Closing the Gap? The EU Pay Transparency Directive
- Ines Analytics GmbH
- 2 days ago
- 5 min read
In May 2023, the member states of the European Union adopted the European Transparency Directive. It creates uniform standards across Europe to improve gender equality in the labor market and is intended to effectively combat the gender pay gap. Member states must transpose the directive into national law by June 2026, after which there is a risk of penalties. But what exactly does the directive mean - for companies and the German Pay Transparency Act?
In 2023, the unadjusted gender pay gap in the EU was 12%. This means that women earned 12% less gross pay per hour than men. In Germany, the figure is significantly higher, with an unadjusted gender pay gap of 18%.
The principle of equality has been enshrined in the European Treaties since 1957. It states
Each Member State shall ensure the application of the principle of equal pay for men and women for equal work or work of equal value (Art. 157, AEUV).
The principle that all genders should receive the same pay for equal work or work of equal value has therefore been around for a long time. However, it was only in spring 2023 that the member states were able to agree on the joint adoption of the Pay Transparency Directive after lengthy interinstitutional negotiations. All member states are now obliged to introduce all the necessary legal and administrative provisions to implement the directive by June 7, 2026 at the latest.
What will change with the Pay Transparency Directive
The directive strengthens the “application of the principle of equal pay for men and women for equal work or work of equal value through pay transparency and enforcement mechanisms”. In other words, it introduces measures to reduce gender-specific pay discrimination. Specifically, it introduces extended rights to information and compensation for employees and reporting obligations for employers. The reports cover the status of equal pay in the company and must be prepared regularly and made publicly available:
250 employees or more for the first time by June 7, 2027 for the previous calendar year, then annually thereafter
150 to 249 employees for the first time by June 7, 2027 for the previous calendar year, thereafter every 3 years
100 to 149 employees for the first time by June 7, 2031 for the previous calendar year, thereafter every 3 years
Employers are also obliged to provide information about the starting salary or salary range of the vacant position in the company at an early stage. They are no longer allowed to ask about previous salaries, and job advertisements and job titles must be gender-neutral. Employers must also provide information on the criteria used to determine pay and pay trends.
Employees are strengthened in their right to information. They may request information about their individual income and average income. Employers must provide information broken down by gender and for groups of employees who perform the same work or work of equal value.
Measurement of equal work or work of equal value
However, in order to assess whether there is a gender pay gap for equal work or work of equal value, companies first need to know which employees are doing equal work or work of equal value, i.e. which employees can be compared with each other without discrimination. There are various measurement tools for this, such as the equal pay check provided by the federal government. This check enables employers, works councils, collective bargaining parties and those affected to identify the causes of gender-discriminatory pay. The eg-check uses various instruments to examine different pay components, such as basic pay and overtime pay. In addition to statistical tools and targeted questionnaires, eg-check also uses pair comparisons to examine pay at an individual level. Either two specific persons of different genders can be compared with each other in terms of their professional requirements, or the equivalence of activities can be determined by comparing female- and male-dominated professions.
The Comparable Worth Index (CWI) helps to differentiate between equal or equivalent work. differentiate. The science-based index makes the requirements level of different occupations comparable. Like the pairwise comparison to determine the equivalence of activities, it takes into account knowledge and skills, psychosocial and physical stress and responsibility. The index comprises 18 groups in which occupations with the same number of points are combined, i.e. occupations with the same or equivalent requirements and stress levels.
The Pay Transparency Directive leaves it up to the Member States to provide a suitable system for measuring and classifying equal and equivalent work that employers can access. The main thing is that the system is based on objective criteria. This is the only way to make gender-neutral comparisons of jobs and ensure fair pay.
Consequences for the gender pay gap
Employers must take action if an adjusted gender pay gap of 5% or more is identified within the reporting obligation. If this unjustified pay gap is not eliminated within six months of reporting, employers are obliged to carry out a pay assessment together with employee representatives, such as the works council.
The collective pay review analyzes existing pay structures in detail, takes into account objective and gender-neutral reasons for possible pay differences, evaluates the effectiveness of previous measures and decides on measures to eliminate unjustified pay differences.
The joint pay assessment must be sent to the employees and the responsible monitoring body.
Revision of the Pay Transparency Act
In some areas, the EU leaves the member states free to shape the law at national level. For example, member states can exempt companies with fewer than 50 employees from the obligation to provide information on pay trends. In Germany, the implementation of the directive will result in the revision of the Pay Transparency Act.
The Pay Transparency Act has been in place since July 2017 and is intended to promote equal pay between the sexes. However, key points of the law are not as comprehensive as the measures adopted in the EU directive.
Measure | EntgTranspG (DE) | Pay Transparency Directive (EU) |
Right to information for employees | Companies and offices > 200 employees, every two years | All |
Obligation to report on the status of equal opportunities and equal pay | Employers subject to management reporting > 500 employees, every three or five years (employers bound by collective agreements) | Employer > 100 employees |
Measures against pay gaps | No clear consequences, employers should take measures. Possibility of legal action for disadvantaged persons. | From a pay gap of 5% in groups of equivalent jobs, employers must develop measures to eliminate the pay differences. |
Sanctions | None | Effective, proportionate and dissuasive sanctions for violations of the principle of equal pay (Art. 32 (1)). |
Compensation for disadvantaged parties | No explicit right to compensation. | Claim for comprehensive and full compensation. |
The Pay Transparency Directive primarily strengthens the rights of employees and reduces non-transparent wage-setting processes. More transparency also means more knowledge. Only when pay gaps have been identified and analyzed can employees and companies take targeted action against them.
QUELLEN:
„COMPARABLE WORTH“: Arbeitsbewertungen als blinder Fleck in der Ursachenanalyse des Gender Pay Gaps? - Ute Klammer, Christina Klenner, Sarah Lillemeier
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