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Is it legally permissible, according to GDPR and Norwegian/European law, for an employer to ask their employees to:
What steps would need to be taken to ensure that this process is compliant with the law?
List their yearly monetary needs / Present them to management for approval / Set their salary based on that?
The practice itself, to have different salaries based on circumstances that have little to do with the company or the productivity is very common. As an easy example, I'm sure costs for rent and food differ in Norway from region to region just as in any other country. In my country, for a good salary in a northern town, you would not find a bridge to sleep under in the most epxensive southern town. A salary in the southern town tends to be at least twice as much as in the north just to keep their employees. But what the employees actually have in their pockets after all neccessary expenses like rent, food and utility is very similar between the regions.
There are also instances of companies paying for public transport tickets for example. Which if you use public transport is a lot of money over the year, if you go by car or even bike, it's worth nothing. Or maybe they offer a company car. That is nice if you need a car. If your family already has two in the garage, it's kinda "meh".
So yes, different payment based on variables that are not productivity of the employee are legal and widespread.
It does become a problem at the "approval" step though. For example which region you live in is not exactly covered under the GDPR and is information that is already available to your employer in way more detail anyway (I assume they have your full address). More personal information is not available to your employer and for good reasons. Even just having such information runs against anti-discrimination laws.
It is also not only legal, but legally required in some EU countries to take those things (age, dependents) into account when laying off people. So there can be legal discrimination to protect those most vulnerable. So maybe it's better to create that sounds like a protection for vulnerable groups than a payment scheme. Something like extra days off for specific needs. Like say you not only allow the legally required maternatiy leave, but give 4 weeks on your own paid leave on top. Or give a day off not only for bereavement leave of first degree family members, but also second degree. Or maybe you grant a paid day off for a persons kids first day in school. Although this does need prove of some kind, I'm pretty sure if properly worded that would not be a legal problem.
It would also been seen as more fair by other employees. Giving out lump sums of money for reasons unrelated to the job seems unfair, while giving out benefits directly related to the specific needs of employees seems very friendly and helpful.
What steps would need to be taken to ensure that this process is compliant with the law?
You need to get a lawyer (and maybe a union representative if your industry is heavily unionized) and go through your plan item by item and check whether your company is allowed to have and process this information. And if your company is allowed to discriminate based on this information, even if they have it legally.
And in the end, when you have your watertight legal plan, you have to ask yourself how you will attract talent, when you pay based on their needs. Why would a young, single, very educated person do overtime for you, when an undereducated, lazy slacker next desk earns double what they do. Not because they do a better job, but because they have a wife and three kids and have a mortgage on their house.
So it's legally a very costly endeavour. And it forms your company not as a company of talented hard workers, but of people who have the most liabilities. Because that is what you would be paying for.
Short answer: That would never be compliant with the law as the law is now.
For this to be legal, the laws and political norms in Norway (and Europe) would have to change radically.
Long answer: It would violate numerous articles in the GDPR, and also in Norwegian work-laws (arbeidsmiljøloven) and possibly other special laws.
In regards to GDPR (implemented in Norwegian law through Personopplysningsloven) it would violate the workers right to privacy for different kinds of information. One of the biggest hindrances would be the right to privacy about “sensitive data” like for example one’s sexual orientation, medical information and political and religious beliefs.
I would imagine that mapping a persons every monetary need would involve a lot of sensitive information.
The employer would also need a valid reason for collecting and using the “non-sensitive” personal data, not to mention the “sensitive data”. They would also have to securely handle and store a massive amount of personal data, all according to the rigid laws for this in GDPR.
Furthermore, the personal data would in many cases involve the personal data of others, e.g. spouse, children, parents etc. whos data would be subjected to all the same strict rules as the employees.
This data would all be the basis for the salary, so that brings on another requirements for the employer: all the data must regularly confirmed and kept updated.
An employer would most likely not be able to handle that much work (except for a very small number of employees) and it’s even less likely that the employer would be able to prove the need to collect the data in the first place.
That was just the GDPR, and I won’t go into the hurdles in Norwegian law, other than support the mention of discrimination laws in the comments, and that the Norwegian work environment law is pretty strict.
Lastly, this would be a legal nightmare for all parties. How do you prove ‘needs’? How do you document the cost of everything? How do you account for unforeseen events? Etc etc etc.
Note that this is just the problems I can list right off the top of my head, there are likely many other problems too!
This can most likely be done in a way that is legal. Or illegal if the company is careless. Reducing your salary because of such a check is most likely not legal. Like you get married to a very wealthy person, and your company wants to reduce your salary.
But this is not really a question for law.stackexchange. You don't really care if it is legal or not, you care about how much money you get paid. Go to workplace.stackexchange, and you will be told that you don't have to accept what they offer but find a different place that pays you more. And nobody can force you to reveal information you don't want to reveal. You tell them how much payment you want, and they accept it or they don't.
Now if they volunteer to increase your salary because your child has an expensive illness... Again, you don't care if that is legal or illegal, but you take the money.
Within certain limits.
A company could set a base salary, within the legally established limits, and improve it as it sees fit. And if the reason of the improvement were some expenses, it would be legal to ask the employee to justify these expenses.
To put an actual example, I got my salary. But if I have some medical expenses (for example buying some glasses) I can ask my current company for some compensation (that only covers a part of the cost, but nothing would prevent them from paying all of it). And I must submit the bill for the glasses, and it would not be too far fetched for my company to require some kind of document explaining that the glasses are used for medical reasons.
What cannot be done:
Force the employees to provide that information, if they do not want to. If I do not want the company to know that I had to buy glasses, I am not required to do. I will not get any compensation for buying the glasses, of course, but that is my decision.
Pay me less than there is in my contract, or contract me for less than the legal minimum. Even if I do not justify any expense, I am entitled to my pay. And that pay must at the very least be the legal minimum. Of for example, if I had a children and he died, the company could not cut my pay because now I have less expenses.
