Fair pay for all? The Pay Transparency Directive will change things for employers

The idea of equal pay for equal work or work of equal value – equal pay – is not new. And yet this demand has only really gained momentum in recent years. However, equal pay naturally requires transparency as to who receives what pay in what function. This is where the EU’s Pay Transparency Directive (EntgTranspRL) comes in.

The EU directive – in force since June 2023

The EU’s Pay Transparency Directive has been in force since mid-2023, but does not currently apply directly to Germany. The Pay Transparency Directive must first be transposed into federal law and, for example, the existing Pay Transparency Act (EntgTranspG) must be amended. The German legislator has until June 2026 to do this.

However, as the directive is already very specific, it is already relatively easy to foresee what obligations employers will have and what rights employees will have. In this respect, employers are well advised to familiarize themselves with the topics and requirements of the directive now, even if it has not yet been transposed into German law.

Pay Transparency Directive: criteria for equal/equivalent work

The directive is primarily concerned with enforcing equal pay for equal work or work of equal value across the board, as the differences in pay between men and women in particular are still striking in some cases.

To this end, the Pay Transparency Directive now lays down Europe-wide standards to be implemented in the Member States, defines terms and sets out criteria that employers can use to determine what constitutes equal work or work of equal value.

The four most important criteria according to Art. 4 EntgTranspRL are:

• Competencies,
• loads,
• responsibility and
• working conditions.

In future, employers will therefore be able and required to use these criteria, among others, to check which work in the company is considered equal/equivalent and must therefore be paid equally – regardless of gender, etc.

A mammoth task for employers, which will take a lot of time and must be completed thoroughly to avoid legal disputes from the outset. This is because the directive also provides employees with the means and rights to uncover inequalities and claim damages and compensation, for example.

The most important contents of the directive

Art. 5 EntgTranspRL: Right to information in the application phase

In future, job applicants will be able to request information about the starting salary or salary range or the applicable collective agreement, for example. The EntgTranspG does not yet contain any provisions on this – this entitlement will be completely new.

Art 7: Right to information

Employees will be able to request detailed written information on individual pay levels and average pay levels, broken down by gender and for the group of colleagues who perform the same or equivalent work. Furthermore, employers may not prevent employees from disclosing their pay. In future, the number of employees in the company will no longer be relevant – unlike in Section 12 I EntgTranspG. There are also considerable differences in terms of content, particularly with regard to the calculation of average pay levels.

Art 9: Reporting obligation

After transitional periods for different company sizes, employers with a company size of at least 100 employees will be obliged to report annually or every three years, e.g. on the gender pay gap. This report must be made publicly accessible. Until now, the reporting obligation has applied to companies with more than 500 employees (Section 21 EntgTranspG). In addition, reports will have to be much more detailed in future.

Art 16: Damages and compensation

The directive is not a toothless tiger! It provides employees with rights and entitlements, e.g. with claims for damages as back payments in the event of unequal pay for equal/equivalent work or unequal bonuses or due to lost career opportunities. Art. 16 is similar to § 15 AGG, which is also applied in the EntgTranspG via § 2 II 1 EntgTranspG – but it goes beyond this in part.

Art. 18: Reversal of the burden of proof

At the same time, a reversal of the burden of proof strengthens the position of employees: if employees provide credible evidence of (in)direct pay discrimination, the employer must in future prove that no such discrimination exists. Here, too, there is a comparable provision in the AGG, which also applies in the EntgTranspG via Section 2 II 1. However, this provision will probably be included directly in the EntgeltTranspG in future in accordance with the requirements of the Directive.

Art 23: Sanctions

The legislator will have to provide for “effective, proportionate and dissuasive” sanctions for breaches of pay transparency and equal pay, such as fines. Here, too, the directive is already showing its teeth. The EntgTranspG does not yet provide for any sanctions.

What should employers do now?

There is no need to rush. The transposition period is still long and experience shows that transposition into German law will probably not be that quick. However, implementation will require a real rethink and then solid implementation within the company in order to avoid suddenly being exposed to massive claims from employees and other types of sanctions.