New pay transparency - the deadline for implementation and what employers need to know about this
The EU Pay Transparency Directive has been in force since June 2023. It aims to achieve greater pay equity and enable employees to assert their rights more easily. The national legislator still has time until 7.6.2026 to implement the EU’s requirements.
Purpose of the German Pay Transparency Act
The Pay Transparency Act (Entgelttransparenzgesetz, EntgTranspG) has been in force in Germany since 2017 already. It serves the purpose of closing the so-called gender pay gap between men and women. However, the obstacles to asserting claims against employers are still so high that the EU Commission saw a need for action here. This is because equal pay for the same or equivalent work is still not available everywhere these days.
A right to information irrespective of the size of the company
Section 10 EntgTranspG now already guarantees employees the right to receive information. Accordingly, employees have a right to information about the average monthly gross salary and other remuneration components for the same or equivalent work.
However, such a right to information has hitherto existed only in companies that employ more than 200 staff with the same employer. This is now set to change with the implementation of the EU directive. Employees’ rights to information should in some cases be possible irrespective of the size of the company. The right includes a breakdown of the remuneration components. Furthermore, employers will be obliged to inform their employees once a year that they have the right to request information and how employees can obtain this information.
Under the new provisions, which the legislator has to implement as quickly as possible, employees will likewise no longer be prevented from talking openly about their pay. Clauses to this effect, which are intended to regulate such prohibitions, have hitherto been frequently found in employment contracts.
Graduated reporting requirements
Companies with 100 or more employees will be required to prepare and publish reports on gender-specific pay differences. For companies with 100 to 149 employees, this requirement will apply as of 7.6.2031 and thereafter every three years. Companies with 150 to 249 employees will need to prepare reports every three years as of 7.6.2027. Companies with 250 or more employees will have to prepare reports annually as of 7.6.2027.
Employers will have to carry out a pay assessment jointly with employee representatives if
- in their reports it becomes apparent that a difference exists between the average level of pay for female and male employees of at least 5%,
- this gap cannot be justified by objective and gender-neutral criteria and
- the employer has not remedied the unjustified difference within six months.
Transparency already when filling positions
Insights into potential earnings should be given not just to those who are already employed, but also to applicants for positions that are to be filled. The intention is for job applicants to be granted the right to get information about starting salaries based “on objective, gender-neutral criteria”, or data on the salary range that would enable pay negotiations.
Preparations are required, in order …
Companies should prepare themselves for any rights to information as well as the reporting requirements. Moreover, there should be a review to determine if the information that will be disclosed during the job application process complies with the requirements of the directive to be implemented. Any gender-specific salary differences, insofar as they are not based on objective gender-neutral criteria, should be eliminated.
... to ward off the threat of claims for damages
This is because, if the obligations are violated, employees will be able to assert claims for damages. Such claims include not just the subsequent payment of the comparative lost remuneration, but also the lost benefits in kind and bonuses as well as lost opportunities. To assert claims for damages it is sufficient for the employee to set out the alleged discrimination; the burden of proof - the criteria according to which the pay was determined - then lies with the employer.
