The Aim of the Act is to Close the Statistical Pay Gap.
The objective of the Transparent Compensation Act is to close the statistical wage gap (in terms of the average gross hourly wage) between women and men, which is either 21% ("unadjusted" pay gap) or 7% ("adjusted" to eliminate the structural factors and differences in work experience between women and men), depending on how you read the statistics.
The Means: A Right to Information
The key element of the Act is that all employees are now entitled to obtain information on the compensation of their colleagues at companies with more than 200 employees as of January 1, 2018. This is configured as follows:
- If employees have evidence that at least six colleagues of the opposite sex are paid more for the same or equivalent work, they can compare their income with the average income of these employees.
- The right to information covers both the base salary and two other components of compensation, such as bonuses or company cars. Employees are free to choose the other two compensation components they request.
- If the employer does not consider the activity specified by the employee to be comparable, the employer must indicate another comparable activity and, if there is no such activity, the employer must justify this.
- The request for information can be made without a handwritten signature. An email from the employee to the employer is thus sufficient. When a works council is in existence, the request for information must be sent to the works council, which will then pursue the request with the employer.
- The employer is required to provide information within one month. Personal data about other employees must be anonymized.
- If the employer does not comply with the information request, an unjustified unequal treatment of the employee by the employer is assumed. The employer is entitled to state justifications for unequal pay. The employer must demonstrate and prove that there are labor market-related reasons for the unequal treatment or exceptional benefits of the employee who is paid more. However, no statutory sanctions are provided for employers with unequal pay.
- In principle, the employee is entitled to access this information only once every two years.
Additional Obligations for Large Companies
If the company regularly employs more than 500 employees, the company must check at least every five years whether or not it is in compliance with the equal pay rules.
Impact on the Management Report
If the company is required to prepare a management report in accordance with the German Commercial Code, it must submit a report on the promotion of women and the establishment of equal pay for equal work.
Impact on Practice
With the statutory claim as of January 1, 2018, employees will be given the opportunity for the first time to receive information on their colleagues' employment terms, and they can exercise this right without great effort at any time. In this context, this instrument will probably be particularly useful in separation scenarios, since it can give the employee additional "bargaining chips".
It is true that, there are no sanctions against employers who fail to provide the requested information, e.g., in the form of entitlement to higher wages. However, the interest in avoiding violations is likely to be very high because they could impair the climate at the company and damage the company's public image.
It is, however, doubtful whether the Transparent Remuneration Act will actually lead to equal pay for men and women—especially one that is statistically demonstrable.