Pay Transparency – What Employers Need to Know Now

The EU Pay Transparency Directive must be transposed into German law by 7 June 2026. It applies to all companies, regardless of size. This briefing summarises what lies ahead and how you can prepare most effectively.

Key Points at a Glance

• Implementation deadline: 7 June 2026; draft legislation is keenly anticipated
• Expert Commission: The final report of the Expert Commission dated 24 October 2025 serves as guidance for the legislator. The aim is a low-bureaucracy, 1:1 transposition of the Directive without over-compliance.
• Key obligations: Pay transparency in recruitment, employees’ rights to information, reporting obligations regarding the gender pay gap
• Sanctions: Damages, reversal of the burden of proof, administrative penalties
• Action required: Start now – review remuneration structures, establish processes, train teams

Why the Directive Poses a Challenge for Companies

Today, the German Pay Transparency Act (Entgelttransparenzgesetz, EntgTranspG) is toothless: rights to information only apply to companies with 200 or more employees; audit procedures are only ‘recommended’ for companies with 500 or more employees; salary ranges in job advertisements are voluntary; and questions about salary history are permitted. The result: little regulatory impact, with hardly any consequences for breaches.

From June 2026, this will change fundamentally: the right to information will apply to all companies – with no threshold. Salary ranges must be communicated during recruitment. Questions about salary history will be prohibited. Reporting obligations will apply to companies with 100 or more employees. Where the gender pay gap exceeds 5%, mandatory corrective measures will apply. Furthermore: the reversal of the burden of proof, compensation for damages and the right to bring representative actions will make breaches costly.

New Obligations in Detail

Transparency in recruitment: The starting salary or a salary range must be communicated to applicants in advance – in the job advertisement, before the interview or by other appropriate means. Questions about previous remuneration are prohibited.

Employees’ right to information: All employees are entitled to information about their own pay and the average pay of comparable employees, broken down by gender. The employer must provide information about this right annually and respond to enquiries within two months. Representation by the works council is possible. Confidentiality clauses regarding pay are not permitted.

Reporting obligations from June 2027: Companies must report regularly on the gender pay gap. For companies with 250 or more employees, an annual obligation applies (first time on 7 June 2027); companies with 150–249 employees report every 3 years (from 7 June 2027); those with 100–149 employees also report every 3 years (from 7 June 2031). There is no reporting obligation for companies with fewer than 100 employees.

Gender pay gap exceeding 5%: If there is an unexplained pay difference of at least 5% within a comparison group, a joint pay review with the employee representatives is mandatory. In the absence of employee representatives, the employer is solely responsible for implementing appropriate remedial processes.

Operational obligations: Employers must establish objective, gender-neutral criteria for job evaluation (e.g. qualifications, responsibility, working conditions). The data model is based on actual pay with clearly separated remuneration components. Responsibilities must be clarified and co-determination bodies involved at an early stage.

Sanctions and Liability Risks

Violations may result in full compensation for damages plus non-pecuniary compensation (including back pay, variable remuneration, interest) as well as effective regulatory sanctions. The reversal of the burden of proof to the employer’s detriment significantly increases the litigation risk. Furthermore, equality bodies, co-determination bodies and trade unions may initiate proceedings on behalf of those affected.

Key Outstanding Issues

Some key questions remain unresolved until the draft bill is published:

• Definition of pay: Which remuneration components count? The Commission recommends actual pay (as actually paid), not target pay. It should be possible to exclude minor benefits in kind (canteen, travel allowances) and share options not granted by the employer – but the exact scope of this exclusion remains unclear.
• Companies bound by collective agreements: The Commission recommends a rebuttable presumption of adequacy for pay groups under collective agreements. Whether this also applies to employers who merely apply collective agreements (but are not bound by them) remains open. One thing is clear: allowances exceeding the collective agreement carry significant risks.
• Formation of comparison groups: What criteria are used to determine ‘equal or equivalent work’? The Directive mentions qualifications, responsibility and working conditions – but provides no exhaustive definition. External benchmarks as a criterion are not expressly regulated.
• Justification: The Commission recommends a non-exhaustive list (based on Section 10 of the General Equal Treatment Act (Allgemeines Gleichbehandlungsgesetz, AGG). Important: Entitlements established before 7 June 2026 (e.g. resulting from restructuring) should be recognised as grounds for justification.
• Frequency of requests for information: The Commission recommends limiting this to once a year.

Your Action Plan

1. Analyse your current situation: Review remuneration systems, policies, works agreements and recruitment processes. Assess the quality of the data. Identify gaps in relation to the Directive.
2. Design your structures: Establish objective criteria for job evaluation. Define transparent pay bands. Standardise job advertisements with salary ranges. Set up information processes (deadline: 2 months!). Involve co-determination bodies in the process at an early stage.
3. Implement and train: Implement systems and templates. Train HR and managers. Communicate clearly to staff and applicants.
4. Document everything thoroughly: Record all decisions regarding job evaluation and remuneration in an audit-proof manner. Ensure traceability for authorities and courts.

How We Support You

We provide practical and efficient support throughout the preparation and implementation process – from gap analysis and process design to training your teams. Get in touch!

Other author: Johanna Kunze, Associate