Pay Equity Audits: A Step-by-Step Guide for Compliance

Under Article 10 of the EU Pay Transparency Directive, organisations that report a gender pay gap of 5% or more in any category of workers — and cannot justify that gap with objective, gender-neutral criteria — must conduct a joint pay assessment with employee representatives. This is not optional. It is a legal obligation triggered by the data.

But waiting for the trigger is a poor strategy. Organisations that conduct pay equity audits proactively — before their first reporting deadline — give themselves time to identify gaps, understand their causes, and develop remediation plans. Those that wait discover problems under scrutiny, with regulators and employees watching.

This article provides a practical, step-by-step process for conducting a pay equity audit that meets the directive's requirements and produces genuinely useful results. It is aimed at HR teams, compensation specialists, and compliance officers who need to move from theory to practice.

What Article 10 Actually Requires

Before walking through the process, it is worth understanding what the directive specifically mandates.

A joint pay assessment is required when:

Pay gap reporting under Article 9 reveals a difference of 5% or more between the average pay of male and female workers in any category
The employer cannot justify that difference using objective, gender-neutral criteria
The employer has not remedied the unjustified difference within six months of the reporting date

The joint pay assessment must be carried out in cooperation with worker representatives and must include:

An analysis of the proportion of male and female workers in each category
Details of average pay levels and complementary or variable components, disaggregated by gender
Identification of differences in average pay levels between male and female workers in each category
The reasons for those differences, based on objective, gender-neutral criteria (if any)
Measures to address unjustified differences
An evaluation of the effectiveness of measures from any previous joint assessment

This is a structured process with defined outputs. A vague commitment to "look into the pay gap" does not satisfy the requirement.

For a broader overview of how the directive's obligations fit together, our article on what HR teams must do before June 2026 provides the full context.

Step 1: Define Your Comparator Groups

The directive requires pay comparisons between workers performing "the same work or work of equal value." This is the most important — and most commonly mishandled — step in the entire process.

Same work is relatively straightforward: people in the same role, performing the same tasks, with the same responsibilities.

Work of equal value is broader and more complex. It requires an assessment of whether different roles are comparable in terms of the skills, effort, responsibility, and working conditions they involve. A customer service team leader and a logistics coordinator might perform different tasks but hold roles of equal value to the organisation.

How to Define Groups

Start with your job architecture. If you have a job levelling framework (grades, bands, job families), use it as the starting point. Roles at the same level within the same job family are likely comparator groups.
Apply the "equal value" criteria. For roles at the same level but in different families, assess whether they involve comparable skills, effort, responsibility, and working conditions. Document your reasoning. The directive requires that these criteria be objective and gender-neutral.
Be honest about grey areas. Some comparisons will be genuinely ambiguous. Document those too. An auditor or monitoring body will be more sympathetic to a well-reasoned judgement call than to a classification that conveniently avoids creating comparator groups with visible pay gaps.
Check for sufficient sample sizes. A comparator group with two people in it will not produce statistically meaningful results. Where groups are very small, consider whether they should be aggregated with related roles — while maintaining the "equal value" logic.

Common Pitfalls

Too granular: Defining groups so narrowly that each one contains only same-gender employees, making gender comparison impossible. This looks like evasion, because it often is.
Too broad: Lumping all employees at a grade level into one group regardless of function, which dilutes meaningful comparisons and can mask gaps within specific functions.
Ignoring job titles: Using job titles as the sole basis for grouping, when the same title is applied to roles with very different responsibilities across departments.

Step 2: Gather the Data

Once comparator groups are defined, you need pay data for every employee in each group. The directive requires analysis of both base pay and complementary or variable components.

Data you need for each employee:

Base salary (annualised, to account for part-time workers)
Bonuses and commissions
Overtime pay
Allowances and supplements (shift premiums, location allowances, etc.)
Benefits in kind (company car, private healthcare, etc.) — to the extent these can be quantified
Gender
Job category / comparator group assignment
Any factors you consider objective, gender-neutral criteria for pay differentiation (tenure, qualifications, performance ratings, geographic location)

Data quality checks:

Are part-time employees represented on a full-time equivalent basis?
Is variable pay captured for a consistent period (typically the previous 12 months)?
Are all pay components captured in one system, or do you need to merge data from multiple sources?
Is gender data complete and accurate across the entire workforce?

Missing or inconsistent data is the most common reason pay equity audits produce unreliable results. If your data is not clean, fix that first. An audit built on bad data is worse than no audit at all, because it creates a false sense of either compliance or crisis.

Step 3: Analyse by Gender

With clean data and defined comparator groups, the analysis itself is relatively straightforward — though the interpretation requires care.

For each comparator group, calculate:

The mean gender pay gap in base pay
The mean gender pay gap in total pay (base plus all variable and complementary components)
The median gender pay gap in base pay and total pay
The proportion of men and women in the group
The distribution of men and women across pay quartiles within the group

Interpretation guidance:

A gap of 5% or more triggers the joint pay assessment obligation under Article 10 — but only if the gap cannot be justified by objective criteria. The 5% figure is a threshold, not an automatic finding of discrimination.
Look at both mean and median figures. The mean can be skewed by outliers (one very highly paid individual). The median gives a better picture of the typical experience.
Pay attention to the distribution. If women are concentrated in the lower quartiles of a group and men in the upper quartiles, there is a structural pattern that needs investigation even if the overall gap is below 5%.
Variable pay often drives larger gaps than base pay. Bonus schemes, commission structures, and overtime access can all create gendered outcomes even when base salaries are equal.

Step 4: Identify Unjustified Gaps

Not every pay gap is unjustified. The directive explicitly allows for pay differences based on objective, gender-neutral criteria. The task at this step is to determine which gaps can be explained and which cannot.

Commonly accepted objective criteria include:

Length of service / tenure (where pay scales are seniority-based)
Relevant qualifications or certifications
Performance ratings (where the performance management system is itself objective and applied consistently)
Geographic location (cost-of-living adjustments)
Market premiums for hard-to-fill roles (though this is scrutinised more closely)
Working patterns that affect total hours (shift work, on-call requirements)

What does not constitute justification:

"That's what we had to offer to get them" — unless linked to a documented, gender-neutral market premium policy
Historical pay decisions that were never reviewed
Salary history from a previous employer (explicitly banned under Article 5)
Subjective assessments of potential or "culture fit"
"They negotiated harder" — the directive exists precisely because negotiation advantages tend to be gendered

For each comparator group where a gap exists, document:

The size of the gap
The factors that explain part or all of the gap (with evidence)
The residual gap that cannot be explained by objective criteria
Whether the residual gap exceeds the 5% threshold

Be rigorous here. An auditor will look at your justifications closely. "Tenure" is a valid factor, but only if you can demonstrate that the tenure difference between male and female employees in the group actually accounts for the pay difference. Assertion is not evidence.

Step 5: Create a Remediation Plan

For any gap that cannot be justified — whether or not it exceeds 5% — you need a plan to close it.

Immediate remediation (within six months):

Adjust individual salaries where the gap is clearly unjustified and attributable to specific pay decisions. This is the most direct remedy and the one the directive anticipates for clear cases.
Review and standardise starting salaries for new hires in affected groups, ensuring the same objective criteria are applied consistently.

Structural remediation (6-18 months):

Redesign bonus and commission schemes that produce gendered outcomes. If men consistently earn higher bonuses in the same role, examine whether the bonus criteria or the allocation process is the issue.
Implement pay bands with defined progression criteria, reducing the scope for subjective pay decisions.
Review promotion rates by gender within each comparator group. Pay gaps often originate not from unequal pay for the same work, but from unequal access to higher-paid roles.

Systemic remediation (ongoing):

Embed pay equity checks into the annual compensation review process. Every pay decision — new hire, promotion, annual increase — should be checked against the comparator group data before it is finalised.
Train managers on objective pay decision-making. Managers make the day-to-day decisions that, aggregated across the organisation, create or prevent pay gaps. Our Pay Transparency course covers this through realistic scenarios.
Publish internal pay ranges and criteria. Transparency is not just a reporting obligation; it is a structural safeguard against future gaps.

Working with Employee Representatives

The joint pay assessment under Article 10 is not a unilateral HR exercise. It must be conducted in cooperation with worker representatives.

This is an opportunity, not an obstacle. Employee representatives bring perspective that HR may lack — they know which pay decisions feel unfair to the workforce, which criteria are perceived as subjective, and where trust in the system has broken down.

Practical considerations:

Involve representatives early. Sharing the data and methodology before the formal assessment builds trust and avoids the dynamic of "HR presenting its conclusions for sign-off."
Be transparent about what the data shows, including where it shows problems. Representatives will be more constructive partners if they believe HR is genuinely committed to addressing gaps, not minimising them.
Agree on the scope and methodology in advance. Disputes about comparator group definitions during the assessment waste time and create adversarial dynamics.
Document everything. The assessment must produce a written report with specific measures and timelines. This is both a legal requirement and a practical tool for tracking progress.

Common Pitfalls to Avoid

Having walked through the process, here are the mistakes that most commonly undermine pay equity audits.

Comparing the wrong groups. If your comparator groups are poorly defined — too broad, too narrow, or based on inconsistent criteria — the analysis will be misleading. Invest time in Step 1.

Ignoring intersectionality. The directive focuses on gender, but pay gaps often intersect with other characteristics — ethnicity, disability, age, part-time status. An audit that finds no gender pay gap but does not consider whether part-time women (a gendered category) are systematically underpaid may miss the real problem. While the directive's formal reporting requirements focus on gender, a thorough audit considers intersecting factors.

Inadequate justification for differentials. "Tenure" and "performance" are easy words to write in a justification column. They only hold up if you can demonstrate, with data, that these factors actually explain the specific pay difference in question. Vague references to legitimate criteria are not the same as evidence.

Treating the audit as a one-off. A pay equity audit is not a project with a completion date. It is a capability that needs to be embedded into ongoing compensation management. Organisations that audit once, fix the obvious gaps, and then return to business as usual will find the gaps reappearing within a few years.

Confusing compliance with equity. The directive sets a floor, not a ceiling. An organisation can be technically compliant — gaps below 5%, reports filed on time — while still having systematic issues that undermine pay fairness. The audit process is most valuable when it is used as a genuine diagnostic tool, not as a compliance exercise designed to produce acceptable numbers.

Getting Started

If you have not yet conducted a pay equity audit, the prospect can feel overwhelming — particularly if your data infrastructure is not where it needs to be. The key is to start, even imperfectly.

Run a preliminary analysis with the data you have. It will not be perfect, but it will show you where the biggest gaps are and where your data quality needs work. That gives you a foundation for prioritising improvements before the formal reporting deadline.

Our free diagnostic tool can help you assess your organisation's readiness across the Pay Transparency Directive's key obligations, including pay equity audit preparedness.

For structured training on the directive's requirements — including the joint pay assessment process — our Pay Transparency Directive course covers Articles 5, 7, and 10 through scenario-based learning designed for HR professionals, compliance officers, and managers. It deploys as SCORM across any LMS.

The goal is not a perfect audit on day one. The goal is a rigorous, honest process that improves over time — one that makes your organisation's pay decisions more defensible, more consistent, and ultimately fairer for everyone.