The EU Pay Transparency Directive ("the Directive") gives employees extensive new rights to information about their own pay and the pay of male and female peers. By June 2026, employers will need to be confident that their pay and benefits are ready for this level of transparency and that they are delivering equal pay and can perform the gender pay gap reporting required by the Directive.
Article 3 of the Directive defines pay as "ordinary basic or minimum wage or salary and any other complementary or variable components, whether in cash or in kind, which a worker receives directly or indirectly in respect of their employment from their employer." As such, the Directive requires employers to include the value of employee benefits in pay gap reporting. This is consistent with the broad definition of 'pay' in the case law of the Court of Justice of the EU which the Directive codifies.
With just over six months to go until the Directive comes into force, and limited guidance issued by Member States on how to handle employee benefits, many organizations have started to assess which benefits to include in the pay gap calculations, how to value these and their impact on gender pay gaps.
Most companies offer group plans to employees, which means they usually don't differentiate between benefit offerings within a single entity. As a result, a key question many companies are currently facing is whether benefits should be included, and what added value this might bring. From a legal perspective, the starting point is that benefits — whether in cash or in kind—should indeed be included.
There are often situations where benefit eligibility may differ across employee groups within one entity due to role or level. Here it is important to make sure that the same objective and gender-neutral principles are applied in determining eligibility and ensure there are no unexplained differences. Worker categorization under the Directive may also not match previous categorizations for level eligibility, e.g. different company cars offered to different 'levels' where the car policy 'levels' don't match the levels defined for worker categorization. Although discretion is rare within employee benefits, there may be situations where there's discretion on how benefits are awarded or situations where the benefit value depends on discretionary pay elements (e.g., pensionable salary that includes bonus or minimal formal structure on company car policies). If discretion is (indirectly) gender biased, this could contribute to a gender pay gap.
Even when the same benefits are offered to all employees (within an entity, by role or level), pay gaps can arise due to benefit design, employee choice or the way the individual cost of the benefit is determined by the benefit provider.
Common examples where eligibility, design or choice can contribute to gaps include:
Due to the materiality of benefits, it's possible that the above examples give rise to gender pay gaps. However, in most cases, employers should be able to justify these differences with objective and gender-neutral reasons. From a legal perspective, this doesn't mean that benefits can simply be left out because the company 'believes' they are being granted in a gender-neutral manner. Companies need a clear methodology and robust governance framework for benefits to support any regulatory queries regarding reporting methodology, and more importantly, to articulate a coherent narrative to employees and their representatives. In this context, WTW and Linklaters have supported and continue to support many organizations in understanding the impact of benefits on pay equity analytics.
Typically, the first step is to collect data on the benefits offering and to assess if and how these would be valued, balancing materiality and efforts involved in data collection. The first step can already be challenging and time consuming given the scale of benefit offering in each country, the interaction with any statutory provisions and the need to liaise with various stakeholders (e.g. payroll, third-party providers) and systems (e.g. HRIS).
Second, we recommend recording any benefit-related decision (for example, whether to include or exclude items from unadjusted or adjusted pay gap calculations) on a line-by-line basis, including the objective and gender-neutral reason (which should be validated by legal counsel), if applicable. Having a roadmap and plan leading up to June 2026, will help avoid any last-minute surprises on pay gaps arising due to benefits.
Since the publication of the Directive, WTW and Linklaters continue to help organizations build their roadmap — taking into account the specificity and complexity of including benefit programs — setting up their benefit valuation methodology and understanding the gender inequity risk inherent to their benefit policies.
Benefits is a complex part of the EU Pay Transparency Directive, and the myriad of choice means that organizations often need a bespoke solution. Our team has been optimizing and shaping benefits strategies for decades and specially advising on benefits transparency and equity in preparing for EU Pay Transparency for the past two years. Speak to our team about the benefits aspects of the Directive and use benefits to shape your total rewards strategy.
The EU Pay Transparency Directive broadly defines "pay" to include all complementary or variable components, whether cash or in-kind, meaning benefits must be valued and included in gender pay gap reporting by June 2026.
