The requirements of the EU's payroll directive, which will enter into force nationally by June 2026 at the latest, will bring significant changes to the daily lives of businesses. Although the deadlines may seem far away, our experts say it would have been a good idea to start preparing now.

What does the pay equity directive mean?

The directive sets requirements for recruitment practices, internal pay practices and reporting obligations when certain staffing levels are exceeded. Employers will be required to disclose the salary or wage rate payable for the job in job advertisements or otherwise before the interview, which will bring changes, especially to the Finnish recruitment culture where salary has traditionally been discussed only at the end of the recruitment process. In addition, access to salary information for employees will be improved: every employee will have the right to know how their salary is set and how it compares with other salaries in similar jobs. A clear and transparent pay system will improve organisational climate and employee engagement.

The directive does not mean that everyone's wages will be made public. Instead, employers have an obligation to ensure that pay is set fairly and based on objective, gender-neutral criteria such as job requirements, qualifications and level of responsibility.

How to prepare for the Wages and Salaries Directive?

1. Start by taking stock of the current situation

The first step is to find out whether your organisation's pay system is sufficiently transparent and fair. Evaluate your pay policy in relation to the market. Is everyone aware of the general principles and practices of how employers assess employees' skills and performance? Conduct a comprehensive pay survey and check for unjustified pay differentials. So-called "pay gap". So-called "contractual wages" are not justified at present and will not be in the future. Evaluate the job requirements and take into account any TES provisions. A pay survey as part of a gender equality plan will help identify the need for change and provide a good basis for developing a pay system.

2. Update your recruitment practices

Updating recruitment processes is an important part of the preparation. Preferably, start announcing starting salaries or salary ranges already in job advertisements. This not only meets the requirements of the Directive, but also helps to create a transparent employer image. It is also a good idea to ensure that job titles and salary criteria are gender-neutral.

3. Draw up role descriptions and salary criteria

The assessment of job requirements is at the heart of the directive. Start by drawing up role descriptions for each position. Clearly describe what is required for different roles and define the pay criteria for determining pay for the same or equivalent work. A breakdown of salaries by job title is not sufficient. Objective and transparent criteria, such as performance, skills or experience, reduce misunderstandings and increase trust in the workplace. Every employee has the right to know what factors determine their pay and how they can influence it. As such, the Directive does not prevent different pay for people in the same position.

4. Eliminating unjustified pay gaps

If a pay gap of at least 5% between women and men is found for those doing the same or equivalent work and no justification is found, the pay gap must be closed within 6 months or a pay slip must be drawn up.

an action plan to remedy the situation. In our experience, there is often a justifiable reason for pay differentials that can withstand the light of day, but the problem is that the criteria for determining pay are not transparent within the organisation. As such, it is perfectly acceptable to pay, for example, a self-motivated and productive employee a better salary than another unproductive employee doing the same job. It would be unfair if the employer were obliged to pay these employees the same wage and their stretch, performance and flexibility could not be reflected in their pay at all.

5. Prepare for salary reporting

The Directive imposes reporting obligations, especially on larger organisations. Companies with 100 or more employees will have to report regularly on pay differentials and the reasons for them. It is therefore worth starting early to update data collection systems and review practices. This will ensure that all the necessary information is available and easy to report.

6. Briefing front-line staff for salary discussions

Front-line staff are required to be more familiar with the functioning of the pay system and to be able to justify pay differentials in a transparent and fair way. Pay discussions will certainly also increase as workers' rights to information about their own and others' pay improve. To support these discussions, front-line workers need sparring and accurate information.

Summary: NOW is the time to act

The Pay Transparency Directive offers an opportunity to make an organisation's pay systems and culture more transparent. Although there is still some time before the national entry into force of the obligations imposed by the Directive, meeting these obligations requires careful preparation and often a lot of raw Excel work. A well-planned and timely change process will ensure that your organisation is ready to meet the new requirements and also to reap the full benefits of payroll transparency.

If you need help preparing or want more information on the implications of the Directive, we are here to help you. Book an appointment for a free initial assessment by contacting our experts!

VALO Partners Law Firm provides comprehensive, proactive risk management and acts as a partner in challenging situations such as change negotiations, termination of employment, collective bargaining, outsourcing, employment litigation and data protection issues. 

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- Alexa Kavasto, employment lawyer