Germany: More Bureaucracy, Less Gender Pay Gap?

by Littler


[co-author: Dr. Richard Lauer]

Under the new German Remuneration Transparency Act, employers face complex review and reporting obligations. The gender pay gap in Germany for comparable work and equivalent job qualifications is still nearly 7%. In order to counteract this discrepancy, the Bundestag passed the "Act to Promote Transparency of Pay Structures," also known as the German Remuneration Transparency Act (Gesetz zur Förderung der Transparenz von Entgeltstrukturen, Entgelttransparenzgesetz) on March 30, 2017, which took effect on July 6, 2017. The intent of the required compensation policy and practice disclosures is to encourage non-discriminatory pay and to 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 employees to initiate a process to verify equal pay. In companies with more than 200 employees, all employees may request individual pay-related information from the works council or the employer, every two years, provided that the job activity to be used as a basis for comparison is performed by at least six employees of the opposite sex. Following an employee's assertion of this right, within three months the employer must disclose how much it pays employees of the opposite sex who perform comparable job activities, and how that pay is calculated.

What Other Obligations Does the Employer Have?

In companies with more than 500 employees, the employer must also regularly check compliance with the equal pay requirement by recording and analyzing audit procedures for compensation policies and practices. For employers without a collective agreement, this must take place every three years. In addition, these employers must prepare a report on gender equality and equal pay, identifying measures for ensuring equal pay as well as rules to achieve equal pay.

Must the Works Council be Involved?

The German Remuneration Transparency Act will strengthen works councils, the bodies representing employees' interests. 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, works councils will have the right to participate in the planning and implementation of the company's audit procedure as well as the right to receive information regarding 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, the burden of proof will shift. 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, direct or indirect pay discrimination is presumed to exist. The employer will be required to remedy the pay discrimination, but the method for doing so will be at its discretion.  Whether the elimination of the pay disparity will include 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 Germany's General Act on Equal Treatment and the principle of equality under employment law give rise to retroactive claims for the payment of the compensation differences.

How Will Employers Structure Compensation Systems?

In principle, pay disparities for equal or equivalent work can be justified if the compensation system is gender-neutral. Different pay may not, however, be paid because of gender. In this respect, employers still have a certain latitude.

With regard to the review and reporting requirements, employers also have a certain degree of latitude over implementation. Employers may choose the appropriate instruments and methods, as well as the underlying assessment system. Ultimately, how pay differences, once ascertained, are 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.

Therefore, despite the far-reaching obligations imposed by the German Remuneration Transparency Act, employers have some latitude in structuring and reviewing non-discriminatory pay practices. Whether the high administrative burden for employers justifies the new law to ensure gender equality remains to be seen. This determination will depend heavily on employee acceptance and any demonstrable gender-specific wage adjustments.

What Happens Now?

The right to information under the new law can be asserted for the first time six months after the law takes effect. The law therefore does not give companies much time to prepare. If they have not already done so, employers should now start to look more closely at their compensation systems and compile the necessary information. After reviewing their pay practices, employers should take steps to remedy any potential pay disparities. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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