In 2017, Iceland became the first country in the world to force employers to prove they pay equally or face fines. By 2021, all companies and government agencies with 25 employees or more will have to undergo audits and receive certification to show that they do not discriminate by gender in setting salaries. While the small island nation is regularly ranked the world’s most gender equal country, women still earn 14-18% less than men, meaning that Icelandic women effectively work for free for around 60 days a year. And at the current rate of progress, the overall global economic gender gap won’t be closed for 170 years.
Results & Impact
The legislation came into force in 2017, so results are yet to be seen. However, Icelandic women still earn earn 14-18% less than men. And even after controlling for differences in jobs, industry sectors, education, and experience, there is still an unexplained pay gap of 5-7%.
Ministry of Welfare, Ministry of Finance, Icelandic Confederation of Labour (ASÍ), SA - Business Iceland, Action Group on Equal Pay
Companies and government agencies that have 25 employees or more will have to go through audits and receive certification that they are paying equally. In order to do this, employers will need to look at each position, decide what tasks it involves, and then assign a value to the position itself, meaning salaries will be determined based on the role and not the person. If they do not receive certification, employers could face fines of around $475 a day. All companies will have to implement the standard by 2021 and will have to renew their certification each year. Larger companies will have to implement it sooner - by 2019.
Women and girls
Cost & Value
The law places the burden on employers to prove they are are paying equally, so the cost falls on them rather than the government.
Running since 2017
Business groups have argued that the new law imposes too high an administrative burden and cost, especially for small companies without human resources departments. There are also limitations on how great an impact the scheme can have: many complex factors contribute to the gap in men and women’s earnings, and these will not be addressed with pay equity legislation alone.
Switzerland and the US state of Minnesota have schemes to certify companies as equal payers, but they are not mandatory. However, Iceland’s equal pay standard has been developed so that it could be used internationally.
In 2017, Iceland became the world’s first country to pass a law requiring employers to prove they pay both genders equally or face fines. It pledged to eradicate the gender pay gap by 2022, driving it to take radical steps.
By 2021, all companies and government agencies with 25 employees or more must go through audits and receive certification that they pay the same for the same work. Larger companies must prove they are not discriminating earlier – by 2019 – and all will have to renew certification each year. Employers could face fines of around $475 a day for failing to comply.
As many factors contribute to the gap in earnings – from men dominating senior roles, to women working in lower paid positions and working part time – the new law by itself will not bring economic equality. “You can implement the standard successfully in every workplace but you will still have a difference in incomes between the genders,” said Rósa Guðrún Erlingsdóttir, Senior Advisor at the Ministry of Welfare.
“No employers want to discriminate, but the structures exist in a way that they do – it is simply a result of the unconscious gender bias in our societies.”
“This legislation alone won’t break up the gender segregated labour market or reduce the amount of women that work part time with slower career development than men. But the aim of the bill was not to tackle those problems,” she added.
The bill’s key intention is to give employers the impetus and tools to tackle the problem of the adjusted pay gap, meaning the variation in men and women’s earnings after controlling for differences in jobs, industry sectors, education, and experience.
“What we are trying to do is close the window for discrimination in pay decisions, that is, to eliminate the unexplained gender pay gap. Even though that gap is only 5-7%, depending on sector, it’s too much – it indicates that people are discriminated against,” said Erlingsdóttir.
In a pilot of the scheme that ran in 2012, many employers were surprised to find such a gap within their own units or companies. “The pilot was an eye-opener, the results were very different from what employers had expected. Many units had thought they would not see discrimination in pay within them. No employers want to discriminate, but the structures exist in a way that they do – it is simply a result of the unconscious gender bias in our societies,” said Erlingsdóttir.
“It is costly, but until now women have born the cost of the pay gap.”
The key explanations usually given for the adjusted pay gap are workplace bias (whether intentional or not) and differences in salary negotiation by gender. “Men are better at and more concerned by negotiations for salary raises. Now employers have better grounds to say ‘I can’t raise your salary, because I will then have to raise the salary of others with similar jobs’,” said Erlingsdóttir.
The law places the burden on employers to prove they are are paying equally, so the cost falls largely on the private sector. “It’s a very innovative policy to force these obligations on companies: that’s what’s so radical about it. It was very highly debated last spring as it was submitted to parliament, in part because it will be expensive for companies and public sector employers to implement. It is costly, but until now women have born the burden and cost of the pay gap,” said Erlingsdóttir.
To prove they are paying equally, employers need to decide which tasks each position involves and then assign a value to that position, meaning that salary is determined based on the position and not the person carrying out the work. “Employers need to have an equal pay policy and do a job classification, for instance. But you can still reward good performance with the salary, although performance reviews also need to be documented and traceable and of course not include any discrimination.”
Many Icelandic companies already follow a voluntary equal pay standard that the new law was based on. It was written in cooperation with the labor movement, the employers’ confederation and the Ministry of Welfare between 2008 and 2012. But business groups have argued that the mandatory law imposes too high an administrative burden, especially for small companies.
While legislators have acknowledged these concerns, they hope that phased implementation may reduce the pressure on smaller organisations. “We realise that it will be a higher burden for smaller companies than larger ones that typically have HR units and don’t have to buy extra services from private companies. But we are hoping that with the step-by-step approach smaller workplaces will benefit from the experience of the larger ones,” said Erlingsdóttir.
While the legislation was passed in 2017, the results are yet to be seen. Yet it can only contribute to speeding up change. At the current rate of progress, it will take 170 years to close the overall global economic gap between men and women.
Iceland is the first country with such a strong pay equity law, but the equal pay standard has been developed so that it could be used internationally. Switzerland and the US state of Minnesota also have schemes to certify companies as equal payers, but they are not mandatory.
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