What is the starting point within your own company?
The main rule is simple: an employee can, in principle, only compare their pay with a colleague of the other sex at the same employer. If your business operates through several separate legal entities within a group, the comparison is therefore normally limited to your own entity.
When does the 'single source of pay' exception apply?
There is an important exception to this main rule. If the terms and conditions of employees at different group companies are, in reality, determined by a “single source”, typically because a parent company centrally sets the pay policy, job evaluation and/or salary scales, an employee may still compare their pay with a colleague of the other sex at a different group company. This applies even if that other company is a formally separate employer, and even if that colleague works in another country.
When is there a single source of pay?
This exception does not apply automatically. The key question is: who actually determines employees' terms and conditions of employment? A few points to keep in mind:
- What matters is actual control, not influence in a general sense. A parent company that only has commercial or financial influence over a subsidiary does not, on that basis alone, amount to a single source of pay.
- If a group works with a central job evaluation system, where the job grade or pay band is already fixed at group level and local entities only apply the criteria already set, that points more towards a single source. If local entities genuinely have their own discretion to deviate, the position is different.
- The EU border is not decisive: where there is a single source, a comparison can, in my view, in principle also be made with a colleague outside the EU. That scenario has not yet been explicitly tested in case law, however, and I see practical and legal difficulties in applying it. Until this has been settled, some legal uncertainty remains.
What if the comparison is possible?
A single source does not, in itself, make a pay difference undesirable. A pay difference is only problematic if it cannot be objectively justified. Such a justification can, for example, be based on differences in experience, education, acquired rights from the past and, provided a proper and consistently applied policy is in place, performance and results, and allowances due to labour market scarcity.
What does this mean for you as an employer?
For employers within a larger group, it is advisable to map out now how pay is determined within the group. Is the pay policy, job evaluation or allocation to pay scales determined centrally, or do local entities genuinely have their own say in this? That distinction can determine whether employees will be able to compare themselves with colleagues elsewhere in the group, with all the consequences that follow for whether existing pay differences remain defensible.
Would you like to know how this plays out for your organisation? We are happy to think this through with you. Please feel free to get in touch.
