A geographic pay differential is a planned difference in pay or salary range based on work location, labour market or another location-related factor. Employers may use geographic pay zones or regional ranges as part of compensation design, but the policy should identify what the location factor measures, how zones are created, which roles are affected and what happens when an employee moves. Under Directive (EU) 2023/970, pay-setting criteria must be objective and gender neutral, and pay structures must support equal pay for equal work or work of equal value. Geography therefore should be a documented factor that can be explained and tested, not an automatic answer to every difference between comparable workers.
Jurisdiction: European Union
Geographic Differentials Adjust Pay for Location
A geographic pay differential changes salary opportunities according to where work is performed or the labour market used for pay setting. An employer might maintain separate salary ranges for high-cost cities, national regions or broader pay zones. Another employer may use one national range with a location premium. These approaches are compensation-design choices rather than one standard model. A useful policy should state whether geography reflects local labour-market rates, cost conditions, collective bargaining, statutory rules or another factor. Without a defined rationale, location-based pay can become inconsistent and difficult to explain to employees.
Pay Zones Need Objective Boundaries
A pay-zone system is easier to administer when each zone has documented entry criteria. The employer might group locations using labour-market data, recruitment difficulty or a consistent geographic methodology. Problems arise when one office receives a premium because it has historically paid more while a comparable location is treated differently without analysis. Compensation teams should document the evidence used to create each zone, how often the evidence is reviewed and who can approve exceptions. If a zone is changed, the employer should also define what happens to existing employees whose salaries were set under the previous structure.
Remote Work Makes Geographic Policies More Complex
Remote and hybrid work can separate the employee's residence, contractual workplace, employing entity and team location. A geographic-pay policy therefore needs a clear trigger for which location determines the range. Employers should also define what happens when an employee relocates, works temporarily from another place or changes from office-based to remote work. A rule that changes salary after relocation should be documented in advance rather than improvised for individual employees. Multi-country arrangements require particular care because tax, employment-law, collective-agreement and mandatory-pay rules can differ independently of the organisation's internal compensation policy.
Location Should Not Become a Blanket Explanation for Pay Differences
Two workers doing the same work or work of equal value may have different salaries where an objective, gender-neutral factor legitimately explains the difference. Geography can potentially form part of that explanation, but the employer should be able to show that the factor is real, relevant and consistently applied. Simply stating that one employee is in a different city does not explain why the size of the pay difference is appropriate. Employers should test whether the geographic adjustment follows the documented zone methodology and whether workers in the same locations are treated consistently regardless of sex.
Articles 4 and 6 Require an Explainable Pay Framework
Article 4 of Directive (EU) 2023/970 requires pay structures that enable comparison of work value using objective and gender-neutral criteria. Article 6 requires employers to make the criteria used to determine pay, pay levels and pay progression easily accessible to workers, and those criteria must be objective and gender neutral. The Directive does not create a standard geographic differential or percentage. Employers using location as a pay factor should therefore describe the criterion clearly enough that workers can understand how it affects pay and that the organisation can test the rule for consistency.
Audit Geographic Pay by Zone and Worker Category
A geographic-pay review should look beyond whether ranges exist. Employers should compare actual salaries, hiring positions, progression and exceptions within each zone and across worker categories. If women and men are distributed differently across locations or remote-work arrangements, a location policy can have broader pay-gap effects even when the zone methodology appears neutral on its face. Reviews should identify unexplained deviations, repeated manager exceptions and employees whose assigned zone no longer matches the policy. The goal is to ensure the location factor operates as designed and does not conceal discretionary or inconsistent pay decisions.
Frequently Asked Questions
Can employers pay different salaries by location?
They may use location-based pay where permitted by applicable law and where the criterion is objective, relevant and consistently applied. National rules and collective agreements should be checked.
Does the Directive set geographic salary zones?
No. Directive (EU) 2023/970 does not prescribe geographic zones or differential percentages.
Should remote workers automatically be paid by home address?
Not automatically. The employer should define the location rule in advance and check national legal, tax and contractual implications.
Related Guides
Official Sources
Requirements and practices differ by jurisdiction and organisation. Check current local law, official guidance and professional advice for a specific situation.