Equal pay, equal benefits?

What are we talking about?

What does the Pay Transparency Directive say about the inclusion of benefits? Well, the definition is quite broad:

“The concept of pay should comprise not only salary, but also complementary or variable components of the pay. Under complementary or variable components, any benefits in addition to the ordinary basic or minimum wage or salary, which the worker receives directly or indirectly, whether in cash or in kind, should be taken into account. Such complementary or variable components may include, but are not limited to, bonuses, overtime compensation, travel facilities, housing and food allowances, compensation for attending training, payments in the case of dismissal, statutory sick pay, statutory required compensation and occupational pensions. The concept of pay should include all elements of remuneration due under law, collective agreements and/or practice in each Member State.”

The Directive requires employers to disclose not only base salaries but also the value of benefits as part of their transparency obligations under the directive. That means they need to report on:

• the average and median gender pay gap in complementary or variable components;
• the proportion of female and male workers receiving complementary or variable components;
• the gender pay gap between workers by categories of workers broken down by ordinary basic wage or salary and complementary or variable components.

The purpose of these different measures is to uncover both the horizontal pay gap (between workers at the same level) and the vertical pay gap (between workers of different levels). Both outcomes tell a message about pay equity and equality.

All payments to an employee are considered remuneration for employment. And because you are not allowed to discriminate against employees, you should pay them equally for equal work. When you are in the process of defining equal work, you should also define the compensation elements for each role.

You typically define that in a compensation philosophy, that spells out what you pay, and what you pay for. This ensures that employees who perform work of equal value, take home not only equal salaries but also equal compensation packages. And by reading the compensation document, they can inform themselves about their package and check if something is missing.

How should you calculate the value of benefits?

All benefits have a monetary value: the employer pays an invoice. In the case of pensions, you typically receive an overview of the cost per employee, and you can assign that amount to the specific employee. For other benefits, you might pay the same fee per employee (e.g. gym membership) and you can attribute that amount. And you might have some benefits in kind (e.g., team entertainment). Even so, you should assess the fair market value of each benefit provided to employees.

I hope that you already use a flexible benefits solution, that allows you to assign a monetary budget to each employee. They can then spend that budget on benefits of their choice. In such systems, you can easily run reports of costs per employee. If you currently don’t use such a system, I’d recommend that you start by assessing how much work it is to properly attribute benefits to employees, in order to properly calculate the complementary or variable components of equal pay. Because benefits are often supplied by a variety of providers, this might take more time than you think. And then it could be much easier to let a solution handle this for you.

What about part-time or temporary employees?

The Directive applies to part-time workers, workers on a fixed-term contract and persons with a contract of employment or employment relationship with a temporary agency, as well as workers in management positions, who have an employment contract or employment relationship (plus some additional categories). Regardless of employment status, all employees are entitled to transparent disclosure of both salaries and benefits. And when they perform equal work, they should receive equal pay.

Are bonuses part of compensation?

Yes, bonuses should be included. Pay special attention to the way bonuses are distributed. They can represent a significant portion of total compensation, and they may vary widely if they are assigned based on subjective criteria such as performance evaluations, which can be subject to unconscious bias. This can lead to hidden pay disparities, where people who receive more favorable performance evaluations may receive higher bonuses, exacerbating existing pay gaps. In itself, bonuses are a great element of a compensation package. Just make sure that you can properly explain who receives them and why, and how their final value is determined.

How does inclusion of benefits help with transparency?

When companies prepare their first pay transparency report, they often find it difficult to include all the benefits because they are not managed in one place or solution. In the initial report, they often find imbalances in benefits. The reason is simple: when you don’t use defined compensation packages, benefits might be assigned at will. Or someone gets promoted, but didn’t get the corresponding benefits. And in doing so, a company can (inadvertently) create inequalities between people who perform equal work.

When you start to prepare for the European directive, make sure that you allocate enough time for a thorough compensation assessment. You’ll not only need to define compensation packages per role, you’ll also need to review if your workers are actually provided with the benefits they are entitled to. I’m pretty sure that you will find some issues that need to be corrected before your first official report is due.