ESG, Legal Alerts/17 May 2023

Mind the Gap – The Directive on Pay Transparency Has Been Adopted

The European Commission’s Directive on Pay Transparency Measures (the “Directive”) has been formally adopted and published. The Directive enters into force on 6 June 2023 and must be implemented into the national legislation within three years and into each company within a fourth year.

Under the new rules, public gender pay gap reporting becomes compulsory for many private and public employers operating in the European Union. Further, the Directive provides for more transparency, effective enforcement, and access to justice to ensure one of the founding principles of the European Union, equal pay between male and female workers, irrespective of the employer’s size.

Impacts

Gender Pay Gap Reporting for large employers

The Directive requires employers with at least 100 workers to publish a pay gap report on its male and female workers. The report must include at least the following information:

Median gender pay gaps in basic salaries and in complementary or variable salary components (e.g., bonuses and commissions) categorized by groups of workers performing the same work or work of equal value
The proportion of male and female workers receiving complementary or variable salary components
The proportion of male and female workers within each quartile salary band

The Directive uses the term “worker” which implies to all employment relationships as defined by each Member State. The evaluation of same or equal work is based on required skills, effort, responsibility, and working conditions.

Workers, their representatives, labor authorities and equality bodies are entitled to request additional clarifications and details of the report. Where gender pay differences cannot be justified with objective and gender-neutral grounds (e.g., location or seniority), the employer is required to remedy the situation within a reasonable time.

Further, if the pay report reveals a gender pay gap of at least 5% in any group of workers without objective and gender-neutral grounds, the employer is obligated to carry out a joint pay assessment in co-cooperation with the worker representatives. Purpose of the assessment is to analyze the pay gaps and reasons behind them as well as the effectiveness of measures to address the differences. In addition, the employer must remedy the differences within a reasonable time.

The reporting obligation enters into force in two stages:

By 2026, employers with at least 250 workers must report their gender pay gaps annually, and employers with 150-249 workers every three years, and
By 2031, employers with at least 100 workers must report every three years.

Other impacts on all employers

The Directive contains several other transparency measures applicable to all employers in EU, regardless of their size. The key elements are:

Pay transparency for jobseekers
Prohibition to inquire past or current salary information from job candidates
Worker’s right to information on their individual salary and average salary levels for the same category of workers, broken down by gender
Pay transparency on salary principles

Compliance and sanctions

The Directive requires Member States to ensure victims of gender pay discrimination have access to justice. The following conditions must be fulfilled:

Compensation for gender pay discrimination
Employer’s burden of proof
Specific penalties, including fines
Equality bodies’ and worker representatives’ rights to act on behalf of the workers in legal proceedings

How to prepare for these changes?

Companies operating in different jurisdictions may face challenges complying with different due dates and regulations, as different Member States are expected to implement the Directive in different ways. The Directive sets out the minimum requirements for pay transparency and reporting. Member States may go further with the implementation by e.g., setting the threshold for reporting at a lower level or including a wider category of “workers”.

In Finland, implementation of the Directive is not expected to entail significant changes to the national legislation as the Finnish Act on Equality between Men and Women (609/1883, as amended) already includes similar obligations to companies employing at least 30 employees. However, forthcoming obligations may require even smaller employers to implement an additional set of concrete measures, should the national transparency level go further than the Directive.

Employers of all size should start preparing for the expected pay transparency requirements by ensuring their internal policies, salary policies and settings as well as operational HR practices are ready for the new level of transparency. This might entail carrying out significant preparatory activities.

Borenius lawyers named below are more than happy to answer any legal questions you may have regarding the upcoming requirements. Please do not hesitate to contact us for more information.