The commission ‘Minimum Bureaucracy Implementation of the Pay Transparency Directive’, an independent, interdisciplinary expert commission, recently submitted its final report to the federal ministry responsible for drafting the bill, i.e., the Federal Ministry of Education, Family, Senior Citizens, Women and Youth (BMBFSFJ). On behalf of the Federal Minister, the commission presented non-binding proposals in its report on how the Pay Transparency Directive (EU) 2023/970 (the Directive) can be implemented in German law by 7 June 2026 in a manner that complies with EU law and at the same time minimises the amount of bureaucracy. The final report of the expert commission also makes it clear that this requires a balancing act in some respects. The commission focused on the reporting obligation under Article 9 and the right to information under Article 7 of the Directive.

The following is a summary of the positions and implementation proposals for the German legislator as set out in the report that found majority support in the commission. It will be interesting to see which of these proposals will actually be included in the draft bill for the implementation of the Directive which is now to be prepared by the Federal Ministry.

1. Remuneration in scope for reporting

• According to the broad definition in Article 3(1)(a) of the Directive, pay within the meaning of the Directive comprises "the ordinary basic or minimum wage or salary and any other consideration, whether in cash or in kind, which a worker receives directly or indirectly (complementary or variable components) in respect of his or her employment from his or her employer."
• The actual remuneration, which is usually recorded in the payslip, should be decisive for the reporting obligations. Remuneration components that are not related to work performed during the reporting period (e.g., severance payments) should be excluded, as it would not be possible to convert them into a corresponding gross hourly wage in a meaningful way.
• There should be a restriction to clearly identifiable/quantifiable (“ablesbar”) and comprehensible remuneration components (based on the German Remuneration Statement Regulation - Entgeltbescheinigungsverordnung).

The question discussed in practice as to whether, how and at what point pension entitlements from occupational pension schemes will be reportable remuneration components has not been explicitly addressed and thus remains open. If, as suggested, the Remuneration Statement Regulation (in particular, the total gross amount stated therein) is used as a guide, employer-financed contributions or provisions for occupational pension schemes during the employment relationship may not be reportable. This would certainly be in the interest of implementing the Directive with as little bureaucracy and effort as possible, but entitlements from occupational pension schemes are undoubtedly a remuneration component within the broad European legal definition of remuneration. There is no question that the mandatory substantive principle of equal pay for equal work or work of equal value for men and women applies in this respect. However, it remains unclear whether this remuneration component can be excluded for the purposes of the reporting obligation under Article 9 of the Directive and the response to individual requests for information under Article 7 of the Directive, given that it is only paid after the end of the employment relationship. In this respect, clarification by the legislator would be desirable.

• It should be possible to exclude certain remuneration components, such as voluntary optional benefits and benefits not granted by the contractual employer (share options, phantom stocks, etc.).
• The calculation of gross hourly pay (within the meaning of Article 9(1) in conjunction with Article 3(1)(b) of the Directive) should be based on the contractually agreed working time. This statement should be read in light of the fact that there is still no clear and comprehensive obligation to record actual working hours.
• Companies should be allowed to report separate indicators for each country of employment, which would be particularly relevant in the case of establishments without legal personality in other EU Member States.
• Group reporting should be possible in any case to the extent that the group (meaning the parent company) can bundle the reports of the group companies and report on behalf of the individual companies.

In our opinion, however, it should be considered that the reporting obligation for the individual group companies is likely to be subject to different EU legal systems if the companies are based in different countries. Further, the reports would also have to be written in the relevant languages in view of the requirement of the Directive that the reports be submitted to the respective competent state monitoring body (see Article 29(3)(c) of the Directive).

• However, the commission has left open the question of whether the individual indicators can be reported collectively across company boundaries in a group-wide pay transparency report. In our opinion, the latter would not be in line with the requirements of the Directive and would also significantly dilute the informative value of the report.
  
  

2. Calculation of the gender pay gap

• When calculating the gender pay gap (average and median according to Article 9(1)(a) and (c) of the Directive), the actual gross annual pay and the corresponding gross hourly pay – and not the target pay – should be used as a basis.
  
  

3. Dealing with variable and supplementary pay components

• For practical reasons, companies should be able to decide whether they want to present the complementary and variable pay components as a total or individually in order to fulfil their reporting obligations (under Article 9(1)(b), (d) and (e) of the Directive). In view of the concerns expressed within the commission about combining all complementary and variable components, a compromise is proposed whereby complementary and variable components are grouped together in a meaningful way in order to counter the risk that possible gender discrimination in individual remuneration components remains hidden.
  
  

4. Other proposals relating to the reporting obligation

• The German text form (Section 126b of the German Civil Code (BGB)) should suffice, i.e. strict written form (“wet ink”) within the meaning of German law should not be required.
• References to recognised tools or methods for assessing the equal value of jobs should be included in the legislative materials of the transposing law.
• The reporting obligation should only apply to companies with 100 or more employees, i.e., no “goldplating” is foreseen in relation to the employers in scope with respect to the implementation of the Directive in Germany.
• Pay differences should be documented based on full-time equivalents, provided that the report refers solely to gross annual pay.
• For the purposes of reporting on the pay gap in accordance with Article 9(1)(g) of the Directive (gender pay gap between workers by categories of workers), a separate presentation should be made for each group of non-tariff employees (i.e., not covered by collective bargaining agreements) and tariff-employees (i.e., covered by collective bargaining agreements). This makes it easier to attribute any pay gap to the individual employee groups (tariff and non-tariff employees) and avoids any pay gaps among non-tariff employees being mistakenly attributed to the collective bargaining agreement.
• A pay transparency report demonstrating a pay gap of less than 5% should suffice to enable an employer to counter the appearance of gender-specific pay discrimination in an equal pay lawsuit.
  
  

5. Job evaluation regarding the formation of comparison groups

• According to Article 9(1)(g) of the Directive, in addition to the average gender pay gap, the gender pay gap for “categories of workers” performing equal work or work of equal value must also be documented. According to Article 4(4) of the Directive, the assessment of whether work is equal or of equal value must be based on objective, gender-neutral criteria agreed with workers’ representatives. These include at least the job evaluation criteria (i) skills, (ii) effort, (iii) responsibility and (iv) working conditions, but may also include other factors relevant to the specific job or position.
• According to the commission, the comparison groups (“categories of workers”) should be formed in accordance with the evaluation criteria set out in Article 4(4) of the Directive, noting the leeway that the Directive allows for any other factors that are relevant to the specific job or position.
• There should be no requirement to refer to the use of science-based job evaluation tools. However, the legislator could specify the concept of work of equal value in more detail so that small and medium-sized companies in particular are able to define meaningful and legally sound comparison groups.

The federal government could also ease the burden on companies by making analytical tools that “meet the requirements of Article 4(4) of the Directive” available for use free of charge. However, the use of such tools should be voluntary for companies.

• Employers should be allowed to document data separately for different locations (e.g., in different federal states within Germany with different salary levels) and for “legacy” contracts.
  
  

6. Proposals for preferential treatment of employers bound by and applying collective bargaining agreements

• The commission was unable to conclusively resolve the question to what extent a presumption of adequacy for collective bargaining agreements could apply. In our opinion, a presumption of adequacy as provided for under the current state of German law cannot be expected with regard to EU legal requirements (cf. Section 4(5) of the German Pay Transparency Act (EntgeltTranspG): "For remuneration regulations stemming from collective bargaining agreements and those based on a binding determination pursuant to Section 19 (3) of the German Work at Home Act (Heimarbeitsgesetz), a presumption of appropriateness applies. Activities that are assigned to different remuneration groups on the basis of these regulations are not considered to be of equal value, provided that the regulations do not violate higher-ranking law.").
• However, according to the commission’s proposal, there should be no right of co-determination under Article 4(4) of the Directive with regard to job evaluation criteria in companies bound by or applying collective bargaining agreements, nor should there be any cooperation with works councils in the formation of comparison groups, provided that the collective bargaining agreement complies with the requirements of Article 4(4) of the Directive.

However, according to our interpretation this statement should only apply to the relevant scope of application of the collective bargaining agreement, i.e. it should not affect works council participation in the assessment of jobs that do not fall within the scope of the collective bargaining agreement and the corresponding classification of such jobs outside the scope of the collective bargaining agreement.

• For the purposes of responding to the right to information under Article 7 of the Directive, a presumption of adequacy and a two-step model shall apply in such a way that, in the case of employers bound by collective bargaining agreements or applying collective bargaining agreements, the request for information is initially limited to the relevant pay group under the collective bargaining agreement of the person seeking information, i.e. the formation of comparison groups should initially be possible on the basis of the pay group as per the collective bargaining agreement. A correction should only be necessary if the person requesting information proves that the pay group categorization under the collective bargaining agreement does not meet the requirements of Article 4(4) of the Directive, i.e. does not take into account the mandatory job evaluation criteria.
• Companies bound by collective bargaining agreements or applying collective bargaining agreements should be granted a longer period to respond to requests for information and clarification.
• Accordingly, employers bound by collective bargaining agreements or applying collective bargaining agreements should also be granted longer deadlines for responding to enquiries regarding the pay transparency report and an extended deadline for remedial measures when the pay under the collective bargaining agreement is affected.
• Individual provisions of a collective bargaining agreement that violate Article 157(1) of the Treaty on the Functioning of the European Union (TFEU) (not the entire collective bargaining agreement) should no longer be mandatory.
  
  

7. Relief for micro-sized companies

• Article 6(2) of the Directive allows companies with fewer than 50 employees to be exempted from the obligation to provide information on the criteria for pay progression to their employees. The commission proposed making use of this option for the purpose of simplification.
  
  

8. Relationship to sustainability reporting under the Corporate Sustainability Reporting Directive (CSRD)

• The commission calls on the legislator to harmonise the reporting requirements under the Directive with those under the Corporate Sustainability Reporting Directive (Directive (EU) 2022/2464 – “CSRD”) and proposes regulating this in the CSRD implementation law, as the reporting obligation regarding the gender pay gap in the Pay Transparency Directive goes beyond that in the CSRD.
  
  

9. Remedial procedures under Article 9(10) and joint pay assessment under Article 10 of the Directive

• Article 9(10) of the Directive allows for additional clarifications and details to be obtained regarding any of the data provided by the employer in the pay transparency report. This right is available not only to employees but also to workers’ representatives. If gender-based pay differences are not justified, employers must take remedial action and must, among others, involve the workers’ representatives. In cases where (i) the pay reporting demonstrates a difference in the average pay level between male and female workers of at least 5% in any category of workers, (ii) this difference is not justified on the basis of objective, gender-neutral criteria, and (iii) this is not remedied within six months, a so-called joint pay assessment must be carried out with the workers’ representatives, under Article 10(1) of the Directive.
  
  

10. Competent workers‘ representative body

• The competent works council (i.e., local works council, company-level works council, group works council, staff council, executives’ committee, church employee representative body) shall always be regarded as the "workers’ representatives" within the meaning of Article 9(10) of the Directive, even in companies bound by collective bargaining agreements.
• Although the majority of commission members do not consider trade unions to be workers’ representatives within the meaning of European law, they may be involved on a voluntary basis. In view of the diverging opinions within the commission, the commission recommends that the legislator precisely regulate the remedial procedure and the relevant responsibilities in order to ensure legal certainty for companies.
  
  

11. Involvement of workers’ representatives and remedial procedure

• Workers’ representatives should be involved in:
  • the determination of job evaluation criteria in accordance with Article 4(4) of the Directive,
  • the determination of the category of workers in accordance with Article 3(1)(h) of the Directive (i.e., questions of grouping), and
  • the establishment and implementation of the joint pay assessment.
• However, in companies bound by collective bargaining agreements, workers’ representatives should not have a right of participation in the determination of job evaluation criteria, provided that the collective bargaining agreement complies with the requirements of Article 4(4) of the Directive and is correctly applied.
• The employer should be able to assess independently if the reporting under Article 9(1)(g) of the Directive reveals a gender-based pay gap that is not justified by objective, gender-neutral criteria and should only be required to inform the workers’ representatives accordingly.

This would be an employer-friendly implementation, especially since the recitals of the Directive provide for a joint pay assessment to be carried out “if the employer and the workers’ representatives concerned do not agree that a difference in average pay level between female and male workers of at least 5% can be justified on the basis of objective, gender-neutral criteria”.

• Workers’ representatives do not have to be involved on an equal footing in the preparation of pay transparency reports. In this respect, workers’ representatives should only be granted the right to be “consulted on the accuracy of the information”.
• The commission calls on the legislator to put in place clear, simple processes and responsibilities for joint pay assessments and to adopt Article 10(2) of the Directive, which regulates the subject matters of joint pay assessments in more detail, essentially word for word.
  
  

12. Companies without workers’ representatives

• Despite recital 43 sentence 4 of the Directive, according to which workers’ representatives “should” be designated by workers for the purpose of joint pay assessments if no such representatives exist, the commission argues that there should be no obligation to create new workers’ representatives in companies without works councils. In such cases, the “joint” pay assessment should rather be omitted. At most, an existing company-level or group works council should be involved.
• In companies without work councils, it should also not be mandatory to involve a governmental authority, equal treatment body or expert in the pay assessment.
  
  

13. Remedial procedures and deadlines

• The Directive stipulates in Article 9(10) sentence 3 that in the event of unjustified gender-based pay differences (as revealed by the pay transparency report), employers must take remedial action within a reasonable period of time in close cooperation with workers’ representatives, the labour inspectorate and/or the equality body. The commission proposes that employers be given a statutory deadline (e.g., six weeks) to inform and consult with workers’ representatives. If necessary, the parties involved should agree on a specific "roadmap" with their own additional deadline (two-stage procedure). Employers bound by regional collective bargaining agreements should inform the relevant employers' association as part of their membership obligations.
• The right to request clarification regarding the information contained in the pay transparency report, set forth in Article 9(10) sentence 1 of the Directive, should be restricted to the relevant parties or, at the very least, stipulate that it may only be exercised in a reasonable, predetermined order. Furthermore, only precisely defined questions should be permitted.
• It should be clarified that remedial measures for unjustified gender-based pay differences should not only include an “upward adjustment” for the future, but also a “freeze” on the pay of the better paid employees until pay equality is achieved or – using the existing instruments under labour law – a reduction in pay. If necessary, according to the majority of the commission, the conditions under which a reduction is permissible can be clarified in the law itself.

A reduction in the remuneration of the better paid employees of the comparison group would be quite revolutionary in German labour law but would serve employers’ interests.

14. Justification of pay differences

• The commission calls on the legislator to regulate a non-exhaustive legal catalogue of justifications for unequal treatment based on previous ECJ case law. This should also include agreements to preserve acquired rights, e.g., following restructuring within a company or company acquisitions, at least if they were concluded before the deadline for implementation of the Directive on 7 June 2026.

The condition that an agreed grandfathering for preserving acquired rights can only serve as a justification if it was agreed before 7 June 2026 does not seem entirely reasonable, especially since there may be sound business needs for grandfathering of acquired rights also after 7 June 2026 for the reasons mentioned above.

• Objective gender-neutral reasons for justifying gender-based pay differences should be person-related. The commission cites local differences and market conditions as examples. Works councils should receive training opportunities relating to the justification process.
  
  

15. Right to information under Article 7 of the Directive

Article 7(1) of the Directive stipulates that workers shall have the right to request and receive in writing information on their individual pay level and the average pay level, broken down by sex, for categories of workers performing the same work as them or work of equal value to theirs.

• The information provided in response to individual requests from employees about their own pay and the average pay of the female and male comparison group should include a comprehensible explanation of how the comparison groups were formed.
• The formation of comparison groups should also apply to the individual right to equal pay under Article 157 TFEU and the right to information.
• If no genuine comparator can be identified, other evidence may be used to prove suspected pay discrimination (including statistics or a comparison of how an employee in a comparable situation would be treated). Accordingly, relevant discriminatory disadvantage may also be based on the fact that a person receives less favourable treatment on grounds of sex than another person has received or would receive in a comparable situation. However, in the commission's view, the use of fictitious or hypothetical comparators or employees who have already left the company should not apply to the formation of comparison groups in the context of answering to individual information requests.
• For data protection reasons, a minimum size for the comparison group should be specified, as is currently the case in the German Pay Transparency Act (at least six persons of the opposite sex in the comparison group). However, the Directive does not specify a minimum size for the comparison group as a prerequisite for responding to the request for information, but leaves it to the Member States to take data protection concerns into account in such a way that, in cases where the disclosure of information would lead to the direct or indirect disclosure of the remuneration of an identifiable employee, only workers’ representatives, the labour inspectorate or the equality body shall have access to the information in question. The workers’ representatives or the equality body shall then advise employees on possible claims without disclosing the actual pay levels of individual employees performing the same work or work of equal value (Article 12(3) of the Directive). In this respect, there are doubts as to whether the complete denial of the right to information in cases where the size of the reference group falls below a minimum threshold (of 6 as under current law) would be in conformity with the Directive.
  
  

16. Content of the information

• The information should only relate to the total gross remuneration paid in the previous year (sum of all remuneration components), broken down into gross annual remuneration and the corresponding gross hourly remuneration (based on the contractually agreed working hours).
• A breakdown into the individual remuneration components should not be necessary.
• The employer may exclude remuneration components that have not yet been fully settled but must disclose these. The precise requirements for such disclosure in order to avoid any lack of transparency remain unclear. Clear regulation by the legislator in this regard would be welcome. However, in our opinion, corresponding enquiries regarding such remuneration components that have not yet been settled would then have to be permitted at a later date.
• The requirement under German law to state the median as the comparative remuneration (Section 11(3) sentence 2 EntgTranspG) is to be replaced by the requirement under the Directive to state the average comparative remuneration of both genders in the comparison group.
  
  

17. Limitation of the right to information

• Employees should only be able to request information about the previous calendar or financial year once a year.
• Under the new law, the new right to information should for the first time apply in 2027, either (per a narrow majority of the commission members) one year after the end of the implementation period, i.e., on 7 June 2027, or on 1 January 2027 (according to a minority of the commission members). It is doubtful whether such a transition period would be in line with the Directive. However, it can be explained by the fact that the pay structure as mandated by the Directive – to which the information request relates – must only be in place by the end of the implementation period. Therefore, it could be argued that extending the obligation to provide information in accordance with the Directive to a period prior to the implementation deadline of the Directive does not appear strictly necessary.
• Requests for further information may not relate to additional information beyond that already provided.
• A deadline for follow-up questions should be defined (e.g., six weeks). However, in our opinion, such a deadline should not apply to remuneration components that have been made transparent but not yet settled.
  
  

18. Further proposals on the right to information

• The competent ministry should make voluntary standard information forms available online.
• The information should be provided digitally in text form (Section 126b BGB, i.e. no wet ink requirement).
• The information should be “provided” by the employer but may be transmitted by the works council, as a messenger, in order to maintain anonymity.
  
  

19. “Single source“

• The Directive stipulates that the assessment of whether employees perform equal work or work of equal value is not limited to situations in which female and male workers work for the same employer but shall be extended to a single source establishing the pay conditions. According to the commission, the concept of remuneration conditions determined by a “single source” is not relevant in the context of the right to information. In our opinion, this should also apply to the pay transparency report.
• The legislator is asked to clarify whether and to what extent regional differences in pay under collective bargaining agreements are permissible, even if they are based on a single source (e.g., company collective bargaining agreement).
  
  

20. Digital assistance

• Finally, the commission examines the role of digitalisation in the context of low-bureaucracy implementation. It raises the question of which (digital) support tools the federal government and the monitoring body should provide to employers in order to reduce the burden of reporting obligations and information requirements, as well as the associated costs.
• The federal government should provide various tools that comply with the requirements of the Directive (e.g., to assist with job evaluation and the formation of comparison groups) as well as standardised reporting templates.
• Providers of relevant software should be asked to implement the requirements of the Directive and provide analysis options to save small and medium-sized companies from having to switch to a different tool.
• There should be a link to existing infrastructures used by the business community that keep the effort involved in registration, identification and authentication as low as possible (e.g., ELSTER procedure). A user-friendly online portal should be set up for data entry and transmission, and ready-to-use templates should be provided.
• Secure, automated interfaces for data transmission and interfaces to software providers such as DATEV or AGENDA should be set up, or the reporting obligation should be integrated into this software.
• Existing transfer structures should be used instead of creating new ones.
  
  

Conclusion

The commission’s efforts to make implementation as unbureaucratic as possible are likely to be welcomed by small and medium-sized companies in particular. The decision not to impose excessive implementation regulations and requirements on companies without works councils, for example, also appears sensible in view of minimising the burden on companies. Although the commission’s report sets out a few basic guidelines for giving preferential treatment to employers who are bound by or apply collective bargaining agreements, it also highlights the difficulty of achieving both objectives, namely implementation in line with the Directive while setting requirements for companies that are as unbureaucratic as possible (that is like trying to square the circle). With regard to the further legislative process, it remains to be seen to what extent the German legislator will follow the commission’s proposals and whether and how the legislator will succeed in implementing the Directive in a way that is both practicable and compliant with the Directive and that also clarifies legal uncertainties.