The new pay transparency directive is here – don’t worry, but stay in the loop
Insights|October 16, 2024
The EU’s Pay Transparency Directive aims to enhance transparency and reduce the gender pay gap. While implementation isn’t required until 2026, it’s worth staying informed. In this article, we answer some of the most common questions about what this directive means for employers in Finland and what steps, if any, need to be taken now.
What directive and when?
First: there is no rush, and nothing needs to be done immediately. Employers can take their time to get to know this much-discussed Directive.
The Pay Transparency Directive (2023/970), which was published in the spring of 2023, is a new piece of EU legislation that aims to increase pay transparency and reduce the gender pay gap. As a Directive, it is not directly applicable in member states, and national implementation is not required until June 2026.
The Directive gives employees across the EU new pay transparency-related rights and extends employers’ obligations correspondingly. In some member states, the upcoming changes may be drastic, but in Finland this is not the case. For the most part, the Directive’s provisions are already reflected in Finnish legislation. New requirements are planned to be implemented at the minimum level and in the spring of 2026 at the earliest.
It will therefore be a while before employers have any concrete obligations or even specific knowledge of the upcoming obligations. Although there is no need to panic, it is a good idea to be aware of what is on the horizon. It is an equally good idea to understand what the Directive does not mean for employers, despite some enthusiastic media statements painting a picture of major changes and various new employee rights.
New and shiny equality obligations?
The Finnish Act on Equality between Women and Men (609/1986) already prohibits gender discrimination and requires employers to promote equality in a goal-oriented and systematic manner, including in matters concerning pay. This and many other national requirements concerning gender equality have been in force under the Act for many years.
The Directive does introduce some new obligations, such as the requirement for gender neutrality in job titles and job advertisements. Making titles and other language used in the workplace gender neutral has been a trend in Finland for some time now. It feels as if it was only a matter of time before formal rules were introduced in this area. Employers can take the opportunity to ensure that their job titles are gender neutral and therefore promote inclusivity even before the national implementation of the Directive.
What does pay transparency and related reporting under the Directive mean?
As with equal pay, pay transparency is not a completely novel concept under Finnish law. Employers with at least 30 employees are already required, as part of the pay survey included in the equality plan at least every three years, to inform their employees e.g. about the classifications, salaries and pay differences in respect of jobs performed by women and men. Corrective action must be taken if any unfair pay differences are identified.
The Directive entails new reporting obligations for companies with at least 100 employees. After a transitional period, this obligation includes reporting certain data to the public and authorities as well.
What about employee privacy?
The Directive will give employees the right to ask their employer for information about their individual salary and the average salary of colleagues doing the same or equivalent work, broken down by gender. Employees must also be informed of this right each year. This obligation may impact in particular employers with less than 30 employees that are currently not used to systematizing employee salary information as part of the pay survey.
Employees or employee representatives will still not have the right to ask about a specific colleague’s salary. The salary details of an individual employee will continue to be strongly protected personal data, which the employer is not allowed to disclose to others. The Directive does not reduce, but instead actually provides for, protection of employee privacy by prohibiting enquiries concerning a job applicant’s past salary.
What will happen to salary negotiations, current pay systems, and incentivizing employees?
The Directive will require employers, before salary negotiations, to proactively inform an applicant of the starting salary or salary range and, where applicable, the relevant provisions of the CBA. However, there is no specific requirement to include this pay information in a job advertisement – the practical method of disclosure is at the discretion of the employer.
Despite this new obligation, employers and employees are still permitted to engage in salary negotiations. The Directive will not require that all employees are paid the same salary. Employers must continue to comply with non-discrimination and general equal treatment requirements, but salary levels can still vary within a company based on justified grounds.
The Directive does not prevent the use of bonuses and other incentive schemes either. Non-discriminatory rewards for good performance are still allowed. There should be no need to reform pay systems or to get rid of performance-related pay, if they are also in line with current non-discrimination and equal treatment obligations.
What should be done now?
Although the national implementation of the Directive is still a long way off, employers can slowly start internalizing what the upcoming changes will mean for them. More importantly, it is recommended to ensure compliance with current equal pay and related reporting obligations. Complying with current obligations will go a long way ensuring you are in compliance with the Directive as well.
On the other hand, the current situation presents an opportunity to stand out as a pioneer in pay transparency matters, such as salary communication in connection with recruitment. However, instead of making a significant investment in radical administrative changes and changes to pay systems merely based on the assumed effects of the Directive, it may be wiser to wait for more concrete information on the national implementation of the Directive.