How should companies calculate gender pay gaps under the Directive?

The Directive requires employers to report on both unadjusted and adjusted gender pay gaps. These two figures tell different, but equally important, stories:

• Unadjusted pay gap → the raw average difference in pay between men and women.
• Adjusted pay gap → a deeper analysis that controls for factors like role, experience, or working hours to reveal whether differences are structural or due to bias.

Together, they show not just the size of the gap, but what might be driving it.
 

Unadjusted gender pay gap: The straightforward average difference in gross pay between all men and all women, regardless of role or seniority. It gives a high-level snapshot of gender equality in earnings.

Adjusted gender pay gap: This digs deeper by factoring in legitimate variables such as:

• Job role or category
• Seniority or tenure
• Education or qualifications
• Performance (depending on national rules)
• Working hours (e.g. FTE adjustments)

The aim is to isolate the “unexplained” portion of the gap - which may signal inequality or bias.

Statistical methods:

The Directive recommends the Oaxaca-Blinder decomposition method, which separates explained vs unexplained portions. However, in practice, regression analysis or other techniques may be easier for organisations to apply — often with external tools or consultant support.

Reporting requirements include:

• Mean and median pay gaps for base salary
• Mean and median pay gaps for variable salary
• Pay quartiles, by gender
• % of men and women receiving bonuses

If gaps of 5% or more can’t be justified, employers must:

• Conduct a joint pay audit
• Develop a corrective action plan within six months
• Consult with employee representatives (in most countries)
   

Calculating pay gaps isn’t just a compliance exercise. To get credible results, you’ll need to:

• Ensure data is clean, complete, and consistent.
• Use objective, transparent job categories.
• Be prepared to explain not just the numbers, but the reasons behind them.

Small sample sizes, inconsistent titles, or missing data can skew results - so preparing your systems now will make compliance smoother later.
 

The gender pay gap is more than a statistic. Done properly, pay gap analysis helps organisations spot hidden inequities, strengthen their pay frameworks, and build a reputation for fairness.

This isn’t just about meeting a legal deadline. It’s about using data to create a more equitable workplace.