Workers Performing Work of Equal Value: Establishing Categories of Workers Under the EU Pay Transparency Directive

Employers operating in the European Union (EU) will begin to have pay data reporting obligations under the EU Pay Transparency Directive starting in 2027.  There is significant preparation required for employers to be in a position to report their data. 

The preparation item under the Directive that will involve the most work and require the most advanced planning is establishing “categories of workers” comprised of workers who perform work of equal value. This is a new concept for many employers and one that will take time to analyze, organize, and put into action. 

What’s Required Under the EU Pay Transparency Directive 

Under the Directive, employers will be required to report gender pay gaps by categories of workers.  When there is a gender pay gap of 5% or more for a category of workers, the employer must either justify that the difference in average pay level using objective, gender-neutral criteria or remedy the unjustified difference in pay within six months of submitting its pay report. 

What Are “Categories of Workers” 

These “categories of workers” are something new that employers haven’t previously had.  They are not the same thing as job titles, similar or like jobs, job families, job disciplines, or similarly situated employee groups—job groupings that employers maintain currently.  The category of workers for purposes of the Directive is not directly tied to how employers categorize their jobs for setting up their overall pay structure nor to how employers determine which employees are similarly situated for purposes of analyzing pay equity under federal and state laws in the United States. 

Under the Directive, a “‘category of workers’ means workers performing the same work or work of equal value. . ..” 2023/970, OJ L 132/32, 17 May 2023 (“EU Pay Transparency Directive”), Article 3(1)(h) (emphasis added). 

The “performing the same work” element is easy; however, the “performing work of equal value” element is a paradigm shift that is new to employers unless they already have Canadian Pay Equity plans, which operate similarly to the EU Pay Transparency Directive.   

The Directive commands that determining job categories comprised of jobs of equal value must be done “in a non-arbitrary manner,” EU Pay Transparency Directive, Article 3(1)(h), based on “skills, effort, responsibility and working conditions, and, if appropriate, any other factors which are relevant to the specific job or position.” EU Pay Transparency Directive, Article 4(4) (emphasis added). 

How Employers Can Prepare 

What does this mean for employers?  It means that the EU Pay Transparency Directive calls for grouping employees by how much they are paid (work of equal value) rather than by the job that they do.  Moreover, employers need a way to show the reason that jobs are paid similarly is because their value is comparable based on the four factors: 

• Skills 
• Effort 
• Responsibility 
• Working conditions.   

This is an exercise that employers have not undertaken in the past.  They will need to do so well in advance of the start of pay data reporting under the Directive. 

Employers already have midpoints and/or pay ranges for their jobs.  Implicitly, those ranges were tied to the skills, effort, responsibilities, and working conditions of the job.  Under the EU Pay Transparency Directive, that valuation will need to be explicit.   

A 2026 action item for every employer who will be subject to the EU Pay Transparency Directive is to value their jobs based on skills, effort, responsibility, and working conditions so that they can create their category of workers. 

Employers’ existing compensation structures tend to be thoughtfully developed and work very well as is.  As such, the exercise needs to be one of making sure that the four-factor job valuation matches the pre-existing compensation structure.  Indeed, the Directive explicitly requires that EU Member States “take the necessary measures to ensure that employers have pay structures ensuring equal pay for . . . work of equal value.” EU Pay Transparency Directive, Article 4(1) (emphasis added). 

Job Value Determinations Informed by the Employer’s Existing Compensation Structure 

The evaluation of skills, efforts, responsibility, and working conditions cannot be performed in a vacuum uninformed by the employer’s existing compensation structure.  Instead, employers need to identify jobs with similar pay within their compensation system and then formalize the value of those jobs based on the four factors so that the pay and value of the job align.   

This exercise offers benefits well beyond facilitating compliance with the requirements of the EU Pay Transparency Directive.  It provides an objective way to validate the organization’s global pay structure on more than just the market.  It also may identify instances that suggest that a role should be realigned within the organization’s compensation structure.   

This will take employers to a place where they have lined up the compensation structure and the assigned value to each job based on skills, efforts, responsibility, and working conditions that are universally applicable and that will ensure an integrated globally-applicable approach to compensation that aligns with pay equity standards regardless of the applicable laws in a given country. 

What Categories of Workers Means for Employers 

This job valuation is something employers have not been asked to do before and will take time to complete. The process will involve not only determining the value of each job but aligning the calculated values with the employer’s existing compensation structure. This is a very complicated process and the earlier you can start preparing, the better shape you will be in when 2027 deadlines arrive.   

OutSolve is here to help you prepare for the EU Pay Transparency Directive. Contact us today for assistance with this important new requirement.