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Pay Transparency in Germany: The Company’s Size is Decisive

Feb 22, 18 • Employment LawNo Comments

The so-called Pay Transparency Act (Entgelttransparenzgesetz; “EntgTranspG”) already came into force on July 06, 2017. It is intended to help enhance compliance with the requirement of equal pay for men and women doing the same or equivalent work. On January 06, 2018, the six-month transition period expired, which was granted to employers before employees were entitled to request information for the first time. But can the Pay Transparency Act really be relied upon to reduce a possibly existing pay gap between men and women? And what should employers keep in mind?

Reduction of existing remuneration inequalities as a goal

The legislator estimates that the so-called statistical pay gap between men and women, based on the average gross hourly pay rate, amounts to approximately 21 percent. This gap is partly due to structural factors, employment biographies, and women’s predominantly gender-based career choices. The so-called adjusted pay gap, on the contrary, amounts to only 7 percent according to the numbers provided by the Federal Statistical Office. The Pay Transparency Act aims to contribute to reducing this inequality by individual information rights granted to employees against their employer. Furthermore, equal pay in Germany is supposed to be achieved by newly introduced reporting duties and compulsory review procedures.

Right to request information from the employer

In implementation of the constitutional requirement of equal treatment, the Pay Transparency Act is based on the assumption that the wage agreed or paid for the same or equivalent work must not differ depending on whether you are a man or a woman. As a consequence, the Pay Transparency Act applies to both genders. In companies with more than 200 employees, every employee is entitled to request information from his/her employer to check whether or not the equal pay requirement is being complied with. However, this right to information is subject to numerous restrictions.

Right to information does not necessarily give rise to claim for adjustment

The right to information does not entitle employees to compare their own pay with that of people in higher or lower positions (e.g. assistant vs. head of department) or the pay of someone of the same gender. Another precondition for the right to information is that the company has no less than six employees of the opposite gender doing the same or an equivalent work. In case of employers, who are not bound by a collective bargaining agreement, the employee can expect to receive the requested information within three months. Employers, who are bound by a collective bargaining agreement, have no time-limit for providing the requested information. An inequality found by means of the information received does not necessarily give rise to a legal claim to have one’s own lower pay adjusted. These various restrictions show that the Pay Transparency Act cannot contribute effectively to reducing existing inequalities. It is much more likely to increase the administrative burden on the employer’s human resources department and the works council.

New review procedures and reporting duties do not apply to small companies

This impression is confirmed by the fact that the German Pay Transparency Act requires employers to introduce certain review procedures. These are intended to force employers to regularly review their pay conditions so as to detect inequalities and, in case they exist, to eliminate them. In addition, the Pay Transparency Act requires companies to prepare annual reports on equal pay and to provide and publish information on measures taken to achieve this aim. However, these complex requirements only apply to employers in Germany with more than 500 employees. Given that especially larger companies are mostly bound by collective bargaining agreements and, hence, inequalities in pay are less likely to occur, the Pay Transparency Act can, in fact, hardly be expected to lead to a reduction of unequal pay in small and medium-sized companies.

Legal advice concerning measures required under the Pay Transparency Act

Our specialists for German employment law will be pleased to advise you on all aspects of designing compensation schemes, to examine whether and, if so, which obligations your company has to face to ensure compliance with the Pay Transparency Act, and to assist you in implementing your obligations arising from the Pay Transparency Act.

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Ellen Pusch

Ellen Pusch specializes in employment law and inheritance law at our Munich office. She drafts and optimizes employment agreements as well as specific types of termination agreements and assists with restructuring projects and M&A transactions (transfers of undertakings).

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