How should companies calculate gender pay gaps?

The EU Pay Transparency Directive requires employers to report both unadjusted and adjusted gender pay gaps. These two figures tell different but complementary stories:

• Unadjusted pay gap → the average difference in pay between all men and all women.
• Adjusted pay gap → an analysis that factors in role, experience, or working hours, to show whether differences are structural or due to bias.

Together, they show both the size of the gap and what might be driving it.

Unadjusted gender pay gap: The raw average difference in gross pay between men and women, regardless of role or seniority. A high-level snapshot of gender equality.

Adjusted gender pay gap: Goes deeper by factoring in 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 show the “unexplained” portion of the gap, which can highlight inequality or bias.

Statistical methods:

The Directive suggests using the Oaxaca-Blinder method, which splits results into “explained” and “unexplained” parts. In practice, most organisations will use regression analysis or simpler tools, often with support from external providers.

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, analysis helps organisations spot hidden inequities, strengthen their pay frameworks, and build a reputation for fairness.

It’s not just about meeting a deadline - it’s about using data to create a more equitable workplace.