Sweden’s long-standing commitment to pay equity offers a proven roadmap for addressing pay gaps and ensuring fairness in compensation practices. With robust legislation mandating annual salary mapping and a requirement to address pay gaps exceeding 4%, Swedish companies have pioneered proactive strategies to promote transparency and compliance.
The upcoming EU Pay Transparency Directive, to be implemented by June 2026, introduces stricter measures, including mandatory reporting and action on unadjusted pay gaps of 5% or more. Organisations with Swedish subsidiaries can draw invaluable lessons from Sweden’s practices to prepare for these new requirements.
This article explores Sweden’s legislative framework, the EU directive’s key provisions, the role of unions, and actionable strategies for companies to ensure compliance and leverage pay transparency as a competitive advantage.
Sweden’s pay equity framework: A proven model
Sweden has been a global leader in pay equity since introducing the Equal Opportunities Act in 1980, which aimed to eliminate pay discrimination based on gender. Over the years, Sweden has strengthened its legislation to ensure fairness, requiring annual salary mapping since 2017. Under current legislation, employers must address pay gaps exceeding 4% unless they can be justified by objective factors such as qualifications, experience, or role complexity. Employers are also required to document their salary mapping and share their findings with unions or employee representatives. These measures ensure transparency and accountability, particularly for companies with ten or more employees.
The EU pay transparency directive: Raising the bar
The EU Pay Transparency Directive will further strengthen pay equity efforts. The directive introduces additional requirements, including the disclosure of gender pay gaps and stricter guidelines for pay audits and reporting. These measures aim to reduce the EU’s average unadjusted gender pay gap of 13%, which remains significantly higher than Sweden’s more proactive approach to addressing disparities.
The directive targets unadjusted gender pay gaps of 5% or more, requiring employers to either justify the gaps using objective, gender-neutral criteria or take corrective action to eliminate them. Companies with 250 or more employees will also be required to publicly disclose their pay gaps, with these obligations gradually extending to smaller organisations over time.
In addition, employees will gain the right to access pay information, including the criteria used for determining salary levels, ensuring a greater degree of transparency in hiring and compensation practices. These measures are designed to harmonise pay equity efforts across EU member states, where the gender pay gap varies significantly.
Preparing for reinforced legislation: Lessons from Sweden
Swedish companies have developed a range of best practices that can serve as a model for organisations preparing for the EU directive. Regular pay audits and detailed salary mapping are critical tools for identifying and addressing pay disparities. Employers should focus on analysing pay data to ensure that any gaps exceeding the 4% threshold are either justified or rectified.
The EU directive’s focus on unadjusted pay gaps of 5% or more adds an extra layer of complexity, requiring companies to implement systems capable of tracking and reporting pay data effectively. Transparency in pay practices and clear communication with employees about the criteria for determining salaries will become increasingly important as the directive comes into effect.
Companies can also leverage technology to streamline their pay equity efforts. HR and payroll systems that integrate pay gap analysis and reporting features can help organisations stay compliant and minimise the administrative burden of salary mapping. Additionally, collaboration with unions or employee representatives will remain a key element of ensuring accountability and fairness.
The role of unions in Sweden’s success
Sweden’s labor market relies heavily on unions, which play an essential role in ensuring compliance with pay equity legislation. Employers are required to collaborate with unions by sharing salary mapping results and working together to create action plans to address disparities. Union involvement ensures that pay practices are fair and aligned with legal requirements, providing an additional layer of oversight.
For companies without union representation, it is crucial to establish alternative accountability measures. This could involve involving employee representatives in the salary mapping process or setting up independent advisory committees to review pay data and ensure fairness. Transparent communication with employees is especially important for non-unionised organisations to build trust and demonstrate a commitment to equity.
Leveraging Swedish expertise for pay equity
Organisations with Swedish subsidiaries have a unique opportunity to learn from Sweden’s proactive approach to pay equity. Swedish teams already have experience with annual salary audits, action plans, and union collaboration, making them invaluable partners in shaping global pay equity strategies. Companies can use their Swedish operations as a testing ground for implementing the processes and tools needed to comply with the EU directive, refining their approach before scaling it across the organisation.
By benchmarking their pay practices against Sweden’s high standards and aligning with the EU directive’s requirements, companies can position themselves as leaders in fair and transparent pay practices. This not only ensures compliance but also strengthens employee trust and enhances the organisation’s reputation as an equitable employer.
A proactive approach for pay equity
Sweden’s pay equity legislation demonstrates the value of proactive and transparent approaches to addressing pay disparities. By learning from Swedish practices and involving Swedish subsidiaries in global strategies, companies can ensure compliance with the upcoming EU directive and foster a culture of fairness and trust. Proactive action on pay transparency is not just a legal necessity but also a strategic advantage, helping organisations build stronger employer brands and create more equitable workplaces.
Collaborate with your Swedish subsidiaries, if you have any, to lead the way in achieving pay transparency and equity across your organisation.
