Pay Transparency and the illusion of the 5% “Safe Zone”

Key Takeaways

• The 5% threshold is a procedural trigger, not a legality threshold.
• A pay gap below 5% can still be unlawful if it is not objectively and gender-neutrally justified.
• The EU Directive does not create a “safe harbour” below 5%.
• In both the Polish and Dutch draft frameworks, employees (or their representatives) may request explanations concerning pay reporting - including gaps below 5% within a worker category.
• Where an employer cannot justify a difference using objective, gender-neutral criteria, it must remedy the unjustified inequality, regardless of its size.
• Courts assess legality based on objective justification, not statistical thresholds.
• Sustainable compliance requires eliminating unjustified differences, not merely reducing gaps below 5%.

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1. Introduction

In many professional discussions, the “5% threshold” has become shorthand for when a gender pay gap becomes a legal problem. That framing is understandable: the EU Pay Transparency Directive uses a 5% figure to trigger specific procedural mechanisms, and several national drafts mirror that logic with time-bound remediation steps and, if remediation fails, escalation into a joint pay assessment.

But treating 5% as the point at which legality “begins” is a mistake. Under EU law, the core benchmark is not a numerical threshold; it is the principle of equal pay for equal work or work of equal value, and the requirement that differences must be objectively justified and gender-neutral. A pay gap below 5% can still reflect an unjustified difference in pay and therefore carry legal, enforcement, and reputational risk, especially in a system designed to strengthen transparency, evidence, and claimability.

The 5% threshold should be understood as a procedural trigger, not a safe harbour. It activates obligations (notably the joint pay assessment mechanism, and depending on national transposition, formal remediation timelines), but it does not legalise pay differences below 5%, and it does not prevent claims or enforcement concerning smaller gaps.

The practical thesis for employers is therefore more demanding than the public “under 5% = fine” narrative: employers should be prepared to explain any pay gap, including below 5%, and sustainable compliance requires governance aimed at eliminating unjustified gaps altogether not merely reducing gaps below the procedural trigger. 

In this article, we examine both the Directive itself and the recently published draft implementation laws in the Netherlands and Poland. While each jurisdiction structures the procedural mechanisms in its own way, both drafts appear aligned on the central point addressed here: the 5% threshold functions as a procedural trigger, not a legality benchmark, and unjustified pay differences require explanation and, where necessary, remediation irrespective of their magnitude.

2. The Legal Meaning of the 5% Threshold in the Directive

What the 5% threshold does do

The Directive embeds the 5% figure in a specific mechanism: joint pay assessment. In the Directive’s structure, joint pay assessment is an escalatory tool that is activated where (i) reporting identifies a significant gap and (ii) the employer has not been able to justify it through objective, gender-neutral criteria and has not remedied it within a defined period. The Directive expressly links joint pay assessment to (among other things) the employer’s failure to justify differences and failure to remedy within six months of submitting pay reporting. 

That is the point of the 5% threshold: it helps define when the law expects a collective, structured process - joint pay assessment, rather than only individual rights and general equality enforcement.

What the 5% threshold does not do

Crucially, the Directive does not state that gaps below 5% are lawful, acceptable, or immune from challenge. The Directive’s definitions and enforcement architecture are built around the existence of differences in average pay levels by gender, and the need for those differences to be objectively justified where they exist. 

The Directive also strengthens enforcement through evidentiary design: it recognises that pay systems can be opaque, and that opacity itself should shift litigation dynamics against employers who fail to comply with transparency duties. Recital 52 makes this explicit: where employers do not meet transparency obligations (e.g., refusing required information or failing to report when required), the burden of proof should shift to the employer, subject only to narrow exceptions. 

None of that logic turns on 5%. The 5% threshold is therefore best understood as a trigger for additional collective procedures, not a legality benchmark.

Why “no safe harbour” matters under EU equal pay logic

Equal pay law does not operate like a tax bracket where certain numerical ranges are automatically permitted. If a worker can show a credible comparator and a difference in pay, the legal question is whether the employer can justify that difference by objective, gender-neutral criteria and demonstrate that the criteria were applied consistently and without bias.

This is also reflected in the Directive which explicitly states that equal pay does not prevent different pay for equal work/work of equal value provided the employer uses objective, gender-neutral, bias-free criteria (such as performance and competencies). That is a justification test, not a percentage test.

3. Analysis of the Polish and Dutch Draft Implementation Laws

Poland (draft of 12 December 2025): a highly structured 5% escalation model

The Polish draft transposes the 5% logic in an especially operational way:

• Formal remediation duty at ≥5%: if the pay gap “in any category of workers” is at least 5% and is not justified by objective, gender-neutral criteria, the employer must take effective remedial action within 6 months of providing the pay gap report. 

• Escalation into joint pay assessment: joint pay assessment becomes mandatory where three conditions are met: (1) the report shows a gap of at least 5% in any category; (2) the employer has not justified the gap by objective, gender-neutral criteria; and (3) the employer has not taken effective remedial action within the 6-month window. 

• Collective validation of “justification” and “effective remediation”: the Polish draft goes further than the Directive in operationalising what it means to “justify” and to “remedy effectively.” It provides that an employer is treated as not having justified the gap if it fails to present justification to the employee side, or if there is no agreement between employer and employee side that the gap is justified. It similarly deems remediation ineffective if there is no agreement that effective action was taken. 

• A wider “explanation” pathway beyond joint pay assessment: the Polish draft also creates a mechanism where designated actors can request additional detailed explanations regarding the pay gap report, including differences by gender; and if those explanations show the gap is unjustified, the employer must take effective action within a defined timeframe (up to 8 months)

• Front-loaded obligation to define pay-setting criteria: employers must define pay-setting, pay-level and pay-progression criteria objectively and in a gender-neutral way, and provide access to that information. This matters because documentation and governance are what enable justification of gaps at any level, including below 5%.

In short: Poland’s draft treats 5% as an escalation point with hard procedural consequences. But it simultaneously builds a broader infrastructure - criteria transparency, employee information rights, and “additional explanations” -that makes smaller gaps more visible and more contestable.

Netherlands (draft): the 5% trigger exists, but the remediation logic is explicitly not limited to gap size

The Dutch draft also implements a joint pay assessment mechanism, including the familiar conditions: a pay report showing a gap (linked to 5%), lack of justification by objective gender-neutral criteria, and lack of remedy within a period. In the explanatory materials, the draft explicitly describes the condition that the employer has not remedied within six months following the pay report. 

What is particularly important for employer risk analysis is that the Dutch explanatory text addresses the common misconception head-on: it states that the employer’s duty to remedy a wage difference that is not objectively justified is not dependent on the magnitude of that difference, the employer must end unequal pay that cannot be objectively justified, regardless of whether the difference is smaller or larger. That is effectively a textual rejection of the “under 5% = safe” narrative within the Dutch transposition context.

Structural differences affecting employer risk exposure

Poland increases procedural risk exposure by formalising the employee-side agreement logic: employers may face a legal presumption of “no justification” or “no effective remediation” in the absence of agreement with the employee side. That design can turn documentation disputes into compliance failures.

The Netherlands (as reflected in the cited Dutch materials) emphasises substantively that unjustified differences, irrespective of size, require remedy.

In addition, in both draft frameworks it is made clear that employees (or their representatives) may request explanations concerning the pay reporting results - irrespective of the magnitude of the pay gap. This right is not limited to situations where the 5% threshold is met. Where such a request is made, the employer must provide a reasoned explanation within the legally defined timeframe and justify the difference using objective, gender-neutral criteria. If the employer is unable to justify the difference on that basis, it is required to take remedial action.

While the joint assessment trigger is still structured, the legal-policy message is broader: legality does not hinge on the 5% figure.

Both approaches reinforce the same bottom line: the 5% threshold does not block smaller-gap challenges; it only structures additional processes when the threshold is met.

4. Why a Pay Gap Below 5% May Still Be Legally Risky

(a) Individual employee claims are not limited by the 5% threshold

Neither the Directive nor these drafts convert 5% into a legality threshold. The equal pay principle can be invoked by individuals whenever they can show differential treatment in pay for equal work/work of equal value, and the employer’s defence is justification by objective, gender-neutral criteria. The 5% threshold does not prevent an employee from alleging unlawful pay discrimination based on a smaller differential (e.g., 2–4%) especially where the differential is persistent, unexplained, or connected to a promotion/starting salary pattern.

(b) Burden of proof and evidentiary architecture increase risk even for “small” gaps

The Directive explicitly connects transparency failures with shifting the burden of proof to the employer. Recital 52 highlights that where a pay system is non-transparent or the employer fails transparency obligations, the burden should shift, subject to narrow exceptions. This matters for below-5% gaps because litigation risk is not only about the size of the gap; it is about whether the employer can prove a lawful explanation. If the employer cannot produce credible documentation (criteria, application, decision trail), even a small pay difference may be difficult to defend.

(c) Courts are not bound by a 5% benchmark as a legality test

Even where national law creates procedural thresholds, courts applying equal pay principles assess legality through justification. The Polish draft captures the expected logic: different pay for equal work/work of equal value is allowed only if based on objective, gender-neutral criteria free of bias. A court assessing an individual claim will not treat “below 5%” as conclusive, because the legal wrong is unjustified unequal pay, not “a pay gap above a certain percentage.”

(d) Enforcement, sanctions, and reputational exposure can attach to governance failures, not just gap size

The Polish draft includes sanctioning provisions for a wide range of failures: failure to provide required information, failure to conduct joint pay assessment where required, and failure to apply remedial measures. These are not contingent on the gap exceeding 5%; they are contingent on failing duties (information rights, process duties, remediation duties once triggered, etc.).

Moreover, reporting and information rights increase visibility. The Directive provides employees a right to request their own pay level and average pay levels by gender for their category, with a right to request additional explanations if the information is incomplete or inaccurate. This can surface “small” but salient differences that become disputes.

5. Does “Remediation” Mean Reducing the Gap Below 5% or to 0%?

This is where it is essential to separate black-letter procedural obligations from interpretative and litigation risk.

Black-letter law: what is clearly mandated?

Under the Directive, the joint pay assessment mechanism is tied to specified conditions (including the reporting trigger and failure to justify and remedy within a period). Under both drafts, there is an explicit obligation to take effective remedial action within six months when the gap is at least 5% and unjustified. However, neither the Directive nor the drafts say: “remediation = reduce below 5%.” The texts speak in terms of remedying unjustified differences (and in Poland: taking “effective remedial action” toward an unjustified gap). The Dutch materials are even more direct: they indicate the duty to remedy is not determined by the size of the pay difference - unjustified differences must be ended regardless. 

Interpretative analysis: why “below 5%” is not a stable compliance endpoint

A “reduce below 5%” approach implicitly treats 5% as the compliance target. That sits uneasily with the Directive’s purpose and mechanism.

A careful, text-based and teleological reading yields a different conclusion:

• The Directive and drafts are oriented around identifying and addressing unjustified differences, not around achieving a numerical “safe” band. Joint pay assessment is described as a tool to identify differences that are not justified and to remedy and prevent them. 
 
• Poland’s draft defines joint pay assessment’s purpose similarly: identify unjustified differences and take effective remedial action and prevent recurrence. 
   
• The Dutch explanatory statement that remediation is not dependent on size strongly supports an interpretation that the legally relevant endpoint is elimination of unjustified unequal pay, not merely reducing it below the trigger. 

So, while the 5% threshold triggers particular procedures, the substantive compliance goal, especially from a litigation-risk perspective, is to eliminate unjustified differences. That does not always mean the statistical gap must be mathematically 0. There may be lawful, objectively justified differences (for example, based on documented performance outcomes or competencies), in which case a residual difference may remain but is defensible. 

But where a difference is unjustified, a strategy that aims only to “get under 5%” leaves a legally vulnerable remainder. That remainder can still be actionable by individuals, and depending on the jurisdiction still be seen as non-compliance with the obligation to end unjustified wage inequality. 

6. Practical Implications for Employers

The compliance programme that withstands scrutiny under the Directive and these drafts is not a “threshold management” programme. It is a pay equity governance programme built around 

1. objective criteria,
2. evidence,
3. process, and
4. readiness for requests and disputes

(a) Build defensible, gender-neutral pay-setting criteriaand document them

The Directive places this obligation front and centre: employers must define criteria for pay-setting, pay levels and pay increases objectively and in a gender-neutral manner, and give employees access to information about those criteria. A practical standard for defensibility is not whether criteria exist in a policy document, but whether you can demonstrate

- What the criteria are (e.g., skill/competence requirements, performance outcomes, market positioning rules).
- How they are measured (data sources, rating governance, calibration).
- How decisions were made in specific cases (decision trail, approvals, exceptions process).
- Consistency controls (spot checks, exception reporting, manager guidance

This is what turns a 2-4% difference from a legal hazard into a defensible outcome.

(b) Treat “category of workers” design as a litigation issue, not just a reporting issue

Both the Directive logic and national drafts hinge on comparisons within categories of workers performing equal work/work of equal value. The Directive defines “category of workers” as non-arbitrary grouping based on objective, non-discriminatory, gender-neutral criteria. Category design errors can create artificial gaps (and trigger unnecessary obligations) or conceal real ones (and create enforcement risk). Employers should maintain a written rationale for category logic and the job evaluation / job architecture method used to support equal value comparisons.

(c) Prepare for employee information requests as an operational reality

Under both drafts, an employee may request their individual pay level and average pay levels by gender for their category, and can request additional explanations if information is inaccurate or incomplete. 

This is where “below 5%” issues often emerge: employees rarely experience pay in percentages; they experience it as a difference. Employers should pre-build

• a request intake workflow (HR + legal + payroll/data),
• standard response templates,
• a defensible calculation method, and
• escalation rules where differences appear.

(d) Don’t wait for ≥5% to remediate unjustified differences

The Directive imposes hard remediation timelines at ≥5% when unjustified (6 months), and then escalates to joint pay assessment if remediation fails. But operationally and legally, remediation should begin earlier: if internal analysis finds an unjustified difference, even 1–4%, the Dutch draft’s framing suggests the employer should end the unjustified inequality regardless of size. That approach also reduces the probability of hitting the procedural triggers later.

(e) Align remediation with “effectiveness,” not optics

Poland’s draft treats “effectiveness” as something that may need to be accepted by the employee side; lack of agreement can have legal consequences in the joint assessment context. That makes engagement strategy part of compliance strategy: employers should be able to show that remedial measures address root causes (job architecture misalignment, inconsistent pay progression rules, discretionary starting pay, promotion governance gaps), not only the numerical output.

7. Conclusion

The 5% threshold is a procedural trigger, not a legality threshold. Under the EU Pay Transparency Directive, 5% is used to activate escalatory mechanisms such as joint pay assessment when combined with lack of justification and lack of remediation within a set period. It does not create a safe harbour for smaller differences. Both drafts reinforces this by building a broad transparency and remedy architecture (criteria transparency, information requests, additional explanations, structured remediation timelines at ≥5%, and joint assessment escalation). The Dutch draft materials go further in clarifying the conceptual point: the obligation to end unjustified pay inequality is not determined by the size of the difference. 

For employers, the compliance shift is therefore from reactive threshold management to proactive pay equity governance: defining objective criteria, documenting decisions, maintaining defensible job categories, and being prepared to explain and remedy pay differences, including below 5%, before they become disputes, audits, or litigation.