The gender pay gap & what it means for global employers

The 7th of March in Germany and the 15th of March in the US. What these two dates in 2022 have in common is that they mark how far into the next year women must work to make the same amount of money men made in the previous year.

With the introduction of Equal Pay Day, countries put a spotlight on the pay difference between men and women which persist despite global efforts to fight pay discrimination. The gender pay gap continues to be one of the major issues in today’s world of work.

Despite various legal initiatives by governments all over the world, pay disparities are only gradually disappearing - and at a very slow pace. In all of this, employers have a fundamental part to play, both in reducing wage gaps between male and female employees and in deconstructing the obstacles that stop women from gaining an equal stand in the world of work.

Apart from this moral obligation, equal pay laws around the world put employers in a position where they have to actively analyze, report and tackle pay inequalities persisting in their companies. 

In this blog post, we’ll look at different gender pay gap reporting laws global employers should know about and discuss their implications for global payroll. But before we dive into the legal side of the gender pay gap, let’s see where we are currently standing and how we can explain the pay disparity between men and women.

The OECD defines the gender pay gap as “the difference between median earnings of men and women relative to median earnings of men”. In other words: The gender pay gap (sometimes also called gender wage gap) describes how much less women earn compared to their male counterparts. 

When talking about the gender pay gap, people usually distinguish between the “controlled” and the “uncontrolled” gender pay gap. While the “uncontrolled” gender pay gap describes median earnings of all women compared to median earnings of all men, the “controlled” gender pay gap expresses the direct pay comparison between men and women in same or similar positions and with a comparable level of education and experience.

Usually, the controlled gender pay gap is lower than the uncontrolled one. This can be explained by looking at the main reasons causing pay disparity, notably the strong representation of women in low-paying jobs and industry sectors.

The pay gap between men and women is not a new phenomenon, but has in fact existed for several decades. Hence, it can’t be explained by analyzing recent developments. Instead, it’s necessary to take into account a wider network of socioeconomic factors. 

As stated by the European commission: “The gender pay gap measures a broader concept than pay discrimination and comprehends a large number of inequalities women face in access to work, progression and rewards.”

To put it simply: It’s not just wage gaps resulting from discrimination against women which are at the heart of the problem, but a whole range of factors relating to the world of work.

The main reasons for the pay difference between men and women can be summarized as follows:

• Overly high representation of women in jobs which are undervalued and typically pay less (e.g. in the education and health sector), also known as occupational segregation

• Underrepresentation of women in leadership roles which are traditionally high-paying

• Higher share of women fulfilling care and family duties which are either unpaid or paid at lower rates than their usual earnings, such as taking care of dependent relatives or taking maternity and parental leave

The World Economic Forum’s 2020 Gender Gap Report defends a similar position, stating “that income disparities are larger than wage gaps'' and that the “difference is due partially to that fact that women encounter challenges to get to senior roles and/or to be employed in high-reward segments of the economy”.

According to the report, another aspect to consider is that “women are less likely than men to obtain revenues from non-employment activities (i.e. from financial investment, entrepreneurship) where financial gains are substantially higher”.

There is no such thing as THE gender pay gap. Instead, numbers and ratios vary significantly depending on the publishing organization and whether the respective report captures the adjusted or unadjusted (i.e. controlled or uncontrolled) gender pay gap. Here is an overview of some of the key figures and statements mapping out the gender pay gap 2021 and 2022.

Global Gender Gap Report 2021: 37% pay gap between men and women

To paint a broader picture of inequalities between men and women, let’s first have a look at the annual Global Gender Gap Report published by the World Economic Forum. Some of the key results and findings of the latest edition (published in 2021), which analyzes gender gap related information for 156 countries around the world (including wage disparity), were that:

• On a global scale, women earn roughly 37% less than men in similar roles.

• On a general level, the biggest improvements with regard to closing the gender gap can be seen in Western European countries, the slowest progress is made in the Middle East and North Africa.

• The top 10 countries with the lowest gender gaps in 2021 were Iceland, Finland, Norway, New Zealand, Sweden, Namibia, Rwanda, Lithuania, Ireland and Switzerland

Please note that the last two bullet points refer to the overall gender gap which not only includes wage disparities but also factors such as political empowerment, unemployment and more.

Gender pay gaps around the world in 2021 and 2022 and the influence of the pandemic

The variety of reports and analyses makes it hard to draw up an international comparison of gender pay gaps per country. However, some of the more recent studies and reports have delivered the following results:

• According to the 2022 State of the Gender Pay Gap Report published by Payscale, the unadjusted gender pay gap in the US is currently standing at 18%, meaning that women earn USD 0.82 for every USD 1 that men make. The adjusted gender pay gap, on the other hand, is supposedly much smaller with a mere 1% pay difference between men and women. The latest figures of the US Census Bureau (published in 2021) account for a 17% gender pay gap.

• The Federal Statistical Office of Germany (Statistisches Bundesamt) announced earlier this month that in 2021, women in Germany earned on average 18% less per hour than men. Compared to the previous year, the pay difference has remained unchanged.

• According to various other publications like NPR and Forbes, the pandemic not only slowed down improvements regarding the gender pay gap, but potentially caused the gender pay gap to widen again since lockdown and the resulting stay-at-home policies and surge in unemployment are believed to have had a stronger impact on women, especially on those with children.

• The 2022 World Inequality Report concludes that the female income share across the world represents only a third of global labor income.

• EU data sourced in 2019 revealed that women earned on average 14.1% less per hour than men (average across the 27 EU member states), i.e. for every euro men earn in the EU, women only earn 86 cents. It would thus take women an extra two months to make the same amount of money as men make within one single year.

• Gender pay gaps across the EU vary significantly, with pay gaps being as low as 0.7% in Luxembourg or 2.4% in Romania and as high as 21.1% and 22.3% in Estonia and Latvia respectively - data sourced from Eurostat for 2020.

Regardless of the exact results, the final conclusion of all of the above-mentioned reports is the same: Pay equity between men and women remains a distant dream and it will take a continuous effort to make it a reality. One approach taken by governments all over the world is the introduction of pay equity laws and regulations which force employers to report the pay situation in their company and work out strategies to fight pay inequality.

Paying women and men different wages for equal work has been illegal for a long time in many countries over the world. New Zealand’s 1972 Equal Pay Act and its counterparts in the US and Australia as well as the legal prohibition of pay discrimination which has been in place in many European countries for several decades are just some examples of that. 

However, the legal principle of equal pay for men and women has so far failed to prevent the gender pay gap from widening. In reaction to the continuously slow improvement achieved over the past years, many countries across the world have stepped up and introduced new legal frameworks implementing what is commonly described as gender pay gap reporting.

A multijurisdictional survey on gender pay gap reporting obligations conducted by Ius Laboris has identified a “legislative trend” among European countries in 2017 and 2018 to introduce new regulations for fighting the gender pay gap. According to the survey results, employers are subject to direct reporting obligations in most countries in Europe - although these obligations mainly apply to employers with high headcounts and the reporting frequency varies heavily. 

Here is a snapshot of the current legislation in Europe:

• UK: Since 2017, companies and organizations with more than 250 employees are required to publish their gender pay gap reporting once every year. However, penalties for non-compliance remain unclear.

• Germany: Under the 2017 Pay Transparency Act (Entgelttransparenzgesetz), companies with more than 500 employees will be obliged to publish regular reports on their efforts to promote equality between men and women. In addition, employees working in a company with more than 200 members of staff now have the right to request information about how their own salaries as well as those of their male colleagues in similar positions are determined.

• Sweden: In January 2017, Sweden implemented stricter rules under which employers with more than 10 employees are obligated to conduct annual salary reviews to uncover any gender pay gaps and draft up a written action plan for achieving equal pay.

• Belgium: Every two years, employers with at least 50 employees must carry out an analysis of the salary structures. Results must then be discussed with the works council. Fines for noncompliance can range from EUR 400 to EUR 4,000 per person involved.

• France: Companies with at least 50 employees must calculate their own professional equality index and publish the results on an annual basis. Any pay discrepancies between male and female employees must be resolved within three years. Otherwise, the company may be subject to a financial penalty.

• Austria: Employers with more than 150 employees are required to prepare a gender pay gap report once every two years.

Further European countries with gender pay gap reporting requirements include Croatia, Denmark, Norway, Portugal, Iceland, Italy and Spain. Canada’s 2018 Pay Transparency Act and Australia’s Workplace Gender Equality Act have introduced similar reporting obligations for employers, as have the US where employers with 100 or more employees must prepare and file an annual EEO-1 report with the Equal Employment Opportunity Commission.

Tracking and acting against gender pay gaps could be considered as a moral obligation for employers of any size. What’s more, in today’s world of work where employer branding plays such an important role in attracting and retaining new talents, offering equal pay and fighting pay differences between men and women should be at the heart of any employer strategy - and not only because they are bound to do so by law. 

One aspect which is often overlooked in this context is the direct impact gender pay gap reporting has on payroll teams. It’s the company’s payroll function that needs to analyze the payroll data for the entire team and compile the respective reports - for internal use as well as to comply with the regulations of applying pay equity laws.

Not to forget that with the due dates for legally required reports, there is yet another item to add to the company’s compliance calendar. As rules and requirements differ between jurisdictions, companies with significant employee populations in different countries are under particular pressure. 

Another issue is getting the necessary payroll data. Companies relying on spreadsheets and manual data handling for their payroll processing will find that it takes a significant amount of time to retrieve the needed data and that there is a high risk for error, especially when different local payroll service providers are involved in the process.

A first step towards gaining insights into internal gender pay gaps and ensuring reporting compliance is making sure that global payroll data is reliable, transparent and easily accessible. This is where global payroll solutions like Lano come into play.

With our global payroll and compliance platform, you can view consolidated payroll data for your entire global team on one single screen. Get in touch with us today to discuss how Lano can help you simplify your global payroll.