EU Pay Transparency Directive — How benefits could impact your gender pay gap

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.

What does this mean for benefits offerings?

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.

Where do benefit gaps arise?

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:

• Design: Taking pension plans as an example, employees within an entity are all eligible for the same Defined Contribution plan, which requires employees to contribute to the plan to receive matching employer contributions. Total pay for the employees who decide not to contribute into the plan could be considerably lower than those who do.
• Choice: In some European countries, employer-paid benefits are taxable to the employee, resulting in lower take-home pay. For this reason, or in some cases due to lack of awareness and understanding of the benefits offered, employees may choose to opt out, resulting in lower total pay compared to those employees who are enrolled in the benefit plans.
• Eligibility: One of the more common and potentially complex situations is when eligibility differs across employee groups, due to grandfathered or legacy benefits. This may have occurred due to closure of a plan in the past or historic acquisitions where entities have been harmonised but benefits have not been. In these specific situations^[1], the reasons for differences in eligibility would — in many jurisdictions^[2] - be considered objective and therefore wouldn't require employers to harmonize benefits or close any related gender pay gaps. However, significant differences in the value of benefits within a category of worker, may attract the attention of workers and their representatives. Employers should therefore be ready to justify the cause of these differences and potentially demonstrate that any gender pay gap is explainable.

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.

How to prepare benefits for the EU Directive

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.

Footnotes

1. “A common misunderstanding is that grandfathered or legacy benefits always have an objective gender-neutral reason under the Directive but that is not necessarily the case. It should be assessed on a case-by-case basis what the reason for grandfathering was and whether that is an objective and gender-neutral reason as accepted by case law in each relevant jurisdiction.” Return to article
2. “In some EU jurisdictions there may be a legal obligation to harmonize benefits (over time) in the case of historic acquisitions. In those specific jurisdictions historic acquisitions would thus not constitute an objective justification.” Return to article