Pay Transparency Directive: How Should You Prepare

Payroll & HR | 09.09.2023

by Azets Finland

On March 30, 2023, the European Parliament approved the pay transparency directive, which is a step towards a more equal workplace. The directive aims to strengthen the implementation of the principle of equal pay for women and men by increasing pay transparency.

According to the principle of equal pay, individuals performing the same or equivalent work are entitled to equal pay, regardless of gender. The level of pay should be based on objective criteria, to prevent unjustified pay differences. This promotes gender equality and fairness in the workplace.

In practice, the pay transparency directive affects different parties as follows:

Job seekers:

• Employers are required to provide information about salary or salary range, for example in job advertisements, prior to job interview, or by other means. However, this should be done before salary negotiations. (The salary range will likely be specified more precisely in the law.) 
• Employers are not allowed to ask about the applicant's previous salary.
• Job advertisements and titles must be gender-neutral, and the recruitment process must be conducted without discrimination.

Employees:

• Employees have the right to request information from their employer about their personal salary level and the average salary level of employees who perform the same or equivalent work, broken down by gender. This right applies to all employees regardless of the size of the company.
• Employees must have easy access to information about the criteria used to determine salaries, pay levels, and pay raises. The criteria must be objective and gender-neutral.
• An employee who experiences gender-based pay discrimination can receive compensation, which includes not only the missed salary but also bonuses and fringe benefits. This is already established in Finnish national legislation, but new is the definition of a 5% limit for pay gaps.

Employers:

• Employers are required to report to authorities on the gender pay gap.
• Employers must take action if the pay gap is over 5% and the only explanation is gender. Otherwise, the employer may face a fine and compensation liability.
• The burden of proof lies with the employer (this is already established in Finnish national legislation).

When does the pay transparency directive come into force and who does it apply to?

National legislation must come into force by spring 2026 at the latest, although Finland often implements EU laws faster.
The directive applies to employers of all sizes in the private and public sectors. However, the reporting obligation on pay gaps only applies to workplaces with at least one hundred (100) employees, which must prepare a public survey of the percentage pay gaps between their male and female employees. As of now, there is no information available regarding the commencement year for this reporting obligation in Finland.

As for employees, the directive applies to all employees in employment and partly to job seekers as well.

How a company can prepare for the new directive:

1. Evaluate current pay policies and make necessary adjustments

• Analyze current pay and potential pay disparities objectively. Consider how you want to position your company relative to the market in terms of pay.
• Set goals for pay transparency.
• Make necessary adjustments.

2. Describe your pay system and define pay levels

• Define what is equivalent work.
• Consider what elements determine pay and create clear criteria and job descriptions. This will allow pay disparities to be justified by objective reasons, such as task complexity, performance assessment, and work experience.
• Make organization and individual level plans.
• Train managers and implement the new pay system.

3. Prepare for reporting and evaluate the state of current systems

• Define reporting needs.
• Assess whether current pay and HR systems can produce the information required by the directive, both for authorities and internal use.

4. Define the communication process

• What information will be shared, with whom, and through what channels, such as employees and investors.
• Communicate to the entire staff about pay transparency measures and plans. You can also provide training, such as on equal recruitment.

5. Strengthen a culture of equality

• Determine actions to promote a culture of equality where gender disparities are not accepted.

6. Develop your employer brand through pay transparency

• Increase trust and satisfaction among employees through transparent communication.
• Communicate about pay transparency externally as well, which can attract talent.

7. Consider potential economic impact

• Analyze how potential pay raises may affect your company's finances.
• Budget and prepare forecasts considering the potential changes in salaries, including those resulting from differences compared to competitors.

If you need help in defining salary or other HR policies, our experts can assist. You will also find systems from us that make report generation easy.

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