Are You Familiar with the New Pay Transparency Directive?

Please be aware that this article primarily pertains to Swedish rules and regulations, which may not necessarily apply or be valid in jurisdictions outside of Sweden.

Details about salary upfront in job advertisements and stricter requirements for reporting on pay differences. During the spring of 2023, new EU regulations on transparent and equitable wages were adopted – the Pay Transparency Directive. What does this mean in practice? And what do you, as an employer, need to consider? Let's dive in!

Closing the gender pay gap by increasing transparency for job seekers and employees – that's the purpose of the new Pay Transparency Directive. The directive was officially endorsed by the European Parliament in May 2023, and member states (including Sweden) now have three years to implement it.

The Pay Transparency Directive – Here Are the New Requirements

What do the new EU regulations entail? We've outlined the key points to keep an eye on.

1. No More Secret Salaries
   In Sweden, it's typical for the salary question to come up well into the recruitment process, but the era of secrecy is now coming to an end. According to the Pay Transparency Directive, employers must inform job seekers about the starting salary or salary range for an advertised position right from the beginning – either directly in the job ad or at least during the job interview. Additionally, inquiring about candidates' previous salary history will be prohibited. 
   
   This obligation to provide information extends beyond job seekers; existing employees also have the right to access information about average salary levels, divided by gender and groups performing similar or equivalent work.
   
   Lastly, employers must ensure that salary determination and career advancement criteria are objective, gender-neutral, and easily accessible to all employees.
   
   
2. Disclosing Wage Differences
   According to the Pay Transparency Directive, stricter rules regarding pay equity analyses are also on the horizon. If a company has 250 or more employees, it must publicly disclose and report gender-based wage differences once a year. For smaller businesses, the reporting interval is every three years. However, companies with fewer than 100 employees are exempt from this reporting requirement.
   
   Are there wage differences of five percent that cannot be explained by objective criteria? If so, employers must take action. A joint review must be conducted in collaboration with employee representatives, and measures should be implemented to rectify the wage gap.
   
   
3. Mistakes Costly for Employers
   For employers who violate the rules, the consequences will be both troublesome and expensive. If an employee alleges wage discrimination, the so-called burden of proof shifts to the employer – meaning it's the employer's responsibility to prove that no discrimination occurred.
   
   Employers might also be required to provide retroactive compensation to the affected individual and cover any potential legal expenses. Furthermore, each member state will have its own sanctions and fines for companies found guilty of non-compliance.

How Will This Affect Me, Working in HR and Payroll?

Even though the final word on the Pay Transparency Directive's impact in Sweden is not yet spoken (more on this below), the new EU requirements are comprehensive and, according to many experts, will impose numerous new and challenging demands on our HR and payroll departments.

Employers may need to:

• educate managers and employees about the new requirements
• update practices and procedures for salary determination and pay equity analysis
• ensure that salary criteria are clear, gender-neutral, and accessible
• establish procedures to inform employees about current salary ranges and differences.

What's Next?

As mentioned earlier, EU member states now have three years to implement the Pay Transparency Directive, making the deadline spring 2026. Some aspects of the directive have faced criticism in Sweden, as it's believed to clash with the Swedish wage formation model (article in Swedish). The government and labor market parties are currently examining how the directive should be incorporated into Swedish legislation. This investigation is expected to be completed by May 31, 2024.

Stay Ahead – Gain Full Insight Into Wage Differences With Flex HRM

How does the pay equity analysis work in your company? With an efficient and structured process, your company is well-positioned to meet the new requirements if regulations in this area become more stringent. In our personnel system Flex HRM, you can confidently and efficiently manage every aspect of the pay equity analysis – from job evaluation to analysis and documentation. Feel free to contact us if you want to learn more.