A number of industry-level agreements contain rules on pay grades for manual workers. Pay grades are classifications of jobs according to the type of work and skills involved, and provide the basis for a pay-differentiated classification (ranking) of manual workers such that the rate of pay laid down in the relevant collective agreements increases with increasing job demands and skill requirements. Similar rules are also found in collective agreements for white-collar workers, where the term used is Verwendungsgruppe (grade). The criteria used in defining job demands and skill requirements include the degree of responsibility involved, the performance of managerial functions, the learning-in time needed, formal qualifications (educational level, vocational training) and practical experience. Despite these and other criteria and also the listing of examples of jobs which can be classified in a particular grade, the definition of grades always involves a degree of imprecision. In many cases, therefore, there is scope for interpretation when it comes to classifying a given employee in a particular grade. Consequently, collective agreements usually stipulate that management must consult the works council on matters of employee classification. Problems arise, in particular, when a company has no works council, and it may be assumed that problems relating to correct classification are one of the main reasons why, in the private sector, women with the same formal qualifications still earn far less than men (see equal treatment: equal treatment for men and women). The definition of grading systems is not the only way in which collective agreements establish differences in pay. Many agreements (whether or not containing rules on grades) provide for supplements to the rates they set, in the form of additional payments such as special allowances for dirty, difficult or dangerous work.

Please note: the European industrial relations glossaries were compiled between 1991 and 2003 and are not updated. For current material see the European industrial relations dictionary.