New EU directive brings equal pay for people doing similar jobs

3/5/2024

Kristiāna Boša and Irja Rae, Figure Baltic Advisory 

The shortage of female managers and the gender pay gap

According to Eurostat latest 2021 statistics the gender pay gap in Estonia was 20,5%, Latvia 14,6% and Lithuania 12,0%.

The shortage of female managers and the gender pay gap are by no means problems unique to the Baltics, but there are countries where things are improving faster. Why? Decisive change is achieved where legislators, the public sector and business have all tackled the issue systematically and for a long time. It is being done because society understands the issue and recognises that a male-oriented society develops more slowly and contains its fair share of injustice. If we, as workers, employers, voters and citizens, understand that it is important to address this issue, we will see progress.

A new EU directive - transparent, fair and clear salary policies

Fortunately, the European Union is active on the issue of gender equality, which also encourages our employers to be aware of the gender pay gap and to seek a remedy. In a few years' time, in the summer of 2026, a new piece of legislation will enter into force with a clear objective - that salary policies are transparent and open across all employers, and that similar salary is paid for similar work, regardless of gender, age or any other factor.

The aim of the directive is to increase transparency in salary policies and thereby, over time, eliminate pay differentials between men and women doing similar work. To this end, employers must identify which workers in a company are doing work of similar value and ensure that they are paid equally. Employers will also have a responsibility to design, communicate and explain clear pay systems. Organizations will also have to start measuring the difference in salaries between women and men doing similar jobs and publish this information on their company website. Information on the pay gap must also be communicated to employees.

Large employers and listed companies with more than 250 employees will be the first to have to disclose data on the gender pay gap, but by 2031 the obligation will also apply to employers with between 100 and 149 employees. There is less clarity at present for smaller employers with fewer than 100 employees, where member states have more freedom to decide what conditions apply to them, but the expectation is that smaller employers should not be excluded from the focus. In the Baltic context, companies with between 50 and 100 employees are considered to be medium-sized companies, so there is no reason to exclude them from the scope of the new rules.

Work of similar value - salary of similar value

When talking about equal pay, it is crucial that the directive includes the concept of 'work of comparable value'. This means that employers have to identify which workers in the company are doing work of similar value and ensure that they are paid the same. To achieve this, job evaluations must be carried out on the basis of uniform, pre-defined criteria that exclude discrimination. Work of comparable value is measured against the knowledge and skills required for the job, the complexity of the work and other objective criteria.

Comprehensive job evaluation allows comparisons to be made between jobs in different sectors and allows workers in jobs of similar value to be identified. The Directive provides that the pay gap between men and women for jobs of similar value should be less than 5%. If the gap is higher, the employer must be able to justify, in gender-neutral terms, why this situation has arisen. If no reasonable justification is provided, the gap must be closed and, as a coercive mechanism, the employer may eventually be fined. The pay gap between women and men in similar jobs should be measured and information on the pay gap should be published on the company's website and made available to employees.

With regard to pay transparency, it should also be noted that the new directive will affect not only employees, but also people who are just applying for a job. Employers often ask during job interviews: "What is your desired salary?" According to various surveys, women answer this question with more modest figures than men. From now on, employers will have to clearly state the salary or salary range for a particular job in the job advertisement, before the interview or in some other way, and can no longer put this responsibility mainly on the job applicant. 

Changes will take several years to implement

Our annual surveys show that many organizations have already analysed and improved their pay systems, adapting them to changes in the labour market and within organizations. Many employers recognise, without national pressure, that the pay gap between women and men in similar jobs is unfair and are looking for ways to reduce and eliminate it. However, there is concern about the relatively stable proportion of organizations and companies that find it difficult to develop clear career models, to introduce and organize transparent pay systems, and to measure pay on an ongoing basis - all of which are key factors in reducing the gender pay gap and other discriminatory pay gaps. These are also the actions that the EU pay transparency directive, discussed earlier, expects employers to take. It is therefore also worthwhile for those who have ignored the issue so far to get a grip.

For many employers, it is all too much for one financial year, so it is worth preparing now, while there is still time for the new obligations to take effect.  It will take at least a year to assess jobs, analyse the salary system, identify problems and shortcomings and find solutions. By next year, it will be possible to determine whether the problem still exists and how to proceed with finding solutions. It is important to note that the Directive does not only oblige employers to deal with basic pay, but also with the variable elements of pay - any bonuses, allowances and benefits packages.

Employers also benefit from the changes 

The directive aims to promote gender equality in the workplace and, by protecting workers, it will motivate employers to create a more transparent, fair and attractive salary system.

Without a job analysis, a clear pay system and career model, and a reasoned salary policy, it will be difficult to comply with the directive. However, by developing modern pay systems, and thus complying with the requirements of the directive, employers also stand to gain in real terms, as a clearly structured and regularly used pay and benefits system encourages data-driven decision making, allowing for more efficient money management and cost control. At the same time, it also helps employers to increase their attractiveness in a competitive labor market, by clearly demonstrating that fair treatment is important to the organization and that discrimination is not tolerated, or is even systematically worked against.