How to conduct a gender pay gap audit from the perspective of HR and ARROWS lawyers

The fight for equal pay for women and men is a topic that has been gaining importance in recent years. Although the principle of 'equal pay for equal work' has been enshrined in law for decades, there are still differences in practice. According to European Union statistics (Eurostat, 2020), the difference in average earnings between women and men (the so-called gender pay gap) in the Czech Republic is around 16% - women earn roughly one sixth less than men. This disparity has an impact not only on the standard of living of female employees, but also on work motivation, the atmosphere in the workplace and, ultimately, on the economic performance of companies.

Author of the article: JUDr. Jakub Dohnal, Ph.D., LL.M., ARROWS advokátní kancelář (office@arws.cz, +420 245 007 740)

Companies and public institutions are increasingly aware that pay inequalities are not only a moral and social problem, but also a legal risk. The gender audit and the Gender Pay Gap (GPG) analysis are two important methods to assess the situation in your organisation and correct any shortcomings. It is not just about preventing violations of the law - it is also about building a fair working environment where employees are motivated and feel fairly rewarded. In this article, we will explain what exactly these tools entail, why they are important, what the legal framework is, and how they benefit both employers and employees. We will also outline how an experienced law firm can help with their implementation, and what the consequences could be if a company ignores the equal pay requirements.

What is a gender audit and why is it important

A regular financial audit assesses the company's performance, while a gender audit focuses on assessing the position of women and men within the organisation. It is a systematic review of internal processes, policies and corporate culture from a gender perspective. The aim of a gender audit is to find out where the organisation stands in terms of equal opportunities - whether it is in recruitment and promotion, access to further training, reconciling work and family, or just fair remuneration.

A gender audit is usually carried out by a team of experts in cooperation with the company management and the employees themselves. The audit analyses internal documents (e.g. directives, pay regulations, career schedules), conducts anonymous surveys or interviews with employees and evaluates statistical data - for example, the representation of women and men in various positions and their salary levels. This participatory approach helps to identify both overt and covert forms of possible discrimination or inequalities.

Why is this important? A gender audit can name problem areas that might otherwise be overlooked. For example, it may reveal that although women make up the majority of employees in a company, they are minimally represented in top management. Or that certain bonus rules unwittingly favour one gender. The audit will provide management with concrete recommendations for improvement - from changes in company policies to management training to the introduction of more transparent evaluation and remuneration criteria. For an organisation that wants to be modern, inclusive and avoid potential complaints or disputes, a gender audit is a valuable diagnostic tool.

Equal pay analysis (GPG) and its process

A detailed view of wages and salaries is an essential part of ensuring gender equality in the company. Equal pay analysis, often referred to by the acronym GPG (Gender Pay Gap analysis), focuses exclusively on the issue of wages and the gender pay gap. It is a statistical and data-driven assessment of employee pay to determine whether and where disproportionate differences exist within a company.

How does such an analysis work? First of all, it is necessary to collect relevant data - data on the wages or salaries of all employees, along with information on their job title, type of work, length of experience, or education. This is followed by a comparison of how men and women are paid for comparable work. Different methods are used, most commonly calculating the average or median earnings of the two groups. The result is a quantification of the so-called gender pay gap - for example, the finding that, on average, women in a company earn a certain percentage less than men.

An important part of the analysis, however, is an in-depth examination of the reasons for the differences found. Often a modified GPG analysis is carried out to take account of objective factors affecting pay - for example, differences in seniority, performance, job complexity or level of responsibility. This can identify what part of the pay gap can be explained by these legitimate factors and what part may already indicate unequal treatment or discrimination. If, after all relevant considerations have been taken into account, there is still a significant 'unexplained' difference to the detriment of one group (typically women), this is a signal that the company has a pay equity problem.

The main outputs of a GPG analysis typically include:

• The total wage gap between men and women (expressed as a percentage) reported by the firm.
• A detailed overview of the pay gap by different categories - for example, by department, job title or seniority level.
• Identify critical points, i.e. specific positions or departments where gender pay gaps are most pronounced and potentially unjustified.
• Proposals for measures to reduce the inequalities identified - for example, adjusting pay scales, introducing more transparent rules for the allocation of bonuses and promotions, and programmes to support the career development of women in the company.

The GPG analysis thus gives the company's management a clear basis for decision-making. Management knows exactly where any inequalities lie and how significant they are, and can take targeted action to correct them. Ideally, the results of the analysis are followed up with an action plan - a set of measures and changes that will lead to the identified disparities being gradually eliminated and not arising in the future.

Legal framework: equal pay in legislation

The prohibition of discrimination in pay is a fundamental principle of employment law. Both the Czech Labour Code and the Anti-Discrimination Act explicitly prohibit paying different wages or salaries for the same work or work of equal value on the basis of gender. This means that if a woman and a man perform comparable work under the same conditions and with the same results, they must receive comparable remuneration. Employees who feel their rights have been curtailed can contact the Labour Inspectorate or seek redress through the courts.

In addition to national legislation, the European Union framework is also very important. The principle of equal pay for equal work is already enshrined in the Treaty on the Functioning of the EU and its successor legislation on equality between men and women. However, the EU has recently strengthened the enforcement of this principle, with the adoption of Directive (EU) 2023/970 on pay transparency in 2023. This Directive, which the Czech Republic will have to implement by June 2026, introduces a number of specific obligations for employers:

• Transparency of wages in recruitment: companies will have to state the starting salary range for a given position upfront in advertisements and during the recruitment process, so that both male and female candidates have equal information from the start. This will change the current practice, where wages have often been subject to negotiation and secrecy, in favour of openness.
• Employees' right to information: employees (especially female employees) will have the right to know how their earnings compare with the average wage of their colleagues in similar positions. Employers will therefore not be able to apply strict confidentiality clauses on salary levels as before - instead, they will have to provide anonymised information on salaries for comparable positions on request.
• Gender pay gap reporting and audits: larger companies (over 100 employees) will have to regularly publish data on the gender pay gap. If it appears that the gap exceeds a certain threshold (e.g. 5%) and cannot be objectively explained, the employer will be obliged to conduct an in-depth pay audit in cooperation with employee representatives and propose corrective measures.
• Sanctions and enforcement: the Directive also requires Member States to introduce effective sanctions for breaches of these obligations. For companies, this can mean substantial fines, but also, for example, a shift of the burden of proof in court to the employer in the event of a dispute - if a company fails to comply with transparency obligations, it will be the company that will have to prove that it has not discriminated against anyone.

These legal developments clearly show that the issue of equal pay cannot be taken lightly. Companies that prepare early - for example by just introducing internal gender audits and regularly monitoring their GPG - will have an advantage when the new obligations come into force. At the same time, it is already the case that unequal pay can constitute a breach of the law for employers, with potentially serious consequences (see below).

Benefits for employers

A proactive approach to equal pay brings many benefits to employers:

• Legal certainty and reduced risk of litigation: if a company conducts audits and continuously addresses the deficiencies identified, it significantly reduces the risk of being accused of discrimination by employees or facing fines from the labour inspectorate. Having the principle of equal pay in place is actually a form of legal prevention.
• Better reputation and attractiveness on the labour market: companies that boast a fair approach to remuneration are more attractive to talented workers. In the age of social media and portals like Glassdoor, employer reputation spreads quickly - treating employees fairly improves a company's image and helps attract and retain top people.
• Increased employee motivation and loyalty: when employees know that remuneration is set fairly, they are happier and more motivated. The workplace atmosphere is better, employee loyalty increases and turnover decreases. All this has a positive effect on productivity and quality of work.
• Fulfilling ESG principles and social responsibility: companies are now increasingly looking at how they approach diversity and equality issues (the "S" - Social - area of the ESG assessment).Conducting gender audits and reducing the pay gap is tangible evidence that a company takes social responsibility seriously. This can also play a role for investors, business partners or when participating in public procurement.

Benefits for employees

For male and female employees, the introduction of the principle of equal pay and the correction of any disparities is also of crucial importance:

• Sense of fairness and improved morale: employees who see that their colleagues are not unjustifiably favoured with higher pay perceive the company environment as fair. This boosts team morale and the overall sense of belonging in the workplace.
• Motivation for career development: if women see that they can achieve the same positions and rewards as men, they are motivated to pursue career advancement and reach their full potential. Removing the 'glass ceiling' - the invisible barriers to women's advancement - leads to greater engagement and healthy ambition for all employees.
• Greater financial security: for female employees, closing the gender pay gap means higher earnings throughout their careers, which translates into better security in retirement. Equal pay thus contributes to the economic stability of employees and their families.
• Trust in the employer: when a company actively communicates and addresses equality issues (for example, by publishing the results of an audit and the measures it has taken), employees gain greater trust in its management. Openness and transparency builds loyalty - people feel they work for a fair organisation that cares about them.

What does an equal pay audit look like and how is it done?

A gender audit and equal pay analysis (GPG) is a systematic process that identifies potential inequalities between women and men within an organisation, particularly in terms of pay and working conditions. A typical gender audit takes place in several phases to ensure a comprehensive approach from preparation to implementation of corrective actions. Below are the main phases of a gender audit and examples of the methods used to analyse the data:

1. Preparatory phase - The audit objectives and the specific questions to be answered (e.g. whether there is a gender pay gap in certain positions) are set at the outset. Next, an audit team consisting of internal and external equality experts is assembled. Communication with the organisation's management is essential to gain support and define the scope of the audit. At the same time, employees should be transparently informed of the purpose and planned course of the audit. At this stage, the timetable is also set and the organisational background for the smooth running of the investigation is ensured.
2. Data collection - A thorough collection of all relevant information is underway. This includes, in particular, internal payroll data for individual positions and related information (e.g. job descriptions and position requirements). In addition, data is collected on staff career progression (e.g. overview of promotions or position changes), access to training and further education, use of flexible working arrangements (e.g. home office, part-time) and other relevant HR information as appropriate. Data collection can take both quantitative forms (internal statistics, HR data) and qualitative forms - for example, interviews with selected employees and managers or anonymised questionnaires on employees' experiences and perceptions of fairness. The key is to ensure the credibility and representativeness of the data, for example by consistently anonymising sensitive data and guaranteeing voluntary and confidential interviews.
3. Analysis and evaluation - The data collected is subjected to a thorough analysis to identify patterns and possible inequalities in the treatment or remuneration of women and men. Both descriptive statistics (e.g. comparing average and median salaries of men and women in the same positions) and more advanced methods are used. Often regression analysis is applied, which can reveal whether gender alone influences pay levels after controlling for other factors such as experience, education or performance. The results are also compared with external data - so-called benchmarking. This is a comparison of a company's key indicators with industry averages or with similar organisations. Such comparisons help to determine whether the differences observed are in line with general trends or whether the company is significantly underperforming or positively outperforming. The analysis also includes an assessment of other areas related to equal opportunities (e.g. whether women and men have the same chance of promotion, whether parents are at a career disadvantage after returning from parental leave, etc.). An important part of this is also looking for the causes of the inequalities found - the auditor examines whether the differences stem from unconscious stereotypes, systemic weaknesses in HR processes or other factors.
4. Interpretation of results and recommendations - At this stage of the audit, the findings are summarized and presented in a form that is understandable to the company's management (and possibly to a wider range of employees). The audit team clearly articulates conclusions, for example whether and where the gender pay gap exists and how significant it is. However, the key is not only to describe the current situation but also to propose solutions. Based on the analysis carried out, recommendations and proposals for action are therefore made to eliminate the inequalities identified or to improve the current situation. These recommendations may include changes to company processes - for example, adjusting the remuneration system to make it more transparent and objective, introducing structured criteria for career progression, training management in gender-balanced management, or strengthening measures to reconcile work and family life for both genders. The audit findings also include an outline of priorities (which issues to address as a priority) and recommendations on how to implement the proposed changes.
5. Implementation of measures and monitoring - The last phase partly goes beyond the audit itself and consists in putting the proposed measures into practice and subsequent monitoring of their effectiveness. The organisation implements the selected recommendations in cooperation with consultants (e.g. a law firm specialised in labour law and equal treatment). The key is to monitor the impact of these measures on an ongoing basis - this may include regular evaluation of pay data (e.g. annual calculation of the gender pay gap for different levels of positions), monitoring of key indicators (e.g. the proportion of women and men promoted in a given period) and repeated questionnaire surveys of employees to determine whether they perceive a shift towards greater equity. Ongoing monitoring allows for early detection if certain measures are not working as expected and flexible adjustments where necessary. Ideally, a repeat gender audit will be carried out after a certain period of time to verify that the changes achieved are being maintained and that no new inequalities are emerging.

A well-conducted gender audit and equal pay analysis provides valuable feedback and concrete guidance to company management on how to improve the fairness and transparency of pay. It is important for a law firm to demonstrate a detailed understanding of the process - from the methods of data collection and analysis to the practical implementation of corrective measures. This gives clients confidence that the proposed changes will not only comply with applicable legislation (e.g. the Labour Code and the Anti-Discrimination Act), but also be effective and sustainable in the long term.

How a law firm can help

Identifying the problem is one thing - implementing the necessary changes and monitoring compliance with legal obligations is another. The process of correcting inequalities can be complex: it involves adjustments to internal regulations, revisions to pay structures, communication with employees, management training and ongoing monitoring of whether the measures in place are proving effective. This is where the expertise of lawyers specialising in employment law and discrimination issues comes in.

Our law firm has experts who help employers manage the entire process in a legally correct and efficient manner. For example, JUDr. Barbora Kořenářová and Mgr. Jakub Oliva, specialists in labour law at our law firm, have extensive experience in setting up fair payroll systems and dealing with labour law compliance audits. What specifically can we help you with?

• Examining the current state of play: We will analyse your employment contracts, wage guidelines and actual company practices to see if there are any inequitable pay practices. We will identify potential risks and legal vulnerabilities before they become the subject of litigation.
• Implementation of corrective measures: we will propose and help implement specific adjustments - for example, unification of pay conditions for comparable positions, elimination of unjustified differences in contracts, introduction of transparent criteria for promotion and remuneration. We will prepare the necessary internal regulations or contract amendments to ensure that everything is in line with legislation and best practice.
• Training and awareness: we will prepare training for management and HR departments to make them aware of the new rules and principles of equal pay. We will also help set up a way to communicate the changes to employees and advise on how to continuously monitor compliance with the set rules.
• Legal cover and defence: We will ensure that all measures taken are in line with current legislation. Should there be an inspection by the authorities or an employee complaint, we will provide legal support and representation for your company. However, thanks to early prevention and correctly set processes, such disputes can be largely avoided.

By involving a law firm, you can be sure that you are proceeding correctly and that you are not missing any important legal aspects. Moreover, the external view of an expert can also reveal issues that may not be apparent internally. The aim is to achieve true equality in remuneration while meeting all the obligations imposed by law.

Consequences of non-compliance with equal pay requirements

Ignoring the issue of gender inequality in remuneration may not pay off for the company. Non-compliance with the principle of equal pay can have a number of negative consequences:

• Legal penalties: the Labour Inspectorate can impose substantial fines if it finds pay discrimination. In addition, with the new EU rules, there will be penalties for failure to report or audit data - companies that do not comply with the new requirements may face additional sanctions.
• Damage to reputation and workplace relations: if it is revealed that a company systematically pays women less than men, this can significantly damage its reputation. This can put the employer in a bad light in the eyes of the public and business partners. In addition, within the company, the revelation of unequal treatment can cause tension between employees, a loss of trust in management and a general demotivation of the team.
• Talent attrition and more difficult recruitment: skilled workers, especially from the younger generation, place a high value on equality and fairness. If a company loses its reputation as a fair employer, there is a risk of skilled employees leaving and employees who resent unfairness. At the same time, it will be much harder to attract new talent, which may affect the company's competitiveness in the long term.
• Economic losses: all of the above factors can be reflected in the economic results. The cost of litigation or fines, loss of productivity due to demotivated staff and increased expenditure on recruiting and training new people can all lead to financial losses that far outweigh the investment needed to implement equal pay measures.

In conclusion

Prevention is always better than dealing with the consequences. By conducting a gender audit early and correcting the differences identified, a company can avoid the above negative scenarios. On the contrary, it will get a head start - both in meeting legal requirements and in building a fair and modern corporate culture where people are rewarded according to their work and abilities,