The EU Pay Transparency Directive (2023/970/EU) places greater responsibility on companies to ensure equal pay. While the directive must be transposed into national law by June 2026, delaying action until then could lead to legal and financial consequences. Companies should start preparing early to minimize risks and enhance their employer attractiveness.
Overview
Germany's Pay Transparency Act (Entgelttransparenzgesetz – EntgTranspG) already includes provisions to promote pay equality, but it has had limited practical impact. Currently, key regulations include:
- Right to information: Employees in operations with more than 200 employees can request information about salary structures.
- Reporting obligations: Employers with over 500 employees must regularly report on gender equality and pay equity.
So far, violations have had little consequence, rendering the law largely ineffective. The new EU directive introduces significantly broader transparency requirements and mandates effective measures to combat pay discrimination.
Key Facts: What Are the Planned Changes?
The EU directive introduces far-reaching reforms that apply to companies of all sizes:
New Obligations in the Recruitment Process
- Disclosure of salary information: Companies must provide transparent salary details to job applicants before signing a contract.
- Ban on salary history inquiries: Employers may no longer ask applicants about previous salaries.
Expanded Information Rights for Employees
- Objective and gender-neutral pay criteria: Companies must transparently outline the factors that determine salary decisions.
- Right to information for all employees, regardless of company size.
Stricter Reporting Requirements and Pay Evaluations
- Expanded reporting obligations for more companies, with requirements scaled based on company size.
- Mandatory pay evaluation if unjustified pay gaps of more than 5% are identified.
Stronger Sanctions
- Compensation for pay discrimination, including back pay and damages for non-material harm.
- Strict penalties for non-compliance, including fines.
Outlook: Action Required for Companies
Companies should proactively address the new requirements to mitigate risks, especially where employee representation rights (e.g., works councils) apply.
Recommended measures include:
- Reviewing existing salary structures to ensure they are based on objective and gender-neutral criteria.
- Adjusting recruitment processes, including standard application forms and HR training.
- Developing a legally compliant remuneration system aligned with corporate strategy and culture.
- Implementing documentation and reporting systems to efficiently meet transparency requirements.
Our support
We help companies prepare for the new transparency requirements by offering:
- Analysis and optimization of compensation systems in line with the new transparency standards.
- Training for HR teams and managers on legally compliant recruitment practices and salary negotiations.
- Legal advisory services for implementing documentation and reporting systems.
- Support in negotiations with works councils for the introduction of new remuneration models.
Companies that take early action not only ensure compliance but can also use the new regulations strategically to promote fairness, transparency, and employer attractiveness. We are here to help you navigate this transition securely and advantageously.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
