The gender pay gap in Germany for comparable work and equivalent qualifications is still up to 7 percent. In order to counteract this, the Bundestag passed the »Act to Promote Transparency of Pay Structures« (Gesetz zur Förderung der Transparenz von Entgeltstrukturen, Entgelttransparenzgesetz) on March 30, 2017, which is expected to enter into force in June/July 2017. It is hoped that the disclosure of remuneration policies and practices will encourage non-discriminatory remuneration and reduce gender-based pay inequality. A right to information for employees on the one hand, and various review and reporting requirements for employers on the other hand serve to facilitate the adjustment of salaries.

What does the individual right to information entail?

The German Remuneration Transparency Act allows individual employees to initiate an individual procedure to verify equal pay. In companies with more than 200 employees, all employees may request individual information from the works council or the employer, every two years, provided that the activity to be compared is performed by at least six employees of the respective other sex. Following the assertion of the right, information must be provided within three months regarding the calculation and amount of the remuneration of the employee concerned and for a comparable respective activity.

What other obligations does the employer have?

In companies with more than 500 employees, the employer is also obliged to regularly check compliance with the equal pay requirement by recording and analyzing audit procedures for remuneration policies and practices. In the case of employers without a collective agreement, this must take place every three years. In addition, a report on gender equality and equal pay must be prepared, which identifies measures for ensuring equal pay as well as rules for the achievement of non-discriminatory equal pay.

Does the works council have to be involved?

The introduction of the German Remuneration Transparency Act will strengthen the bodies representing the interests of the employees. In order to meet the individual right to information, the works council is allowed to view and evaluate lists of gross wages and salaries. In addition, participatory rights exist with regard to the planning and implementation of the company's audit procedure as well as information rights with regard to the choice of the auditing instruments.

How are violations of the law sanctioned?

If the employer does not comply with the request for information within three months, a shift of the burden of proof occurs. In the event of a dispute, the employer must prove that there is no breach of the principle of equal pay.  If the employer cannot provide the evidence, a direct or indirect pay discrimination is assumed to exist. Pay discrimination must be remedied; how is at the sole discretion of the employer. Whether the elimination also includes retroactive pay is not stipulated in the German Remuneration Transparency Act. Nor are any explicit sanctions for violations of the principle of equal pay defined. In any case, the provisions of the General Act on Equal Treatment and the principle of equality under employment law give rise to retroactive claims to the payment of the remuneration differences.

What scope to structure remuneration remains?

In principle, pay discrimination in spite of equal or equivalent work can be justified if the remuneration system is gender neutral. Different remuneration may not, however, be paid on grounds of gender. In this respect, employers still have a certain latitude.

With regard to review and reporting requirements, employers also have a certain latitude in terms of the specific implementation. Employers may choose the appropriate instruments and methods, as well as the underlying assessment system, at their discretion. Ultimately, how pay discrimination, once ascertained, is eliminated is up to the employer. The law merely states that they must take »appropriate measures«. Both the manner and the period of elimination remain at the employer’s discretion.

Despite the far-reaching obligations imposed by the German Remuneration Transparency Act, there are therefore various areas of scope for the employer both with regard to structuring non-discriminatory pay and how this is reviewed. Whether the nevertheless high administrative burden for employers justifies the new law to ensure gender equality remains to be seen. This will only be answered going forward and will depend heavily on the acceptance and use by the employees and an accompanying tangible gender-specific wage adjustment.

What happens now?

The rights to information under the new law can be asserted for the first time six months after the law enters into force. The law therefore does not give companies much time to prepare. In so far as they have not already done so, employers should now start to look more closely at their compensation systems and compile the necessary information. At the same time, an assessment can be carried out and possible shortcomings can be remedied in good time.

Blog article from Jan-Ove Becker and Dr. Richard N. Lauer

Expect only the best from us.

We periodically provide you with news regarding important topics from the world of employment law and keep you posted about vangard. Sign up for our newsletter now!

Get our newsletter