Gender Pay Gap Reporting: What HR Leaders Need to Know for 2027

The EU Pay Transparency Directive introduces mandatory gender pay gap reporting for companies across the European Union. Starting in 2027, organizations with 100 or more employees will need to report detailed pay gap metrics. This guide breaks down exactly what HR leaders need to prepare.

Who Must Report?

Reporting requirements are phased in based on company size:

• 250+ employees: Report annually starting June 2027
• 150-249 employees: Report every 3 years starting June 2027
• 100-149 employees: Report every 3 years starting June 2031
• Under 100 employees: No mandatory reporting, but employees still have information rights

Required Reporting Metrics

The directive specifies six categories of metrics that must be reported:

1. Overall Gender Pay Gap

The difference between average (mean) gross hourly earnings of male and female workers, expressed as a percentage of male earnings. Also report the median pay gap.

2. Variable Pay Gap

The gap in complementary or variable components of pay (bonuses, commissions, allowances, etc.). Report both mean and median gaps.

3. Variable Pay Distribution

The proportion of female and male workers who receive any form of variable or complementary pay component.

4. Quartile Distribution

The proportion of female and male workers in each of four quartile pay bands. Divide all workers into four equal groups by pay level and report the gender split in each.

5. Pay Gap by Worker Category

Gender pay gap broken down by categories of workers doing the same work or work of equal value. This requires a job classification system.

6. Pay Gap by Pay Component

Within each worker category, report gaps in both basic pay and complementary/variable components separately.

How to Calculate Pay Gap Metrics

Mean Pay Gap Formula

Mean Pay Gap = ((Average Male Pay - Average Female Pay) / Average Male Pay) × 100

Example: If average male hourly pay is €25 and average female hourly pay is €22, the gap is: ((25-22)/25) × 100 = 12%

Median Pay Gap Formula

Median Pay Gap = ((Median Male Pay - Median Female Pay) / Median Male Pay) × 100

The median is the middle value when all salaries are ordered. It is less affected by outliers than the mean.

Quartile Calculation

• Order all employees by hourly pay (lowest to highest)
• Divide into four equal groups (quartiles)
• Lower quartile: Bottom 25%
• Lower-middle quartile: 25-50%
• Upper-middle quartile: 50-75%
• Upper quartile: Top 25%
• Count male and female workers in each quartile
• Express as percentages

What Counts as "Pay"?

The directive uses a broad definition of pay that includes:

• Basic salary or wage
• All other components paid directly or indirectly to the worker
• Variable pay (bonuses, commission)
• Overtime payments
• Travel and accommodation allowances
• Compensation for attending training
• Dismissal payments
• Sick pay
• Statutory benefits linked to employment
• Benefits in kind (company car, phone, etc.)

Job Classification Requirements

To report pay gaps by worker category, you need a job classification system based on:

• Skills: Qualifications, education, training, experience needed
• Effort: Physical, mental, emotional demands
• Responsibility: For people, resources, safety, decisions
• Working conditions: Environment, schedules, stress levels

Jobs requiring similar levels of skills, effort, responsibility, and conditions should be grouped together, regardless of job title or department.

The 5% Gap Threshold

If any worker category shows a pay gap of 5% or more that cannot be justified by objective factors, you must:

• Conduct a joint pay assessment with worker representatives
• Identify causes of the gap
• Develop remediation measures
• Report on progress

Reporting Format and Publication

Reports must be:

• Submitted to a monitoring body designated by the member state
• Made publicly available (method determined by member state)
• Accessible to workers and their representatives
• Available to labor inspectorates and equality bodies

For companies with 250+ employees, reports must be published. This creates reputational incentives for closing pay gaps.

Data Privacy Considerations

While pay data is personal data under GDPR, certain protections apply:

• Data should be aggregated for reporting
• Minimum group sizes may apply (to prevent individual identification)
• Member states will set rules on publication format
• GDPR cannot be used to refuse pay transparency requests

Preparation Checklist

Start preparing now with these steps:

• Audit current pay data completeness and accuracy
• Develop job classification system if none exists
• Calculate baseline pay gap metrics
• Identify gaps exceeding 5% by worker category
• Document objective justifications for any gaps
• Prepare remediation plans for unjustified gaps
• Update HR systems to track required metrics
• Train HR team on reporting requirements
• Establish process for ongoing monitoring

Technology Solutions

Manual calculation of these metrics is error-prone and time-consuming. Modern HR compliance platforms can:

• Automatically calculate all required metrics
• Track metrics over time to show progress
• Generate compliant reports
• Flag when gaps exceed thresholds
• Manage employee information requests
• Maintain audit trail of pay decisions