EU Pay Transparency Directive

Access the German version

In just a few weeks, the EU Pay Transparency Directive (EntgTranspRL) will celebrate its first birthday. EU Member States have to implement it into national law by June 2026. It’s not yet clear when this will take place in Germany.

A draft bill has been announced for the end of the second quarter of this year. But it’s risky for employers to wait for the final legislation: the EntgTranspRL contains fundamental changes to the current German Pay Transparency Act (EntgTranspG), which employers should familiarise themselves with at an early stage.

 

Pay transparency before and during employment

The EntgTranspRL strengthens pay transparency even before the start of employment. In the future, employers will have to provide applicants with information on entry-level pay and its objective, gender-neutral criteria (eg in a job advertisement, before the interview or by other means). Employers can no longer ask about previous pay or make enquiries in this regard.

In the current employment relationship, employers have to ensure their employees have easy access to the criteria for determining pay, pay levels and pay trends. These criteria must be objective and gender-neutral. The directive does not regulate the form in which and the intervals at which the information must be provided. Member States can exempt employers with fewer than 50 employees from this obligation. It’s currently not clear whether this will happen in Germany.

 

Individual right to information

In addition, employees have a right to information about their individual pay levels and – differentiated by gender – about the average pay levels for groups of employees who perform the same or equivalent work.

This entitlement is much more effective than the existing one for several reasons. Firstly, it’s independent of the number of employees of the employer and the size of the comparison group. Secondly, it’s based on the average pay level and not on the statistical median. Thirdly, all comparable employees have to be taken into account when calculating the average pay levels – not just those from the same company and the same region. Finally, employers must inform employees annually about their right to information.

 

Pay structures

In future, companies of all sizes will have to have pay structures that guarantee equal pay for equal work or work of equal value. The pay structures must be such that objective, gender-neutral criteria agreed with employee representatives can be used to assess whether employees are in a comparable position in terms of the value of their work. These criteria must not be directly or indirectly related to the gender of the employees. A reference to remuneration in accordance with a collective agreement will not be sufficient because – unlike the EntgTranspG – the EntgTranspRL does not contain a presumption of appropriateness for collective agreements. The key point of pay transparency is a gender-neutral job evaluation. In the opinion of numerous experts, this can only be achieved through analytical job evaluation methods, which will not have played a major role in collective agreements when assessing whether work of equal value exists – at least so far.

 

Reporting obligations and joint pay assessment

Employers with 100 or more employees will have to report regularly in the future, including on the pay gap between women and men. Alternatively, Member States can impose the reporting obligation on themselves. The timing and frequency of reporting will be regulated differently depending on the number of employees.

If the report reveals a pay gap of at least 5% between men and women that cannot be objectively justified or is not closed within six months of the report being submitted, the employer must carry out a joint pay assessment with the employee representatives. The aim of the joint pay review is to eliminate the unjustified pay differences within a reasonable period of time. If there’s no employee representative body, one must be appointed as soon as a joint pay assessment becomes necessary. It should exist until the gap has been eliminated. The directive does not regulate the exact procedure and what the consequences are if, for example, no corresponding employee representative body is found.

 

Effectiveness of the directive

The EntgTranspRL also provides for a shift in the burden of proof in the event of a breach of transparency obligations and a limitation period of at least three years. Finally, Member States must create effective sanctions (eg fines based on gross annual turnover).

 

Practical advice

Employers should use the time until the implementation of the EntgTranspRL to review their approach to job advertisements and application procedures. Now is the time to review remuneration systems thoroughly for gender neutrality and make improvements where necessary. Employers can stand out on the job market through transparency and openness.