2023-08-23 14:48:55

Salary offers will become public from 2026


On April 24, 2023, the Council of the European Union adopted the Directive on Pay Transparency, a significant step toward equality and a fairer labor market. The directive aims to reduce the gender pay gap and increase wage transparency across member states, with its requirements coming into effect in Estonia in 2026. What does this new law mean for employers and employees?


According to the EU, Estonia has the highest gender pay gap in the EU. Eurostat's 2022 data shows a 22.5% gap, compared to the EU average of 12.7%. Although the Statistics Estonia presents a slightly less dramatic picture, the wage gap remains problematic in Estonia, as women's gross hourly earnings in 2023 were 13.1% lower than men's, a reduction of 4.6 percentage points from the previous year.


Liisa-Ly Pakosta, the chair of the European Union Affairs Committee and former Commissioner for Equality, confirms that the Pay Transparency Directive is an important step in reducing the gender pay gap. "The wage gap has been a long-standing issue in Estonia, and now there is an opportunity to take serious steps towards addressing this trend. Wage transparency will help create a fairer and more equality-supportive labor market," Pakosta believes.


The directive will impact all employers who will need to start disclosing their employees' wage data and salary offers in job postings. Employers will be required to regularly disclose salary levels so that employees and potential employees can understand the distribution of wages within a company. Additionally, employers must present data by gender to clarify if a pay gap exists within the company. Going forward, the formation of wages must be understandable, objective, and gender-neutral to employees.


The first report must be submitted in 2027

The directive's requirements will take effect in Estonia in 2026. For the first time, companies will need to report on their previous year's gender pay gap in 2027. This reporting obligation will apply to companies with at least 100 employees, which includes approximately 889 organizations in Estonia. These companies must report every three years as per the directive.


Pakosta is confident that the frequent discussions on the gender pay gap in recent years have already led to social norms changes more in line with current working life. "Employers are increasingly motivated, and leaders are thinking more carefully about wage management and balancing work and family life," Pakosta finds.


The employee knows how their salary is determined

For job applicants, the recruitment process becomes more transparent, as information about the salary level or range for a position must be disclosed before the job interview. Organizations must also disclose the status of the pay gap. In assessing pay equality, the value and equivalence of work are considered, providing employees with information on how their pay is determined and the gender pay gap in the institution.


While no individual employee's salary will be made public individually—gender pay differences are considered collectively—employees have the right to information about their own pay level and that of colleagues doing the same work, for both men and women. The right to information means that employees have the right to ask and employers are obligated to provide this information in writing, confirms Laura Laaster, the Public Relations Head of the Ministry of Economic Affairs and Communications.


Furthermore, employers are required to make available the criteria used to determine employee wage levels and pay raises. "No individual salary needs to be disclosed by the employer following the directive – if enforcing some directive-following employee's rights should require disclosing someone's individual salary, then the directive provides for involving a third party - a representative of employees, commissioner, or labor inspectorate - so that the employee can still be assured they are being compensated fairly," added Laaster.


Publicly disclosed salary numbers attract more job applicants

Grete Adler, Recruitment Manager at CVKeskus.ee, confirms that while salary offers are not yet mandatory to be public, those employers who dare to disclose them currently benefit. "Our data shows that job postings with a publicly disclosed salary range receive, on average, 60% more applications," added Adler.


"In fact, our data shows that job postings where the salary range is publicly disclosed receive, on average, 60% more applications," added Adler. Adler explained that transparency is important for job seekers. Labor market studies also show that the lack of salary information is the main reason why people withdraw from applying. "I believe that employers also benefit from disclosing salary offers, as it makes the recruitment process more efficient and faster, excluding candidates who later drop out of the process due to the offered salary."


On the other hand, the public disclosure of salaries can create problems in organizations where the pay system is unclear or unfair, so it is important for employers to prepare early for the implementation of the directive.