Calculating the gender pay gap: How to determine your pay gap correctly
Median or mean, which pay components, which comparison groups? The methodology of pay gap calculation, step by step.
Why the methodology is decisive
The EU Pay Transparency Directive (2023/970/EU) obliges employers with 100 or more employees, in staggered stages, to report on their gender pay gap — and, where an unexplained gap of more than 5% exists in a comparison group, to conduct a joint pay assessment with the employee representatives. Whether you breach that threshold depends largely on whether you calculate correctly. Anyone who only starts the analysis in the reporting year has no time left to explain or close gaps.
Median and mean: Both are mandatory
The directive requires the pay gap both as a mean (the arithmetic average pay of men minus that of women, divided by that of men) and as a median (the same comparison using the middle pay value in each case). The median is more robust against outliers: a single high managing director's salary distorts the mean considerably, but barely the median. If the two values diverge strongly, that is itself an analytical finding — it points to an unequal distribution in top positions.
Which pay components are included
- Base salary including collectively agreed and above-scale components
- Variable compensation: bonuses, commissions, premiums, and target-achievement payments
- Allowances and supplements: shift, on-call, and functional allowances
- Benefits in kind: company cars for private use, stock options, supplementary pensions
- Conversion to full-time equivalents so that part-time rates do not distort the result
Comparison groups: Equal work and work of equal value
The gap is calculated not only company-wide but for each group of workers performing equal work or work of equal value. Equal value is measured by objective, gender-neutral criteria such as skills, effort, responsibility, and working conditions — not by job title or historical grading. A clean, documented job evaluation system is therefore the foundation of any reliable calculation.
Reading the 5 percent threshold correctly
What matters is the unexplained gap per comparison group: if it exceeds 5% and cannot be justified by objective criteria such as professional experience, qualifications, or performance — and is not remedied within six months — the joint pay assessment follows. Therefore, document the objective reasons for every difference. How to set up the analysis organizationally is shown by the Pay Transparency Auditor; structured preparation is also offered by the pay transparency checklist.
Frequently asked questions
What is the difference between the adjusted and unadjusted pay gap?
The unadjusted gap compares the average pay of all men and women without accounting for role or qualifications. The adjusted gap factors out objective variables such as position, experience, and working hours and shows the unexplainable difference. For the directive's 5 percent threshold, what counts is the gap per comparison group that cannot be justified by objective criteria.
Do part-time employees count in the calculation?
Yes. Part-time employees are included in the calculation; their pay is converted to full-time equivalents or hourly rates for this purpose. Precisely because part-time work is predominantly performed by women, a calculation without conversion would artificially inflate the gap and render the result unusable.
How do I form comparison groups when a role is performed by only one gender?
The directive relies on work of equal value: roles are evaluated using objective criteria such as skills, responsibility, and effort, and roles of equal value are grouped together — including across department boundaries. In this way, for example, a predominantly female clerical role can be compared with a male-dominated role evaluated as being of equal value.
Do the results have to be published?
Employers subject to the reporting obligation submit the figures to the competent body; key results are made accessible, and employees and their representatives can request further information. The detailed modalities are governed by the German implementation act. Regardless of this: internal analyses should be documented in a way that withstands the reversed burden of proof in a dispute.