Know what is of equal value – Systematically organising legally compliant pay

Despite decades of efforts to establish equality, significant differences in pay between men and women persist. In 2022, the unadjusted gender pay gap in Germany was 18 %. Women earned a gross average of EUR 20.05 per hour, while men came in at EUR 24.36. The adjusted gender pay gap was 7 %.

The main causes are higher rates of part-time work among women, work in sectors with poor pay and a lower share of women in executive positions. Across the EU, the unadjusted pay gap was 12.7 % and has persisted at a similar level for years. The European legislature wants to counter this unequal treatment with the EU Pay Transparency Directive (2023/970/EU).

Status quo: National provisions have been ineffective so far

The German Transparency in Wage Structures Act (EntgTranspG) includes a prohibition of pay discrimination on the grounds of gender. Studies show, however, that the law is having hardly any effect in practice, since it is not widely known, is being circumvented and does not provide for any effective sanctions.

The Pay Transparency Directive: New obligations, clear assessment criteria

The Pay Transparency Directive (2023/970/EU) introduces genuine reforms in many respects: It compels companies to take concrete measures, increases their reporting obligations as well as the employees' rights to information and establishes sanctions in the event of breaches. All these obligations stem from the question of whether, and if so which, men and women employed by the company are performing "equal" work or work "of equal value" and therefore have a right to "equal pay". According to the directive, this pay assessment must be performed on the basis of objective, gender-neutral criteria, regardless of job titles or organisational structures. The particular objective, gender-neutral criteria the directive names are:

• Skills
• Effort
• Responsibility
• Working conditions

Other factors specific to the job or position can additionally be taken into consideration. The important thing is that the assessment is not based merely on job titles or on standards such as comparability in a social selection (Sozialauswahl).

"Work of equal value" according to the directive

The directive not only reinforces the principle of "equal pay for equal work", but expands this principle to "work of equal value". Even if work is not identical, it must receive the same remuneration if it is classified as being of equal value based on objective criteria.

Work is of equal value if it has comparable requirements in terms of qualifications, responsibility, effort and working conditions. The assessment is not based on formal titles or departments, but rather on an objective assessment of the actual requirements and content of the work.

Typical assessment criteria for the work's value are:

• Professional and personal skills (education, experience, social skills)
• Responsibility (e.g. personnel management, budget responsibility)
• Effort (physical, psychological, time)
• Working conditions (e.g. shift work, field work, environmental conditions)

For example: A human resources assistant with responsibility for staff and a technical project manager with a similar degree of responsibility can perform work of equal value even if their work is different in terms of its content.

Companies should therefore implement gender-neutral and transparent assessment models to identify and prevent structural disadvantages.

New: Joint pay assessment in the event of a gender pay gap

Another one of the directive's key instruments is the obligatory joint pay assessment by employers and employee representatives. This must be carried out whenever there is a gender pay gap of at least 5 % within a group of employees and there is no objective justification for it. In this event, employers are required to analyse the causes of the pay gap and develop measures to eliminate the gap in cooperation with works councils or trade unions.

The EU Pay Transparency Directive poses outstanding questions of interpretation and practical challenges

Despite the directive's clear aim, its individual provisions raise questions of interpretation and scope that are of major relevance in transposing it into national law and in practice:

1. Unit of comparison: company or establishment?

In Article 19, the directive names the "employer" as the point of reference for the pay assessment. It can be inferred from this – based on a systematic interpretation – that the work must be compared across the entire company and not just for each local establishment. As of yet the directive does not explicitly take regional differences, varying collective bargaining coverage rates or economic structures of individual locations into account.

2. Assessing specific pay components

Particular challenges result from attempting to categorise and assess variable or atypical remuneration components, such as:

Employee interests (e.g. stock options) granted to all employees across the corporation or by parent companies abroad,

Severance payments, which can vary in amount from case to case depending heavily on individual negotiating positions, litigation risks or social perspectives. Especially in cases involving severance payments negotiated individually – such as outside a social plan – comparability is hard to establish.

Companies should therefore ensure that the circumstances of negotiations and the relevant assessment criteria are clearly documented.

3. Relevant experience and gaps in CVs

Care must also be taken when assessing relevant experience. There is a question as to what extent gaps in a CV as a result of parental leave, compulsory maternity leave or part-time work may be taken into account without being used as grounds to claim indirect discrimination.

Action required: Set up assessment systems before deadlines

The directive must be transposed into national law by 7 June 2026. However, companies should make early preparations rather than waiting to act. It is worth initiating the following measures now:

• Examining existing pay systems and identifying structural gaps
• Developing objective and gender-neutral assessment models for work
• Transparently recording and documenting all pay components
• Aligning HR processes, employment contracts (e.g. confidentiality clauses) and application procedures to conform with the new requirements,
• Providing targeted training for HR, executives and works councils on the new legal situation.

CMS can support you with implementing the EU Pay Transparency Directive

The Pay Transparency Directive poses new legal and organisational challenges for companies. CMS will provide you with comprehensive advice on introducing appropriate pay assessment and documentation systems – systems that are in compliance with the law, practical and tailored to your company.

Our digital analysis tool CMS Pay Gap Compliance allows us to identify any differences in pay, establish a reliable foundation for assessment and support you in organising sustainable and legally compliant remuneration systems in line with European law.

Feel free to get in touch with us – we have the skills you need to implement these provisions in compliance with the law.