On January 11, 2017, the German Federal Cabinet has adopted the Equal Pay Act (Entgelttransparenzgesetz) submitted by the German Federal Ministry for Family Affairs, Senior Citizens, Women and Youth.
As we reported, the requirements of the Equal Pay Act as now adopted have been lessened in comparison with the preliminary ministerial draft we initially reported on, in accordance with the agreement found by the coalition committee of the German government parties.
Still, the Federal Minister for Family Affairs, Senior Citizens, Women and Youth declared the adoption of the Equal Pay Act an important breakthrough for a fair payment of women. She announced that the individual right to information, the reporting obligation and review procedure can be expected to change corporate culture in Germany.
Key Aspects of the Equal Pay Act
- Individual Right to Information for Employees: Employees will be entitled to be informed by the employer about the salary of co-workers in similar positions. However, this shall only apply in companies employing more than 200 employees. In companies bound by collective bargaining agreements, the information shall both be gathered and issued by the works council. Particularly, the information right covers the average remuneration of a group of at least six employees performing the same or the same type of work. It includes information about two further salary components – such as a bonus or company car – at the employee's option. If a difference in remuneration is revealed, the employee concerned is entitled to payment of the amount of remuneration that would have to be paid if there had not occurred a direct or indirect discrimination. This includes a claim for compensation for past differences in remuneration as well as adjustment for the future. However, exceptions may apply if the pay level is determined by an applicable collective bargaining agreement.
- Duty of Documentation and Review Procedure for Employers: Companies employing more than 200 employees have to document any pay gap. Furthermore, large companies with more than 500 employees have to introduce an internal company review procedure by way of which pay equity is to be reviewed at least every five years. However, this requirement does not constitute a legal obligation, but rather a non-binding request. Companies within this scope will also be required to report every five years about the implementation of their procedures and their own compliance with the principle of equal pay. These reports will be publicly available.
Accordingly, the new Equal Pay Act will create a substantial effort in particular for large companies with more than 200 respectively 500 employees. In these companies, considerable internal capacities and operating resources will be necessary to meet the new requirements.
It is aimed to enact the Act in summer so that it can enter into force on July 1, 2017 – just before the parliamentary elections for the Bundestag taking place this fall.
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