One and done? Why Switzerland's Pay Equity Law falls short compared to the EU. 

In a perfect world Equal Pay Day would be on 1st of January. But the reality is that we are not there yet. In Switzerland, Equal Pay Day will be on 15th February this year, which is a poignant reminder of the ongoing struggle for gender pay equity and a national day of action dedicated to raising awareness of the gender pay gap. Equal Pay Day symbolizes the time a woman must work into the new year for free until she is starting to get paid, while a man receives his salary starting from 1st of January. Year over year we reflect on this important occasion and with the EU Directive on Equal Pay and Pay Transparency approaching quickly, this year’s Equal Pay Day is a good occasion to evaluate the effectiveness of the existing Swiss pay equity requirement as part of the revised Gender Equality Act. By drawing a qualitative comparison to the EU Directive and by providing insights from Mercer’s database, we can reveal the strengths and weaknesses of each approach in the quest for true pay equity and transparency.

The Swiss Pay Equity Law: A One-Time Analysis

Switzerland's revised Gender Equality Act, enacted in 2020, requires companies with over 100 employees to conduct a pay equity analysis. This analysis aims to uncover unjustified pay disparities between male and female employees, serving as a crucial first step toward achieving gender equality in the workplace. While having been on the forefront of pay equity laws and comparatively strict when it comes to the approach and methodology, as well as with the requirement for an external audit, the Swiss law however lacks in monitoring and long-term perspective. The law's effectiveness is hampered by its one-off nature; once companies complete and pass the analysis, they are exempt from the requirement to repeat the assessment. This approach can be compared to a single drop of water in a vast ocean—while it may create a ripple, it lacks the force needed to effect lasting change.

The EU Directive: A Continuous Commitment

In contrast, the EU Directive on Equal Pay and Pay Transparency, set to be fully implemented by mid-2026, establishes a more dynamic and long-term oriented framework for ensuring pay equity and transparency. Under this directive, in addition to requirements for pay transparency, companies are mandated to conduct regular pay equity analyses – either annually or every three years, depending on their size. Furthermore, the Directive will lead to a shift of the current information asymmetry between employers and employees, as well as applicants, ensuring that no more fertile ground will be provided for discrimination in pay due to a lack of transparency. While the methodological requirement for the pay equity analysis does not specify a need for a certified regression analysis but only a “simpler” analysis of equal pay, the requirement to run the analysis on an ongoing basis fosters a culture of accountability and continuous improvement, similar to a flowing river that carves its path through the landscape, gradually reshaping the terrain toward greater equity.

Key Differences in Implementation

In the following sections we highlight four key areas of differentiation between the two legislations by drawing a direct comparison. This assessment outlines the strengths and weaknesses of both approaches and concludes with a call for improvements to the Swiss Gender Equality Act as part of its next revision:

The most significant difference between the Swiss pay equity law and the EU Directive lies in the frequency of required pay equity analyses. In Switzerland, companies are obligated to conduct a pay equity analysis if they surpass the 100-employee threshold. After this initial assessment there are no further obligations, which can lead to complacency and a lack of ongoing evaluation regarding pay practices. Only if companies failed to proof that they do not have significant pay gap (typically a pay gap below 5%; varies depending on the approach), they would have to repeat the analysis after four years.

Conversely, the EU directive mandates that companies regularly assess their pay equity, either annually or every three years, creating a system of checks and balances that encourages continuous monitoring and adjustment of pay practices. This regularity not only helps to identify, and address pay disparities more effectively but also instills a sense of responsibility among employers to maintain equitable pay structures over time. Pay equity should, in the end, become part of the daily business.

Having advised clients globally on their pay equity journey across multiple years, we believe that without consistent monitoring and proactive measures to address pay gaps, these disparities are likely to resurface. Consequently, a one-time analysis may yield only limited results, whereas a commitment to regular assessments can significantly enhance the effectiveness of pay equity initiatives.

The Swiss law specifically requires companies to use a scientifically validated regression-based methodology to run their pay equity analysis. Even if companies have their own regression analysis approach, this will still need to be validated through certified scientific bodies, like universities. The validation itself must be clearly laid out to the external auditors that are asked to audit the analysis results before these are communicated to employees and shareholders. When it comes to the scope of the analyzed compensation, the Swiss law did not specifically define which elements are to be included; however, the Swiss Federal Supreme Court has clarified that all compensation for the work performed by the employee, including basic wage and all social wage components will need to be included. In practical terms, this still vague definition was translated, as part of the validated methodologies, into the inclusion of base pay, certain allowances and cash benefits, as well as short- and long-term incentives.

The EU Directive, on the other side, does not specify the need for a (validated) regression-based analysis. In that sense, only requiring an equal pay analysis, which is a calculation of the raw pay gap per workers category (defined as work of equal value or equal work) initially sounds like an easier accomplishment. It does, however, come with a challenge when we look at what needs to be included in the equal pay analysis. The EU Directive loosely defines pay as  “the ordinary basic or minimum wage or salary and any other consideration, whether in cash or in kind, which a worker receives directly or indirectly (complementary or variable components) in respect of his or her employment from his or her employer”, which, in practical terms, corresponds to total remuneration, including all benefits, raising the challenge of benefits data availability and valuation. Furthermore, the Directive requires organizations to either explain or close any potential equal pay gaps of larger than 5% within six months after the analysis. In order to provide an explanation for these cases, a regression-based analysis, similar to the Swiss requirement, will be needed to come to a conclusion about the final adjusted pay gaps, taking into consideration additional relevant (gender-neutral and objective) factors that can explain pay gaps.

While the Swiss law focuses primarily on identifying pay disparities as part of the pay equity analysis, it lacks robust mechanisms for transparency and accountability. Companies are required to communicate their findings to employees and shareholders, and by doing so, they will have to raise a certain awareness about the topic. However, there is no further obligation to provide increased pay transparency to employees and/or applicants. Despite not having a legal requirement for increased pay transparency in Switzerland, almost two-thirds of Swiss organizations, according to Mercer’s Global Pay Transparency Survey 2024, are planning to share pay information internally or externally in a more standardized way in the next two years. This number highlights the overall trend and need also in Switzerland to tackle pay equity and transparency holistically and to not only look at the pay gap, which is often just the tip of the iceberg.

In contrast, the EU directive clearly states that the transparency of pay is leading to increased pay equity. It emphasizes transparency more holistically by specifically requiring companies to provide employees more information about their individual pay levels as well as average pay levels, broken down by sex, for categories of workers performing the same work as them or work of equal value to theirs. Furthermore, information about pay setting and pay progression must be made available to employees under the EU directive. This increased level of transparency does not only start with employment; it will already be a requirement prior to employment, where applicants will have the right to receive information about the initial pay or pay range and employers on the other hand will not be allowed to ask applicants for their pay history – eventually shifting the information asymmetry between employer and applicant. Companies must provide clear information about their pay structures and the results of their pay equity analyses, also to a monitoring body (see next paragraph). This transparency empowers employees to advocate for their rights and encourages companies to take proactive measures to ensure equitable pay practices. The EU Directive clearly defines pay transparency as a means to achieve pay equity.

An additional and very distinct difference is that the EU Directive places job evaluation at its core, enabling the comparison of jobs of equal value. This requirement highlights the importance of addressing the topic holistically, ensuring root causes are tackled and not only pay gaps are analyzed.

A weakness of the Swiss law is its lack of a monitoring mechanism, which was not established as part of the revised Gender Equality Act. While most organizations in Switzerland likely followed the requirement and had an external auditor review the results and further adhered to the communication requirement to employees and shareholders, this lack in monitoring may have led for some organizations to fall under the radar – whether they simply never conducted this analysis or didn’t repeat it in case they failed to prove that they do not have a significant pay gap.

The EU Directive, while it is yet to be fully transposed into national laws, does explicitly mention that the EU member states shall designate bodies for the monitoring and support of the implementation of the directive. These monitoring bodes will, among other things, collect the required reports and results data[1] from organizations, and will thereby install a regular mechanism for tracking, aggregated reporting and publication of the pay gap status, allowing comparison between employers, sectors and regions.

_{1 Data from employers that will be collected and published comprises the elements mentioned in Article 9(1), points (a) to (f) of the EU Directive, namely: (a) the gender pay gap, (b) the gender pay gap in complementary or variable components, (c) the median gender pay gap, (d) the median gender pay gap in complementary or variable components, (e) the proportion of female and male workers receiving complementary or variable components, (f) the proportion of female and male workers in each quartile pay band}  

Conclusion

As we commemorate Equal Pay Day in Switzerland, it is crucial to recognize the limitations of the current pay equity requirements and the need for a more robust approach. While the Swiss pay equity requirement, as part of the revised Gender Equality Act, represents a step in the right direction, its one-off nature and lack of required transparency hinder its effectiveness. In contrast, the EU Directive on Equal Pay and Pay Transparency offers a more comprehensive and long-term framework for addressing pay disparities through regular assessments and greater accountability, while also imposing a large administrative effort on companies and therefore challenging the “old way of doing things”.

The question remains: will Switzerland adapt its approach to align with the more effective practices planned in the EU, or will it continue to rely on a one-off analysis that may ultimately fall short of achieving true pay equity?  With 93% of Swiss organizations in Mercer’s Global Pay Transparency Survey stating that pay transparency is an expectation of employees, the main driver for factually increased transparency broadly remains compliance.  While we anticipate the EU Directive will serve as a guiding light for other nations, much like the impact of the General Data Protection Regulation (GDPR) has had globally, it is clear that even without a revision of the Swiss law, many globally active Swiss organizations are likely to adapt the increased pay equity and transparency requirements in Switzerland as well.