Decoding Joint Pay Assessments: What EU Employers Need to Know
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Over the next few years, companies across Europe will need to radically rethink their approach to pay. This is because the EU pay transparency directive, which is set to come into effect across member states by 2025, will require them to be much more open about all things compensation.
Here at Figures, we’ve talked a lot about how companies can prepare for the directive. But there’s one thing we haven’t touched on much: joint pay assessments, or JPAs. In this article, we’ll explore what joint pay assessments are, when they’ll be needed, and what companies can do to prepare.
What is a joint pay assessment (JPA)?
A joint pay assessment (JPA) is a detailed pay equity audit that’s carried out in collaboration with employee representatives (that’s the ‘joint’ part, which we’ll get to in a moment).
The idea of a joint pay assessment is to dive deeper into any pay differences that exist within an organisation and determine whether they’re actually due to gender. Joint pay assessments should also aim to remedy any pay gaps that can’t be justified by objective, gender-neutral criteria.
Under the EU directive, when an employer carries out a JPA, they’ll need to publish it for their employees, and make it available to labour inspectorates and equality bodies on request. Translation? Companies with unjustified gender pay gaps won’t be able to hide them — and could be exposed to litigation and reputational damage.
When will joint pay assessments be needed?
The directive is very specific about when companies will have to conduct a joint pay assessment. For a JPA to be triggered, three things need to happen:
- The company reports a difference of 5% or more in the average pay of men and women in any category of workers (we’ll get to that in a moment).
- The company isn’t able to justify the difference they’ve found through objective, gender-neutral criteria (such as the employees’ level of experience or length of service, for example).
- The company doesn’t manage to resolve the difference within six months of reporting it.
To understand all of this, we need to look at a few definitions…
What is a ‘category’ of workers?
To get a proper understanding of a company’s gender pay gap, you need to make sure you’re comparing apples to apples. That means that each worker’s compensation should only be compared to that of others in the same ‘category’.
But what does this mean? According to the directive, workers should be grouped together if they do the same work or work of ‘equal value’. This should be done in a ‘non-arbitrary’ manner, based on ‘non-discriminatory and objective gender-neutral criteria’.
What is ‘pay’?
It might seem like a silly question, but we also need to establish exactly what we mean when we talk about ‘pay’. The directive states that pay should be defined in accordance with the case law of the Court of Justice of the European Union (CJEU).
That means we’re not just talking about base salary, but also:
- Salary
- Bonuses
- Commission
- Overtime pay
- Travel allowances
- Benefits
- Etc
This is an important distinction because some EU countries use a different, narrower definition of pay — which could cause problems when it comes to calculating and reporting pay gaps.
What is an ‘unjustified’ pay gap?
Whether a pay gap is ‘justified’ needs to be agreed between employers and workers’ representatives. For example, a gap may be justified if you can show that it’s not due to gender, but to other factors, like:
- Geographical location
- Performance ratings
- Length of service
- Experience
- Qualifications
If you can’t immediately show that your gender pay gap is down to an objective factor, you’ll need to conduct a joint pay assessment, which will help you dig deeper into the reasons and determine whether there’s an explanation.
The role of workers’ representatives
Workers’ representatives are crucial to JPAs — that’s why it’s a joint pay assessment, after all. But the EU directive doesn’t actually say how many representatives need to be involved or provide specifics on how they should be elected.
All it says is that representatives should be ‘designated by workers for the purpose of the joint pay assessment’, and that this should be done ‘in accordance with national law and/or practice’. That means that employers will likely need to hold elections to choose representatives for the purpose of conducting a JPA.
What will joint pay assessments look like in practice?
The exact process and parameters of a joint pay assessment will need to be agreed on between employers and workers’ representatives. And there will probably also be differences in the requirements each member state puts in place.
However, the directive does give certain minimum standards that countries will have to abide by in their interpretation of the rules. Specifically, JPAs will need to encompass the following seven points:
- An analysis of the proportion of female and male workers in each category of workers;
- Information on average female and male workers’ pay levels and complementary or variable components for each category of workers;
- Any differences in average pay levels between female and male workers in each category of workers;
- The reasons for such differences in average pay levels, on the basis of objective, gender-neutral criteria, if any, as established jointly by the workers’ representatives and the employer;
- The proportion of female and male workers who benefited from any improvement in pay following their return from maternity or paternity leave, parental leave or carers’ leave, if such improvement occurred in the relevant category of workers during the period in which the leave was taken;
- Measures to address differences in pay if they are not justified on the basis of objective, gender-neutral criteria;
- An evaluation of the effectiveness of measures from previous joint pay assessments.
Statistical approaches to consider
Calculating the pay gap among a certain group of workers is a relatively simple process. All you need to do is work out the average pay of the men and women within the category and then calculate the percentage difference between these figures.
However, conducting a JPA means diving much deeper into the numbers. The purpose of a JPA is to understand the why behind their pay gap, which is a lot more complicated.
After all, averages can be skewed by outliers and hide individual cases. That means you might need to take various different statistical approaches to the data you have to truly find out what’s going on.
Approach #1: Maximum male pay vs. minimum female pay
This approach involves looking at the highest-paid man and the lowest-paid woman in a single category, and seeing how their pay compares. Because these two people perform the same work or work of equal value, they would be legitimate competitors in an equal pay claim. Looking at the difference between their pay shows you your ‘worst-case scenario’ should a claim be brought.
Approach #2: Regression analysis
Regression analysis is a statistical technique that involves plotting a line through points on a graph to establish a relationship between different factors. For example, if you plotted the height and weight of 50 different people on a graph and then drew a line through the results, you’d be able to estimate the weight of another person based on their height.
This is a simple example — and things tend to be much more complicated in a JPA. In this case, you would likely be comparing multiple factors, like each employee’s pay, role, gender, length of service and performance rating (for example). Considering all of these factors together allows you to get closer to a ‘like-for-like’ comparison without factors other than gender skewing your results.
Approach #3: Blinder-Oaxaca decomposition
The Blinder-Oaxaca decomposition is a statistical approach that allows you to estimate how much of your gender pay gap can be explained by objective factors, and how much of it is unjustified.
It’s a bit complicated, but essentially, if you had a gender pay gap of 17%, you might be able to show that 13% of it was due to factors like the employees’ performance level, tenure and experience — and that only 4% was actually based on their gender. Companies that employ this method may be able to avoid the necessity of a JPA altogether by showing that their real gender pay gap is under the 5% threshold.
Addressing unjustified pay gaps
If a joint pay assessment finds that a company’s gender pay gap can’t be justified, they’ll need to develop a plan to resolve it. There are many ways you could go about this. For example, you could consider:
- Reassessing your compensation review process
- Changing your recruitment processes to reduce bias
- Reducing manager discretion in pay decisions
- Training managers on unconscious bias
Want to learn more? Check out our article on 6 reasons you could be paying your employees unfairly to find out what else might be going wrong.
Preparing for pay transparency starts now
The implementation of the EU pay transparency directive is still a little while off. In most countries, the first gender pay gap reports won’t be due until June 2027. That means there’s still time to get a handle on your gender pay gap and avoid the need for joint pay assessments.
However, that time is quickly running out. Closing a gender pay gap isn’t something you can do overnight — you may need more than one pay review cycle to get it right. If you haven’t yet started preparing for pay transparency, now is the time.
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