The new EU directive on Pay Transparency and its implications for employers

The new EU Pay Transparency Directive entered into force on 6 June 2023 and is expected to be translated into national law by member states by 2026. The implementation of the Directive is still fully open in Finland, Sweden and Denmark. The Finnish Government has stated that the implementation will take place at the very minimum level. In Sweden, the Directive is being investigated in light of the current laws and the study will be published on 31 May 2024. The Danish Parliament has not yet taken steps to implement the Directive.

The Directive seeks to make information related to salaries more accessible and bring solutions in the event of disparities between male and female employees. While implementation is not likely to occur until June 2026, it is something that employers should begin preparing for, as it includes a few significant changes.

What will change?

Many of the provisions in the Directive would seem to have already been included in national legislation in the Nordics. For instance, Finland, Sweden and Denmark all have gender pay transparency and equal work, equal pay provisions in place. The Directive would include the obligation to establish a government body to deal with gender pay gap issues, which already exists in the Nordic countries. Also, many of the employees’ rights to information are already a part of national legislation, as well as the sanctions in place when information rights and equal pay principles are not abided by.

Equal work, equal pay provisions have been in play in the Nordics for decades now, but the pay gap is still there. The Directive will bring new obligations to information rights and reporting obligations, as it sets out strong standards and pay transparency measures, such as:

  • pay information for job seekers,
  • a right to know the pay levels for employees doing the same work or work of equal value,
  • gender pay gap reporting and publishing obligations to employers with more than 100 employees; and
  • a joint pay assessment obligation.

New obligation to give pay information to job seekers

The Directive includes an obligation for the employer to give job seekers the starting salary or the levels between which the starting salary varies. This obligation seems to have stolen the limelight in the Nordic press, and even some renowned newspapers have written that the starting salary now needs to be stated in the job announcement.

This is not, however, something that seems clear to us. The wording of the Directive became a compromise at the very last minute, and now it states that the salary needs to be given either in the job announcement, before the job interview, or “in other manner”. This would seem to imply that any information given on the salary prior to the signing of an employment agreement would suffice, and hence there might not even be that significant of a change coming up as to how employers announce the salary today.

But naturally the national implementation of the Directive will show how this provision will be adopted. Many employers have already chosen to announce the salaries voluntarily in the job announcement, but the main thing is to understand that there is no rush to do so, and it may not be mandatory moving forward either.

New right to know the pay levels of employees doing the same work

The employees’ right to receive pay information of employees doing the same work or work of equal value in the Nordics already exists, but the provisions in place at the moment may not be as wide as the Directive would seem to require. The Directive states that employees will be able to request written information on their individual pay level and the average pay level listed by sex and categories of employees performing the same work, which shall be provided within two months.

For instance, in Finland similar rights exist already at the moment, but for instance information is issued to an employee representative, not the individual employee, and the rights would not include receiving the salary information of an individual without consent. A pay gap reporting obligation is already in place in Finland, but it is less detailed and does not include an individual’s right to get pay level information, and does not apply to employers with less than 30 employees.

In line with Finland, Sweden has a proactive legislative approach in place, mandating that all employers conduct pay gap surveys to foster gender equality in the workplace. However, these current rules do not place any emphasis on, inter alia, individuals’ rights to access information regarding pay levels, hence this is where Sweden’s current legislation differs from the Directive.

The current process of conducting pay gap surveys forms an integral part of employers' obligations to work with active measures (Sw. aktiva åtgärder), aimed at preventing discrimination. It requires employers to conduct and analyse these surveys annually to identify, rectify, and prevent unjustified disparities in pay between genders in comparable positions. As part of these proactive measures, the survey process should involve collaboration with employees or employee representatives and be documented in writing, especially in companies with a minimum of 10 employees. It is not yet certain how the new Directive will be implemented in Sweden, but the implication may be an increased transparency towards individuals with regard to pay level information.

In Denmark, gender pay gap reporting is to a very high degree automated, as the governmental statistics institute (Danmarks Statitstik/Statistics Denmark) according to Danish legislation is tasked with preparing and forwarding gender pay reports to each employer covered by the gender pay reporting obligation (meaning employers employing a minimum of 35 employees with a minimum 10 of each gender working within the same function).

Similar to Sweden, the Danish rules do not explicitly place any emphasis on, inter alia, individuals’ rights to access information regarding pay levels. But the Danish rules do prohibit gender-based pay gap as far as all pay elements and pay conditions are concerned, for the same work or for work that is given the same value, and also provide an explicit legal basis for claiming any illegal gender-based underpayment. Danish law also prohibits retaliation arising out of complaints or claims for payment relating to alleged underpayment, and also operates with special burden of proof-rules for such matters.

New reporting obligation on the gender pay gap

Employers with at least 100 employees will need to publish information on the pay gap between female and male employees once the Directive is implemented. This would seem like a truly new obligation to employers in the Nordics

In the first stage (2027), employers with at least 250 employees must report every year, and employers with between 150 and 249 employees will have to report every three years. The threshold will then be lowered to just 100 employees, and these smaller employers will also have to report gender pay gaps every three years beginning with reports published in 2031 relating to the 2030 calendar year. Employers with fewer than 100 employees do not need to report, but may do so voluntarily.

The Directive would seem to include an obligation to report the pay gaps to its employees, and provide the report to an authority. A publishing requirement may also become effective, meaning that the information could for instance be available at the company internet site.

The reporting obligations sure would seem to bring something new into national legislation, and it would seem that the administrative burden here could be quite heavy.

A new joint assessment obligation

If the above described pay gap reporting reveals a gender pay gap of at least 5 % in a given category of employees, and the employer cannot justify the gap on objective, gender-neutral criteria and has not remedied the unjustified difference within six months, the employer must conduct a joint pay assessment in cooperation with the employee representatives. The joint assessment would need to contain for instance a plan as to how to fix the pay gap issue.

There is no joint assessment obligation in place currently in the Nordics, although in Sweden the Discrimination Act does place emphasis on cooperation with employees. All the same, employers should prepare for a more coherent Nordic joint assessment obligation going forward.

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