Shining a light on pay gaps to build workforce trust

Pay transparency has the opportunity to be a cornerstone of trust between you and your workforce. Employees that know they are being paid fairly and in line with their peers are less likely to leave and more likely to go the extra mile. 

The EU PTD gives employees the right to find out how their pay compares to the average for colleagues doing the “same work or work of equal value”. If they come to you as their employer with a request, you’ll need to respond within two months and break down the comparison by gender and category of worker. 

To meet the minimum compliance requirements, employers only need to provide the unadjusted average pay for men and women in the employee’s peer group. But this minimum disclosure wouldn’t take into account important differences in areas such as education, skills, or location. Adjusting for these differences may well reveal a smaller gap than the unadjusted average. 

By opening up pay to closer comparison, the EU PTD is an opportunity to build engagement and trust. You can demonstrate that rewards are fair and equitable. Comparing pay to peers can also provide a useful starting point for conversations about how employees can develop the skills needed to move up the pay scale and provide more value for your organisation.

On the other hand, poorly handled responses could erode trust, especially if disparities in pay aren’t appropriately explained or justified. Lack of justification could also provide ammunition for legal challenges and damage company reputation if an employee decides to take you to court. Under the EU PTD, the responsibility is on the employer to demonstrate that pay is fair and compliant, rather than the employee to prove otherwise.

Grey areas, pitfalls, and how to tackle them

The challenges are exacerbated by the fact that this is a principles-based directive, with multiple grey areas and associated risks. 

How do you determine work of equal value?

When employees request information, they should be compared to others performing work of equal value. 

The Directive outlines that skills, responsibilities, effort, and working conditions are key factors in determining work of equal value. However, guidance on interpreting these factors is limited. 

For example, “responsibility” should factor in the level of responsibility over people, finances, and risks. It’s also important to assess the effort required and the nature of the working conditions, which can vary from hazardous environments to unsociable hours. 

The need to assess and categorise work of equal value in a way that meets legal and regulatory standards highlights the importance of a systematic job evaluation across your organisation. By mapping job titles, responsibilities, and required skills, you can create a consistent and defensible job architecture to define which employees are equal value peers. 

You can’t simply reclassify someone earning more than their peers into a higher value category. Regulatory authorities will diligently oversee this and similar efforts to influence the system, while employee representatives are authorised to scrutinise such practices with a discerning perspective.   

How much explanation should you give?

You have the flexibility to decide how much detail to offer when explaining how you assess equal pay or why salaries differ within a band.

Finding the right balance in your explanation is crucial. Offering too little might lead others to question the fairness of your pay structures, or even suspect you’re withholding information. On the other hand, providing too much detail could invite scrutiny.

A pragmatic compromise is to give a high-level explanation in your responses to requests for information — but have a more detailed explanation ready if you face follow-up questions or challenges.

What qualifies as a reasonable justification? 

The EU PTD offers little guidance on how to justify gaps in pay beyond stating that the criteria need to be “objective” and “gender-neutral”. This gives you some discretion. But it’s important to remember that the burden of proof is on you as the employer to show that pay is fair. Workers’ representatives and equality bodies will be holding you to account. 

The requirement for justification places line managers in a challenging position, as they can no longer attribute pay disparities to HR or company policy. Employees can now expect a clear explanation of why they’re being paid less than peers and, if this can’t be justified, how it’s going to be remedied.

A practical starting point for justification is adjusting for factors like experience levels. However, this might not account for all pay discrepancies. Consequently, many organisations are taking further steps by employing adjusted pay gap analysis to identify unjustified gaps, uncover their causes, and determine which employees may require pay adjustments. The benefits for your business include ironing out disparities and focusing efforts on tackling the root causes of inequality. By being proactive, you can also mitigate the risk of legal challenges.

Deciding on the best path forward for compliance involves assessing the trade-offs between merely meeting minimum requirements and taking on the additional workload of more proactive approaches. Here, we outline the pros and cons of three implementation strategies for the EU PTD: 'minimum compliance', 'compliance plus', and 'advanced'. Time constraints might dictate starting with minimum compliance when the EU PTD is implemented in 2026. However, you can evolve your strategy to capture greater benefits in the future.

Taking a proactive and systematic approach to comparing pay and handling information requests ensures fairness in compensation. But it doesn't stop there. The directive also emphasises that pay should not only be fair but should also support a decent standard of living—meaning it must be adequate. In our upcoming article in our Beyond the pay gap series, we'll explore what this focus on adequate pay means and how it can be built into a broader commitment to workforce well-being and engagement.

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You can read previous articles in our Beyond the pay gap series here. If you’d like to discuss any of the issues raised in these articles or learn more about how the EU PTD will affect your business, get in touch. You can find our details below.