  percentage of female and male workers in each quartile pay band.

• The mean gender pay gap between workers by categories of workers split out  to show basic pay or salary and additional or variable pay components.

To calculate your gender pay gap:

• Compare the average gross hourly earnings of all male and female employees for base pay and additional or variable pay components.

• Do this for the overall population and for the people in each level or grade of your job leveling framework (you’ll see this referred to as a ‘worker category’ in the legislation and a lot of reward commentary). 

“The information in this article is based on the broad data gathering and reporting requirements set out in the EU directive. However, Member States may create more detailed rules locally. So think of this information as a minimum requirement and look out for local legal updates to ensure compliance for your business.” Michelle Dervan, Founder, SkillsTrust

Ok, We’ve Got a 5% Pay Gap - Now What?

Should your analysis reveal a pay gap of more than 5% in any job category, you must identify whether you have any objectively justifiable reasons for the difference. 

1. Identify what’s driving pay differentials of 5%+

The following metrics are very helpful in identifying the underlying cause of the pay gap:

• Representation by men and women in the job category.

• The compa-ratio for men and women in the job category.

• Any individual outliers that are paid outside of the typical pay range and may be skewing the numbers. 

This can include objective factors related to your job leveling framework as well as elements that can impact pay levels. For example:

• Performance differences (backed up by robust performance management processes and records)

• Experience levels

• Geographic location

From this analysis, you may have some people with a justifiable pay gap and others without. 

2. Remedy unjustified gender pay gaps within six months

You have six months to remedy the difference in the average pay level to below 5% for people with unjustified pay gaps. This typically means adjusting compensation. But you could also review your reward policies to ensure they drive fair pay practices.

3. Carry out a joint pay assessment if you can’t reduce your unjustified pay gaps

If you cannot reduce the pay gap to less than 5%, you must carry out a joint pay assessment with any workers’ representatives to identify underlying causes. 

Unjustified pay differences must be corrected within a reasonable period of time. Most Member States have yet to publish their legislation which will likely set timescales around this work. 

You must make the joint pay assessment available to workers and workers’ representatives and communicate it to your local monitoring body. 

4. Establish and maintain ongoing monitoring and reporting processes

This isn’t a one-and-done task as a key part of the directive is to ensure your approach delivers the intended outcomes. You’ll need to establish a schedule and processes to ensure sustained compliance and monitor the effectiveness of corrective actions and policy change. 

Don’t forget to boost employee engagement by keeping management and employee representatives up to date with your progress.

How SkillsTrust Can Help

Whew! There’s a lot to consider there. Especially for hard-pressed HR teams. Which is where software developed specifically for these tasks comes in. Look for platforms that:

1. Inventory, analyse and update your job documentation.

2. Evaluate each role using objective, gender-neutral criteria that meets the EU Pay Transparency Directive.

3. Create a transparency-ready job architecture with job families and levels.

4. Consolidate the relevant pay data to conduct the exact pay gap analysis needed to maintain compliance plus additional calculations to help you identify pay gap causes. 

5. Provide reporting which not only meets your pay gap reporting responsibilities but identifies gender data, outliers, compa-ratios by men and women plus any risks that need action.

Wondering where to get hold of software like this? Take a look at SkillsTrust. Designed specifically for SMEs and mid-market organisations, our platform saves you a significant amount of time and delivers a simple solution at a sensible cost. 

Find out more by reading our FAQs. Or book your free pay transparency check-up