The 5% Threshold – When Does the Procedure Start?
According to Directive 2023/970, if reporting shows a difference in average pay between women and men of at least 5% in any category of workers, and this difference:
- cannot be justified by objective, gender-neutral factors, AND
- has not been corrected within 6 months of the reporting date
…the employer must conduct a joint pay assessment with employee representatives.
What Is a Joint Pay Assessment?
This is a formal procedure for analysis and remedial action planning, conducted in cooperation with:
- Trade unions (if they operate in the company)
- Works council (if established)
- Employee representatives (elected ad hoc if none of the above exist)
Elements of a Joint Assessment
The directive requires that the joint assessment includes:
1. Analysis of Pay Differences
- Detailed pay data broken down by gender
- Analysis by employee category
- Identification of positions with the largest gap
2. Cause Analysis
- Why do differences exist?
- Are there objective justifications?
- What systemic factors contribute to the gap?
3. Remedial Measures
- Specific corrective actions
- Priorities and implementation order
- Implementation timeline
4. Progress Monitoring
- Success indicators (KPIs)
- Review frequency
- Responsibility for implementation
Step-by-Step Procedure
Step 1: Problem Identification
After receiving a report with gap > 5%:
Category: IT Specialists
Pay gap: 8.7%
Number of employees: 45 (28 M, 17 F)
Average male salary: €7,600
Average female salary: €6,939Step 2: Verification of Objective Causes
Check if the difference results from:
- Length of service
- Professional experience
- Qualifications and certifications
- Scope of responsibility
- Work performance
Document every factor!
Step 3: Establish the Joint Assessment Team
Team composition:
- HR representative / People Partner
- Finance / Compensation & Benefits representative
- Employee representatives (min. 2-3 people)
- Optionally: external expert
Step 4: Data Collection and Analysis
Prepare detailed summaries:
| Employee | Gender | Position | Tenure | Salary | Bonuses | Total |
|---|---|---|---|---|---|---|
| Person 1 | F | Senior Dev | 5 yrs | €7,000 | €1,000 | €8,000 |
| Person 2 | M | Senior Dev | 4 yrs | €7,750 | €1,250 | €9,000 |
| … | … | … | … | … | … | … |
Step 5: Cause Identification
Typical causes of unjustified differences:
- Historical negotiations – men negotiated higher starting rates
- Maternity gap – women “lost” raises during leave
- Unconscious bias – different treatment in promotions/bonuses
- Job segregation – women in lower-paid positions
Step 6: Develop Remedial Plan
Example plan:
| Action | Deadline | Responsible | Budget |
|---|---|---|---|
| Equalize pay for 5 female employees | Q1 2026 | HR Director | €22,500 |
| Review promotion criteria | Q2 2026 | C&B Manager | - |
| Anti-bias training for managers | Q1 2026 | HR BP | €7,500 |
| Recruitment process audit | Q2 2026 | Talent Acquisition | - |
Step 7: Monitoring and Reporting
- Quarterly progress reviews
- Re-analysis of gap after 12 months
- Report results to monitoring body
Common Mistakes to Avoid
❌ Superficial Actions
It’s not enough to “discuss” the problem. Specific, measurable actions with budget and deadlines are needed.
❌ Lack of Employee Cooperation
Joint assessment must involve employee representatives. Unilateral employer action does not meet directive requirements.
❌ Hiding Data
Attempts to manipulate data or limit access for employee representatives can result in serious consequences.
❌ One-time Action
Closing the pay gap is an ongoing process, not a one-time project. The plan must provide for systematic monitoring.
Costs vs. Benefits
Joint Assessment Costs
- Time of employees involved in the process
- Potential pay equalizations
- Training and process change costs
Benefits
- Avoiding fines and lawsuits
- Higher employee motivation and loyalty
- Better employer branding
- ESG and non-financial reporting compliance
Summary
Joint pay assessment when gap > 5% is a demanding but valuable process. Companies that approach it seriously will not only avoid sanctions but also build a fairer and more effective workplace.
Next article: “Gender Pay Equality – Why Does the Pay Gap Still Exist?”
Read Also
- Pay Gap Reporting – New Reporting Obligations for Companies
- Gender Pay Equality – Why Does the Pay Gap Still Exist?
Read also
- Gender Pay Equality – Why Does the Pay Gap Still Exist?
- Pay Gap Reporting – New Reporting Obligations for Companies
- A Deeper Look at the Pay Gap: Extended Analysis of Hidden Causes of Pay Inequality
Frequently Asked Questions
How is the 5% pay gap threshold calculated?
The 5% threshold is calculated by comparing the average pay of women and men within each category of workers performing the same work or work of equal value. If the difference in average compensation reaches or exceeds 5% and cannot be justified by objective, gender-neutral factors, the employer must initiate a joint pay assessment.
Who must be included in the joint pay assessment team?
The joint assessment must involve employee representatives, which can include trade unions, works councils, or representatives elected specifically for this purpose. The employer cannot conduct the assessment unilaterally, and the team typically also includes HR, finance, and optionally an external compensation expert.
How long does a company have to correct a pay gap above 5%?
After the reporting date reveals a gap exceeding 5%, the employer has six months to either justify the difference with objective criteria or correct it. If neither is achieved within that period, the formal joint pay assessment procedure must begin, with a remedial plan that includes specific deadlines and monitoring milestones.
What are the most common causes of unjustified pay gaps?
The most frequent causes include historical salary negotiation differences, pay stagnation during parental leave, unconscious bias in promotion and bonus decisions, and occupational segregation where women are disproportionately represented in lower-paid roles. Identifying these root causes is a critical step in developing an effective remedial plan.