Objective of the directive: “Equal Pay”
The Pay Transparency Directive entered into force almost a year ago and has to be transposed into German law by June 2026. The directive is so specific that it is already worth looking at it in more detail and implementing initial adaptations.
The objectives of the Pay Transparency Directive are clear: Pay should be transparent and pay for equal or equivalent work should be “equal”.
The directive in itself is a legislatory declaration of war on the gender pay gap and this will also include bonuses and variable remuneration components. This also addresses equal pay for men and women, yet also moves beyond this scope: In future, all other extraneous pay differences will also be against the law.
Criteria for equal or equivalent work
The central aspect of “Equal Pay” is the concept of equal or equivalent work, which must be paid “equally”.
In principle, the Member States will be able to decide on how they define the equivalence of activities. However, the directive stipulates the basic criteria in Art. 4 of the Pay Transparency Directive (EntgTranspRL).
The directive states that
- Expertise,
- Demands,
- Responsibility and
- Working conditions
represent essential criteria when assessing the equality or equivalents of activities.
Individual cases may also involve other factors which are relevant to the specific workplace or position. For example, these can include professional requirements.
To be able to make comparisons to determine equal or equivalent work, the first sensible step consists of identifying and evaluating comparison groups or comparable jobs within the company itself. However, the directive also clearly states that comparison groups are neither restricted to one or the same company (Art. 19 (1) of Directive EU 2023/970), nor are they limited to the present. If suitable comparison groups cannot be found at other companies, then statistics, etc. should serve as a guideline.
Employers are advised to be proactive
Implementing the requirements of the new equal pay legislation will pose a number of immense challenges for both employers and HR managers.
- Analysis, documentation, and systematization of current salary structures, activities, and positions
- Definition of valid criteria for classifying existing activities and positions which are then used to evaluate and determine the equivalents of activities
- Adjustment of pay, taking into account any co-determination obligations
At every stage of the process, employers have to consistently focus on preventing claims for damages and compensation from employees once the German implementation of the Directive enters into force. Because the directive and its implementation will be anything but a toothless paper tiger. See Part I of our series on the Pay Transparency Directive for more information.
What can we do for you?
Do you want to analyze your remuneration systems with your company and develop a plan to address the equal pay requirements? Do not hesitate to contact us!
Summary of the key facts:
- The Pay Transparency Directive will be implemented in federal law by 2026 and will require employers to pay equal pay for equal or equivalent work.
- The criteria determining equal or equivalent work are described in Art. 4 of the Pay Transparency Directive.
- Employers need to proactively begin analyzing and adapting their remuneration systems ahead of time to avoid claims for damages, etc. once the regulation enters into force.
