Action required for companies: An overview of the EU Pay Transparency Directive

The Pay Transparency Act (EntgTranspG), which came into force in Germany in 2017, aimed to enforce equal pay between men and women. On 6 June 2023, the European Directive on strengthening equal pay between men and women (EntgTranspRL) came into force, introducing increased transparency and enforcement mechanisms. This new directive brings with it comprehensive changes that go beyond the current provisions of the German EntgTranspG. Member States are now required to transpose the Directive into national law by 7 June 2026. Below, we provide an overview of the key differences between the current German EntgTranspG and the new provisions of the European Directive, as well as tips for companies on how to proceed. 

The German EntgTranspG

• Individual right to information: Employees in companies with more than 200 employees have the right to receive information about the criteria and procedures for determining remuneration and the comparative remuneration for their job group.
   
• Equality reporting obligation: Companies with more than 500 employees that are required to publish management reports must report regularly on equality and equal pay.
   
• Company audit procedures: Companies must carry out company audits to verify equal pay.

New regulations under the EntgTranspRL

The EntgTranspRL also aims to enforce equal pay, but goes significantly beyond the existing provisions of the EntgTranspG. Specifically, it includes the following measures, among others:

• Remuneration transparency prior to employment (Art. 5): In future, employers must provide information on the standard starting salary for the respective position or its range in job advertisements and interviews. Applicants may not be asked about their previous salary. This applies to all employers regardless of their number of employees. In contrast, the German EntgTranspG only applies after the start of the employment relationship.
   
• Information obligations during the employment relationship (Art. 6): Employers with at least 50 employees must inform their employees, without being asked, about the criteria for determining their remuneration, their remuneration levels and their remuneration development. These criteria must be objective and gender-neutral. Member States may grant an exemption from this requirement for employers with fewer than 50 employees. In any case, this represents a significant tightening of the EntgTranspG, which only provides for a right to information upon request and in companies with at least 200 employees.
   
• Individual right to information (Art. 7): Employees have the right to request written information about their individual pay and the average pay – broken down by gender – for comparable jobs. The information must be provided within two months at the latest. This extends the existing right to information under the EntgTranspG, which was previously limited to the statistical median as the ‘comparative pay’.
   
• Extended reporting obligations (Art. 9): The directive extends the existing reporting obligations to employers with at least 100 employees. Companies must regularly report on the gender pay gap and other relevant pay information and publish this information.
   
• Joint pay assessment (Art. 10): Employers must carry out a pay assessment together with employee representatives if there is a difference of at least 5 per cent in the average pay of male and female employees in a group of employees and this is not corrected within six months. 
   
• Entitlement to damages and compensation (Art. 16): Employees who have suffered damage as a result of a violation of equal pay rights can claim damages or compensation. This includes full back pay for lost wages as well as damages for lost opportunities and immaterial damages.
   
• Reversal of the burden of proof (Art. 18): In cases of suspected pay discrimination, the employer must prove that no discrimination has taken place. This reversal of the burden of proof is already enshrined in the German AGG and is further strengthened by the Directive.
   
• Sanctions (Art. 23): Member States must establish effective, proportionate and dissuasive sanctions for violations of equal pay provisions. These may include fines, for example.

Conclusion

The European EntgTranspRL represents a significant step towards promoting equal pay between men and women. It expands the existing provisions of the German EntgTranspG and brings with it new obligations and challenges for employers. Companies should use the time until the directive is implemented to prepare for the new requirements and adjust their pay structures accordingly. Existing salary structures should be reviewed for gender-neutral and objective criteria, application processes should be adapted (e.g. by standardising procedures, specific training for the HR department) and, if not already in place, a legally compliant remuneration system should be introduced.