EU aims

EU Pay Transparency Directive ((EU) 2023/970) has been approved by the European Parliament and the Council and it will enter into force on June 6, 2023. The member states must implement it into national legislation by June 7, 2026. The directive aims to improve the principle of equal pay between men and women by setting a requirement that those doing either the same work or work of equal value are paid the same salary regardless of gender. Furthermore, the level of pay must be based on objective criteria so that there are no unjustifiable differences in salary.

The directive provides for pay transparency measures, obligation to report and access to justice.

Pay transparency measures

The directive sets an obligation for employers to provide information about salary for job seekers and current employees:

Prior to employment: The Directive sets an obligation for employers to provide information for job seekers about the starting salary or pay level in the job advertisement or before the job interview.

Current employees: Employees will have the right to ask their employers about average pay levels (of employees doing work of equal value, broken down by gender) and information about the standards on determining salary levels and pay progression, which must be objective and gender neutral.

Obligation to report: The Directive imposes an obligation on employers to report annually on the gender pay gap within the organization. This obligation applies to companies employing at least one hundred people:

• Companies employing 100-249 people must report every three years; and
• Companies employing at least 250 people must report annually.

If the above-mentioned reporting reveals a gender pay gap of at least 5% and the employer is unable to justify the gap with objective and gender-neutral factors, the employer must carry out a “joint pay assessment” as referred to in the Directive in cooperation with staff representatives.

Access to justice

Lastly, the directive sets a requirement on member states to provide adequate legal remedies for victims of gender pay discrimination. This includes regulations on the burden of proof, which is going to be on the employer. Moreover, the directive requires that the employee is entitled to compensation if wage discrimination occurs, and the discrimination has caused damage to the employee.

How should Your organization prepare for this change

It is recommended that companies pay attention to at least these factors:

As all titles and job descriptions should soon be gender-neutral, existing ones may need some adjustments to them. To many companies gender neutrality is already an existing practice, title-wise. If it is not, there should be some planned steps towards it and how the company is executing this obligation.

As pay transparency is the key, companies should already start creating reporting systems to comply with employee requests regarding average pay levels and reporting obligations etc. It is recommended to establish a reporting system for this purpose well in advance so that it is up and running in June 2026. This may not be such a new thing for bigger companies as they already have reporting obligations regarding current legislation. Further, some collective bargaining agreements also have own reporting obligations.

Are differences in the gender salary easily detached from the company’s salary systems or does it need amendments. These salary systems might need some changes to them if the gender salary data does not currently show salary differences of genders.

Companies should investigate if there are differences in the salary levels of genders, and what might be the root causes for such differences. It is also important to ensure that there are objective criteria for the differences.

As there should not be unexplained differences in the salary levels of different genders, it is wise to already determine how the company defines same work and work of equal measure. Some collective agreements might come in handy with this work as they typically determine how differences in the actual work should be taken into consideration regarding salary levels.

Special attention to the disclosure of salary levels during recruitment processes

Helsinki Court of Appeals has given an interesting ruling on 3 April 2023 regarding a discrimination during a recruitment process. In this case, the employer was found guilty of gender discrimination because it ignored a job application of a male candidate in the application stage of the recruitment process mostly due to a too high salary request. The employer hired a female candidate who was not as qualified. The court found that the employer did not have the right to dismiss the male candidate only due to a salary request as he was clearly more suitable candidate. Hence the employer was ordered to pay compensation for the male candidate due to discrimination. It might have been wise for the employer to contact the male candidate before ruling him out of the process and tell him about the salary level of the job, and to ask if he still wants to continue in the process even if the salary level was not what was asked by the male candidate.

This whole case might have gone differently if the pay transparency legislation had been in force already and the employer would have disclosed the salary level of the job already in the job advertisement. In the light of this case, companies might need to think about the disclosure of salary levels in the recruitment processes, even though the new rules on pay transparency are not in force yet.

This case might still end up differently as there is a pending appeal application to Finnish Supreme Court. At the time of this article, the application had not yet been approved there.