EU Pay Transparency Rules Force Complete Overhaul of Employee Compensation Systems

New EU pay transparency regulations will compel employers to thoroughly evaluate all salary components, bonuses, and non-monetary benefits to eliminate wage gaps and prove non-discrimination.

Companies Will Have to Scrutinize the Entire Compensation System

The regulations implementing the EU pay transparency directive entail massive changes for employers. Initially, they will cover enterprises employing over 250 workers, which will be required to prepare remuneration reports and calculate the gender pay gap.

This task may prove exceptionally difficult in companies that have spent years creating complex remuneration systems full of various allowances, bonuses, and benefits. Each of these elements must be properly accounted for in the wage analysis.

New regulations assume that the remuneration included in calculating the pay gap will comprise all components resulting from an employee’s personal classification, specified by an hourly or monthly rate, as well as other remuneration elements regardless of their name or character. This will also cover cash and non-cash benefits financed by the employer.

Not Just Salary: What Counts Toward Remuneration

When drafting reports, employers must account for practically all remuneration components received by an employee. This covers not only base salary, but also bonuses and awards, performance bonuses, and holiday bonuses. Calculations will also include wage additions such as seniority, functional, task-based, and hazardous work allowances, commissions paid to salespeople, as well as pay for overtime, night work, and work on days off.

Extracurricular benefits will also be taken into consideration, including medical packages, sports cards, lunch cards, housing allowances, and fuel lump sums. Reports will additionally feature sick pay covered by the employer for the first 33 days of incapacity to work, as well as severance pay and compensations paid upon termination of employment.

However, not all benefits will be included in calculating the pay gap. Excluded from reporting obligations are benefits financed from the company social benefits fund, reimbursements of costs incurred by employees—such as business trips, laundering work clothes, or using private cars for business purposes—remote work equivalents, benefits paid by the Social Insurance Institution (ZUS) such as maternity or care allowances, and retirement programs including Employee Capital Plans (PPK).

Company Cars, Fuel, and Benefits: Valuing the Unpriced

New obligations may prove particularly problematic regarding non-monetary benefits. While the value of a medical package or sports card is easily established based on purchase price, pricing the private use of a company car is significantly harder.

Even more doubts arise in enterprises possessing a vehicle fleet of highly differentiated values or offering employees unlimited fuel cards. In such cases, employers must develop coherent and defensible principles for valuing these benefits.

According to experts, precisely these situations may prompt companies to organize their remuneration systems. Remuneration components should be analyzed at the job evaluation stage—that is when the full picture of a company’s wage system is created, explains Kinga Żbikowska, a payroll manager from ADP Polska. Analyzing the job structure, assigned duties, and task characteristics allows companies to compare remuneration components assigned to a given position and gain a complete list of all components paid by the employer, she adds.

After cataloging them, companies can consider whether they actually fulfill their function or are remnants from times when the firm operated under different conditions. Employers have some ability to modify remuneration components and even eliminate some of them, provided they are not legally regulated, to match the wage system to their actual needs, indicates Kinga Żbikowska.

Discretionary Bonuses Will Cease to Be a Convenient Loophole

New regulations may also end the practice of arbitrarily granting discretionary bonuses. Currently, the rules for granting them stem from Article 105 of the Labor Code, which provides for rewarding employees for exemplary performance, initiative, and raising work quality and efficiency. However, detailed criteria are most often defined by internal company regulations.

Experts indicate that this is precisely where the biggest problems may arise. Although the name discretionary bonus suggests freedom in granting it, in light of new regulations, remuneration lacking specific arguments has no rationale, emphasizes Kinga Żbikowska. Unlike regulated bonuses due upon meeting measurable results, discretionary bonus criteria are looser, yet the justification must still demonstrate employee merits. Because this remuneration component is included in the official pay gap report, employers cannot hide behind confidentiality, she adds.

In Court, the Employer Must Prove Absence of Discrimination

The biggest change will be the reversal of the burden of proof. If an employee shows they receive lower remuneration than individuals performing work of equal value and considers themselves unequally treated, the employer must prove that wage differences stem from objective, measurable, and non-discriminatory criteria.

A lack of adequate documentation or unclear bonus-granting rules can mean losing in court. In practice, this means every wage decision must be well-justified, and discretion devoid of concrete arguments may be deemed a manifestation of discrimination.