What is meant by the Gender Pay Gap?

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The Gender Pay Gap: A Path to Transparency

All you need to know about the Gender Pay Gap

With the increased relevance of Diversity, Equity & Inclusion in society, assessing and acting upon gender pay and equal pay is one of the topics employers are prioritizing. But what is the gender pay gap exactly? Why is it relevant? And what actions can you take? This article offers deeper insight into the meaning of the gender pay gap.

What is the Gender Pay Gap?

The gender pay gap is a measure of how men and women are valued in the workforce. It shows the difference in (hourly rate of) pay between male and female employees, expressed as a percentage of male earnings. There are two distinct, but complementary, versions of the gender pay gap: the unadjusted and the adjusted pay gap.

The unadjusted pay gap compares average gross hourly earnings, not considering factors like education or experience, and reveals systemic pay differences. The difference between the average wage of men compared to the average wage of women is expressed as a percentage of average male earnings. For example, if the unadjusted gender pay gap is 10%, this means that on average women earn 10% less than the average man. The adjusted pay gap accounts for job-related factors such as role, seniority, and qualifications to isolate the true extent of wage disparities to work towards equal pay for equal work or work of equal value. Both metrics shed light on the underlying causes of pay inequity, guiding employers on potential actions to reduce the gap.

Why is the Gender Pay Gap relevant?

Despite having laws in place that prohibit gender-based wage discrimination, the gender pay gap in the EU in 2023 was 13% - meaning that, on average, women earned 13% less than men. Working towards closing this gender pay gap will have many benefits for both society and employers. It is a way to attract and retain top talent, enhance organizational reputation and branding, and leads to increased productivity and revenue. Furthermore, achieving gender equity can positively affect GDP (Gross Domestic Product), raise employment rates, and might even help combat an ageing population in the EU.

In addition to the fundamental right to equal pay between men and women for equal work or work of equal value that has been in place in the European Union since 1957, the European Parliament has approved an EU Directive on Pay Transparency, which will introduce obligatory reporting on the gender pay gap for employers.

What does the EU Pay Directive mean to you?

On March 4, 2021, the European Commission published the ‘Proposal for a directive on strengthening the application of the principle of equal pay for men and women for equal work or work of equal value through pay transparency and enforcement mechanisms’ (hereinafter referred to as: the Directive). The European Parliament approved the Directive on March 30, 2023, which requires EU Member States to incorporate it into national law within three years. In the Netherlands, this is anticipated to take effect in 2026.

The Directive requires employers to adhere to the following provisions:

  • Employers with over 100 employees must report wage disparities between male and female employees.
  • Employers with 250+ employees must report annually, and those with 100-249 employees every three years.
  • Employees have the right to information on the (average) pay of their peers and on the objective, gender-neutral criteria used for determining pay level and pay progression.
  • Job vacancies must include pay scale information based on objective, gender-neutral criteria.
  • Employers are no longer allowed to request applicants' previous salary information.
  • Legal procedures will favor employees in disputes over equal pay, with employers bearing the burden of proof.
  • Violations may lead to fines and damage claims.

The Directive aims to foster pay transparency, reduce unjustified gender pay gaps, and increase legal support for employees, though it will also introduce additional requirements for employers.

Watch the interview with our Legal expert to understand how this Directive will impact your organization

How can Deloitte help with achieving Pay Transparency?

In a tight labour market where DE&I is increasingly important, it is vital to be pro-active in assessing and acting on the gender pay gap. Identifying root causes and setting up an action plan on tackling these root causes, will help prepare you for the local legislation following the EU Directive’s approval and make sure you are best of class once the obligatory reporting is introduced.

Implementation of the Directive requires a multidisciplinary approach. With a broad range of specialists, from analytics to legal, we offer a range of pick-and-choose propositions to tailor our support to your needs. A good starting point is an initial gender pay gap analysis, a Pay Transparency Readiness Scan or Activation Lab. Discover our Pay Transparency solution and get in touch to learn more.

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