A Guide to Pay Parity Laws Around the World
Apr 18, 2019 | Topic: Country Payroll
Although calls for equal pay for equal work have intensified in recent years, the concept is anything but new. Efforts toward improving wage equality date to the early nineteenth century, when newly unionized female workers in industrialized nations like the UK took action to negotiate wages closer to those earned by their male coworkers. The fact that pay parity remains a hot topic nearly two centuries later underscores the magnitude of the challenge at hand.
The pressure for legislative action to ensure equal pay varies greatly across countries and cultures, but the trend is shifting toward more formalized means of proving parity — and multinational employers should take note. Here, we take a look at pay parity laws around the world and what they mean for employers and global payroll teams.
Mind the Gap
Despite substantial research into the benefits of pay parity across societies at all levels of economic and industrial development, the gender pay gap tends to remain consistent year after year for the majority of countries. The World Economic Forum’s 2018 Global Gender Gap Index reported slow progress toward gender parity on average, with an unexpected backslide among Western nations. Surprisingly, the gender income gap widened in 2018 to a global average of annual earnings of $23k for men versus $12k for women. In 2017, those figures were $21k for men and $12k for women.
Based on the global figures, the World Economic Forum projects it will take an average of 108 years for world regions to close the economic gender gap — an estimate that makes pay parity seem a distant dream.
Yet, there are countries committed to closing the gender pay gap well before 2126. On multiple fronts, Iceland consistently ranks as the most gender-equal country in the world. But the industrious Nordic nation raised the global stakes for pay parity in 2018 when it became the first country to make it illegal for employers to pay women less than men.
While many countries today have legislation mandating equal pay for equal work, the responsibility of proving any income discrepancy has always rested with the employee seeking legal reparation. Iceland’s law shifts that responsibility onto the employer, requiring all public and private organizations with more than 25 employees to be independently certified as paying equal wages for work of equal value, or face daily fines of ISK50,000 (~$416) and the reputational impact of violating the popular law.
A Rising Tide
Over the years, the majority of countries have made it illegal to pay women less than men for comparable work. From the Russian Federation to Rwanda, employers are legally required to compensate genders equally. However, the enforcement of those laws varies greatly, and several nations are now taking steps toward greater pay transparency through expanded reporting and availability of pay data.
In the United States, while employment law can be legislated at the federal level, individual states like California, New York, and Massachusetts are leading the charge toward pay parity through broader equal pay laws, wage disclosure requirements, and the banning of salary history questions in interviews. In 2018 New Jersey enacted the broadest equal pay law in the country in the Diane B. Allen Equal Pay Act, which makes it unlawful for an employer to pay any minority employee less money for substantially similar work.
Massachusetts was one of the first states to prohibit employers from preventing or discouraging employees from exchanging wage details, and new legislation makes it illegal for employers to ask for the salary history of job candidates prior to making a job offer. The California Fair Pay Act allows for the comparison of wages for employees working for different organizations, rather than just within the same company, for doing “substantially similar work, when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions.”
In Australia, the system is similar to the US in that individual states can enact employment legislation. Consequently, equal pay laws have varied across the country. For example, New South Wales required equal pay for equal work in 1958, but the corresponding federal law wasn’t passed until 1969. In 1984, the principle of equal pay for equivalent work was added to federal legislation, and equal pay for equivalent or comparable work became national law in the Fair Work Act in 2009.
Across Western Europe, countries have passed several progressive laws designed to close the gender pay gap. Legislation in Norway, Sweden, and Finland makes employee tax returns available upon request. As of January 2018, Germany requires all companies, when asked, to inform employees of how their salary compares to those of employees of the opposite gender in corresponding roles within the company. Other countries including Spain, Austria, Denmark, and Belgium conduct gender audits, requiring employers to review the effectiveness of their gender equality programs.
Employment law in France has mandated equal pay for equal work since 1972, and companies with more than 50 employees have been required to conduct comparative salary surveys since 1983. A law passed in 2001 allows for criminal sanctions against senior management at companies that fail to conduct the gender pay surveys, and a measure currently proposed in France would pressure employers to close any gender pay gap by using specialized payroll software to report disparities and issuing fines of up to 1% of the total wage bill.
In the United Kingdom, equal pay was first mandated by the Equal Pay Act of 1970. Strict reporting regulations around the gender pay gap came into effect in April 2017, giving all companies with more than 250 employees one year to report their gender pay gap both publicly and to the government. In April 2018, the results showed that 78% of the 10,016 companies reporting paid men more than women. Additionally, an estimated 1,500 companies that missed the reporting deadline have been forced to explain why, with unsatisfactory explanations resulting in sharp fines and public naming.
The Employer Role
For multinational companies in particular, staying abreast of the evolving regulations around equal pay can be a challenge. The responsibility of understanding and being able to explain any gender pay gaps is increasingly shifting to employers’ shoulders, and the possibility of financial and reputational penalties is motivating companies to examine their equal pay practices.
While European nations in general are leading the way toward closing the economic gender gap, the World Economic Forum reports the greatest gains in gender parity being made in still developing regions. For example, while North America currently ranks second in overall gender parity at 72.5%, compared to South Asia’s seventh-place rating of 65.8%, the current rate of progress shows South Asia taking just 70 years to close the gender gap, while North America will need 165 years. Although the Nordic countries sweep the top spots in the WEF Global Gender Gap Index, Nicaragua placed fifth, followed by Rwanda, and Namibia was tenth.
As a result, multi-country employers should regularly review the requirements around pay parity across their global footprint and take steps to stay ahead of regulations. It’s important for employers to note the trend toward public reporting as a signal to review how their workforce pay data is collected and reported, in both their HCM and global payroll solutions. Knowing the figures around and reasons for any pay gaps now can be a significant advantage as more countries make it a requirement to have that information.