Job Grading Under the EU Pay Transparency Directive — Why It’s Mandatory and How It Works

Why Job Grading Is Now Mandatory

Article 4(4) of Directive (EU) 2023/970 requires pay structures to enable an assessment of whether workers are in a comparable situation regarding the value of work performed. The assessment must be based on objective, gender-neutral criteria.

The Directive explicitly defines four mandatory criteria:

1. Skills — including soft skills, which must not be undervalued
2. Effort — physical, mental, and emotional
3. Responsibility — for people, budgets, processes, and information
4. Working conditions — environment, stress, schedule, and risks

Plus any other factors relevant to the specific position.

This is the first time that EU legislation explicitly codifies these criteria. Previously they were merely recommended (ILO Convention No. 100, Equal Pay Directive 75/117/EEC), but now they are legally binding.

The link to transparency: without an objective grading system, an employer cannot justify why two positions are in different pay bands. This is the core of the Directive — every pay difference must be explainable through objective criteria. For a comprehensive overview of the Directive’s obligations, see our article on Directive 2023/970 on Pay Transparency.

The Four Mandatory Criteria — What They Mean

The Directive does not merely list the criteria — it establishes a framework for their interpretation. Here is what each one covers:

Key point: each factor must be assessed objectively and measurably. Subjective judgements like “this position is more important” without justification do not meet the Directive’s requirements.

Why National Occupation Classifications Are Not Enough

In Bulgaria, the National Classification of Occupations and Positions (NKPD) is a mandatory element of employment law — every employment contract includes an NKPD code. However, NKPD is not a job grading system within the meaning of Directive 2023/970. The same limitation applies to national classification systems across other EU Member States.

Conclusion: national occupation classifications are necessary but insufficient. They must be supplemented with an internal job evaluation system based on the four criteria. That is precisely what job grading is.

Job Grading Methods — A Brief Comparison

There are various methods for job classification. They fall into two main categories: factor-based (using objective criteria) and non-factor (based on subjective assessment). Only factor-based methods comply with the Directive.

Key observation: Whole Job Ranking — the method where positions are arranged “from most important to least important” without objective criteria — is the most common approach in many EU Member States today, particularly among SMEs. It does not comply with the Directive, as it is not based on the four mandatory criteria and does not provide measurable, documented evaluation.

For most companies (SMEs and mid-size enterprises), the recommended approach is Point-Factor (custom) — a point-based system adapted to the organisation’s specifics, built on the Directive’s four criteria.

What Makes a Grading System Directive-Compliant

Not every job grading system automatically meets the requirements. To be compliant with Directive 2023/970, the system must satisfy six core requirements:

1. Based on the four criteria — skills, effort, responsibility, and working conditions must be present as evaluation factors. Additional factors may be included, but the four mandatory ones cannot be omitted.
2. Objective and measurable — each position receives a quantitative score (points), not a subjective ranking. The evaluation must be reproducible — two evaluators should arrive at similar results.
3. Gender-neutral — the system must not contain biases that systematically undervalue certain types of work (see the gender bias section below).
4. Documented and transparent — the methodology must be accessible to workers. Article 6 of the Directive requires employers to inform workers of the criteria used to determine pay.
5. Applied consistently — all positions in the organisation must be evaluated using the same criteria. You cannot have one system for “office” and another for “production”.
6. Periodically reviewed — positions evolve, new roles emerge, requirements change. The system should be updated regularly (recommended: annually).

For more information on mandatory pay gap reporting, see our article on the Equal Pay Directive.

Gender Bias in Job Evaluation — Hidden Risks

Even when a grading system formally covers the four criteria, it may contain hidden biases that lead to systematic undervaluation of female-dominated roles. Four typical problems:

1. Undervaluing soft skills

Communication skills, empathy, organisational abilities, and client management often receive lower weights than technical competencies. The Directive explicitly prohibits this — soft skills “shall not be undervalued.”

2. Overweighting physical effort over mental/emotional effort

If the “effort” factor primarily emphasises physical load, roles in manufacturing (traditionally male-dominated) receive higher scores than roles in services or administration (traditionally female-dominated), despite comparable mental and emotional demands.

3. Ignoring stress and emotional load in office roles

If “working conditions” only accounts for physical risks (noise, temperature, hazardous substances) while ignoring psychosocial factors (stress, emotional load, dealing with difficult clients), the result is discriminatory.

4. Using market rates as the primary factor

If the current market salary is the leading criterion in grading, historical gender gaps are carried over into the new system. Market data reflects the past, not the objective value of work. The Directive requires evaluation of the value, not the “price” of labour.

The Process — 8 Steps

Implementing a job grading system follows eight core steps:

1. Identify all unique positions — what roles actually exist in the organisation? (not just by classification code, but by actual function)
2. Define evaluation criteria — the four mandatory factors plus sub-factors relevant to the organisation
3. Assign weights — how much each factor “weighs” in the total score (while respecting the gender-neutral principle)
4. Evaluate each position — every role receives points for each factor
5. Calculate total scores — sum of weighted evaluations
6. Group into grades (pay bands) — positions with similar total scores are grouped into one grade
7. Compare actual pay to grades — where are the mismatches between actual salary and the assigned grade?
8. Identify and address gaps — correct unjustified pay differences, particularly those with a gender dimension

Who Is Affected — Practical Examples

Job grading is not only for large corporations. The Directive applies to every employer, regardless of size. Here are several examples:

IT company

Developer, QA engineer, and Project Manager — three different positions, but is the value of work “equal”? Grading provides an objective answer: the developer may score higher for “technical skills,” but the PM — for “responsibility for people and budgets.” Without a system, you cannot justify the difference (or absence thereof) in pay.

Manufacturing

Machine operator, warehouse worker, and quality controller. The operator works in tougher physical conditions, but the quality controller bears responsibility for the entire product. Who deserves higher pay, and why? Grading answers this objectively.

Services sector

Sales consultant, cashier, and customer support specialist. Three roles with different combinations of skills and effort — the sales consultant uses more communication skills, the cashier works under more repetitive conditions, and customer support bears the emotional load of complaints. Only an objective system can compare them fairly.

Mixed example — “different, but equal value?”

Marketing Manager vs. HR Manager — different functions, but potentially equal value across the four criteria. If grading yields the same total score but pay differs, the employer must justify the difference with objective factors (e.g. market scarcity, additional qualifications), or correct it.

Frequently Asked Questions