Pay Equity Audit 2026: 6-Step Guide for Joint Pay Assessment

1. EU Pay Transparency + transposition in DE/AT

The transposition deadline for the directive expired on 7 June 2026 — but for private employers the specific obligations under the directive only arise with the national transposing act. EU Pay Transparency Directive 2023/970: adopted on 10 May 2023, published in the Official Journal on 17 May 2023, transposition deadline 7 June 2026. German transposition: as at 17 August 2026 no transposing act was in place; according to the Federal Government's reply of 8 July 2026 (BT-Drs. 21/7026), the lead Federal Ministry for Education, Family Affairs, Senior Citizens, Women and Youth has made the necessary preparations for a bill and is still clarifying individual questions, after which the legislative procedure is to be initiated.

Art. 34(1) of Directive 2023/970 obliges the Member States to bring the necessary laws and administrative provisions into force by 7 June 2026. Under Art. 288(3) TFEU a directive is binding only on the Member States to which it is addressed; it has no direct effect between private employers and employees (no horizontal direct effect, CJEU, judgment of 14 July 1994 — C-91/92 Faccini Dori). Once the deadline has passed it can at most have direct effect vis-à-vis the state and state bodies. For private employers, therefore, the EntgTranspG and the AGG apply until national transposition; interpretation of existing law in conformity with the directive remains possible. Practical consequence: prepare, yes — but the obligation to provide information on the initial pay or its range before recruitment, or to produce a pay report, does not arise automatically on the cut-off date.

Sanctions: Art. 23 of Directive 2023/970 requires effective, proportionate and dissuasive penalties but does not state an amount — the level follows from national law and in Germany will only be fixed by the transposing act. Claims for damages by the employees discriminated against come on top of this.

In substance, the directive gives the audit three anchors: pay structures that ensure equal pay for equal work or work of equal value (Art. 4(1)); objective and gender-neutral criteria for pay determination, pay levels and pay progression, which must be made available to employees proactively (Art. 6(1)); and the criteria for assessing the value of work (Art. 4(4), set out in detail in step 1).

DE/AT — the directive applies identically, national law does not: the requirements of Directive 2023/970 (Art. 4 to 10) are identical in Germany and Austria. National law, legal bases and competent authorities differ, however — anyone setting up the audit for an Austrian site is not working with the AGG and the EntgTranspG.

• Germany: the equal pay requirement under § 7 of the German Pay Transparency Act (EntgTranspG), the prohibition of disadvantage covering all pay components under § 3 EntgTranspG; the individual right to information under §§ 10 to 12 EntgTranspG (in establishments with, as a rule, more than 200 employees; the comparative pay figure need not be given if the comparable activity is performed by fewer than six employees of the other sex). Protection against discrimination via the German General Equal Treatment Act (AGG) (§ 3, § 7, § 22). Points of contact: the Federal Anti-Discrimination Agency (Antidiskriminierungsstelle des Bundes) and the labour courts.
• Austria: the Austrian Equal Treatment Act (GlBG) applies — there is no EntgTranspG there. § 11 GlBG requires company classification rules and norms of collective legal regulation to base their remuneration criteria on the principle of equal pay for equal work or work of equal value; § 3 no. 2 GlBG prohibits discrimination in the setting of pay; § 9 GlBG requires gender-neutral job advertisements, and infringements are penalised by the district administrative authority under § 10 GlBG — an employer receives a formal caution for a first breach and is fined up to EUR 360 only for further breaches (§ 10(3) GlBG). The competent bodies are the Ombud for Equal Treatment (GAW) and the Equal Treatment Commission (Gleichbehandlungskommission), as well as the labour and social court.

2. Thresholds 100/150/250

The size classes differ only in the date of the first reporting obligation and in the frequency. The catalogue of mandatory information under Art. 9(1)(a) to (g) of Directive 2023/970 is identical for all employers subject to reporting — there is no reporting content graded by size:

Mandatory information under Art. 9(1): the overall pay gap ((a)), the pay gap in complementary or variable components ((b)), the median pay gap ((c)) and the same for complementary or variable components ((d)), the proportion of employees receiving complementary or variable components ((e)), the proportion of employees in each pay quartile ((f)), and the pay gap by category of employee, broken down by ordinary basic salary and variable components ((g)).

The report is submitted to the competent national authority; that authority publishes aggregated data — the individual data are not public. The existing German report under § 21 EntgTranspG does not cover this: it applies only to employers with, as a rule, more than 500 employees that are at the same time required to prepare a management report under §§ 264, 289 HGB, and it does not require a pay gap figure. Existing reports have to be extended methodologically.

Under Art. 10(1), the Joint Pay Assessment applies to all employers subject to the reporting obligations under Art. 9 — not only those with 250 or more employees. Employers with fewer than 100 employees are not subject to reporting (Art. 9(5)) but may report voluntarily; which obligations under Art. 5 and Art. 7 nevertheless apply to them regardless of size is set out in the FAQ.

3. The 6-step audit

The audit runs in six steps that build on one another: first the job evaluation, then the data, then the calculation, then the explanation, then the correction, and finally the report. Each step has its own source — and steps 4 and 5, together with the 5% threshold, decide whether the Joint Pay Assessment is triggered.

1. Job evaluation — classify all positions (skill, effort, responsibility, working conditions).
   Why: without a gender-neutral job evaluation there is no reference point for any later calculation. The directive measures equal pay against "equal work or work of equal value"; the value of work is determined on the basis of skills, effort, responsibility and working conditions. The criteria for pay determination must be objective and gender-neutral and must be made available to employees proactively.
   Who: HR/compensation, with the result documented in writing (recommended practice).
   Source: Art. 4(1) and (4) Directive 2023/970 Art. 6(1) Directive 2023/970 § 7 EntgTranspG (DE) § 11 GlBG (AT)
2. Data extract — payroll system export per position, sex and professional experience.
   Why: the catalogue under Art. 9(1) requires the mean, the median, variable components, quartile shares and values per category of employee — these figures can only be produced from a consistent raw data set containing the job group, sex and separated pay components. Pay data broken down by sex are not a special category of personal data: Art. 9(1) GDPR lists the special categories exhaustively and does not mention sex. The limitation follows instead from the principle of data minimisation. Recommended practice: extract only the fields that carry a figure from the catalogue, and fix the reference date bindingly once per reporting cycle.
   Who: payroll, with data protection support (recommended practice).
   Source: Art. 9(1) Directive 2023/970 Art. 5(1)(c) GDPR Art. 9(1) GDPR
3. Pay gap calculation — unadjusted + adjusted.
   Why: two values have to be calculated: unadjusted (median for men minus median for women across the whole workforce) and adjusted (controlled for job evaluation, professional experience and performance) — both values belong in the analysis; what must be reported under Art. 9(1) is the mean pay gap ((a)) and the median pay gap ((c)). Art. 9(1) requires both perspectives side by side — the mean pay gap ((a)) and the median pay gap ((c)), which is added to it and does not replace the mean. In evidentiary terms the calculation counts twice over: the Federal Labour Court (BAG) has recognised the median comparison as an indication shifting the burden of proof (judgment of 21 January 2021 — 8 AZR 488/19) and clarified in 2025 that a pairwise comparison with a single, highest-paid male colleague already triggers the presumption of discrimination under § 22 AGG / § 7 EntgTranspG; a median comparison is not required for this (judgment of 23 October 2025 — 8 AZR 300/24).
   Who: HR/compensation, with the result documented in writing (recommended practice).
   Source: Art. 9(1)(a), (c), (f), (g) Directive 2023/970 § 22 AGG (DE) BAG 8 AZR 300/24
4. Explaining the gap — by objective factors (experience, performance, role).
   Why: a difference is justified only on the basis of objective, gender-neutral criteria (Art. 10(1)(b)). The BAG has held that "better negotiating skills" does not justify a pay difference (judgment of 16 February 2023 — 8 AZR 450/21). The standard of proof differs by jurisdiction: in Germany, under § 22 AGG the opposing party bears the burden of proving that there was no infringement once indications have been established. In Austria, under § 12(12) GlBG the facts constituting discrimination must be shown to be credible; the defendant must then prove that, weighing all the circumstances, another motive was more probable or that a ground of justification exists. Art. 18 of Directive 2023/970 for its part provides for a reversal of the burden of proof.
   Who: HR/compensation, with the result documented in writing (recommended practice).
   Source: Art. 6(1), Art. 10(1)(b), Art. 18 Directive 2023/970 § 22 AGG (DE) § 12(12) GlBG (AT)
5. Measures — where the gap cannot be explained: an adjustment plan.
   Why: the adjustment plan is the last stage before the Joint Pay Assessment, not its follow-up — if the difference is removed within the correction window, the assessment does not apply (triggering conditions in detail in section 5). In Germany there is an additional element: the employer must take the necessary measures, including preventive ones, to protect against disadvantage (§ 12(1) to (3) AGG), and employees must not be disadvantaged because they exercise their rights (§ 16(1) AGG). In Austria, § 13 GlBG prohibits disadvantage as a reaction to a complaint within the company or to proceedings to enforce the equal treatment requirement.
   Who: the employer; only once the Joint Pay Assessment is triggered are the assessment and the measures carried out jointly with the employee representatives (Art. 10(1) and (4), section 5).
   Source: Art. 10(1)(a) to (c) Directive 2023/970 § 12, § 16 AGG (DE) § 13 GlBG (AT)
6. Reporting — to the authority + internally (anonymised).
   Why: the report addresses two groups of recipients — the authority (section 2) and the workforce together with the employee representatives (section 5). Purpose limitation and access restrictions for pay data are covered by the data protection paragraph in section 6.
   Who: the employer vis-à-vis the authority; the results of the Joint Pay Assessment jointly with the employee representatives (Art. 10(1), (3) and (4)).
   Source: Art. 9 Directive 2023/970 Art. 10(3) Directive 2023/970

These dates set the rhythm of the cycle; the reporting dates themselves are in section 2. Rows 1 to 3 state requirements of the directive, rows 4 and 5 deadlines under the respective national law:

4. Job evaluation methods

Four routes are common in practice: the commercial systems Hay Job Evaluation, Mercer IPE and Korn Ferry, plus a self-built scale of four criteria with five levels each — for companies with 100 or more employees the in-house scale is the pragmatic way in, while on this assessment the commercial systems only become suitable from 500 to 1,000 employees. The method must reflect the four assessment criteria of Art. 4(4) of Directive 2023/970 — in substance the counterpart to skill, effort, responsibility and working conditions from step 1 — and must keep the criteria for pay determination, pay levels and pay progression objective and gender-neutral (Art. 6(1)). In Austria, § 11 GlBG addresses the same point at company and collective agreement level: classification rules and norms of collective legal regulation must not prescribe criteria that lead to discrimination.

The statements on licence, effort and SME suitability are market and practice assessments as at 2 May 2026. Whichever method is chosen, what matters is that the evaluation reflects the criteria of Art. 4(4) and Art. 6(1) of Directive 2023/970 — flanked in Germany by § 7 EntgTranspG and in Austria by § 11 GlBG.

Recommended practice for the in-house scale: five levels defined in writing for each criterion (skills, effort, responsibility, working conditions), with equal weighting; fix the level definitions before the first evaluation rather than adjusting them during it; have each position classified independently by two people and document deviations with reasons. This documentation later forms the basis of the justification under Art. 10(1)(b) (step 4).

Companies bound by collective agreements are not exempt. Collective agreement clauses on classification have to be reviewed against Art. 4(4) and Art. 6(1) of Directive 2023/970 rather than adopted unchecked — whether national transposing law makes things easier for companies bound by collective agreements will only follow from the respective transposing act.

5. Joint Pay Assessment

The Joint Pay Assessment applies only to employers subject to the reporting obligations under Art. 9 (section 2). Triggers under Art. 10(1) of Directive 2023/970 — the three conditions must be met cumulatively:

1. a difference in average pay levels of at least 5% in a category of employees ((a)) — the threshold is reached at exactly 5%, not only above it
2. the employer has not justified that difference on the basis of objective, gender-neutral criteria ((b))
3. the employer has not corrected it within six months of the date of pay reporting ((c))

Procedure:

1. employer + employee representatives jointly (Art. 10(1))
2. detailed root cause analysis for each affected group (Art. 10(2)(a) to (d))
3. measures to eliminate unjustified pay differences (Art. 10(2)(f)), to be implemented in close cooperation with the employee representatives (Art. 10(4))
4. making the assessment available to employees and employee representatives, notification to the monitoring body; on request to the labour inspectorate and the equality body (Art. 10(3))
5. assessment of the effectiveness of the measures at the next Joint Pay Assessment (Art. 10(2)(g))

The outcome is therefore known within the company. Recommended practice: document the root cause analysis for each affected group in writing, supported by the objective criteria relied on — the same documentation later carries the argument in a dispute (step 4).

6. Pay equity dashboard

The dashboard tracks the mandatory information under Art. 9(1) as ongoing figures; this makes the 5% trigger (Art. 10(1)(a)) and the six-month correction window ((c)) visible before the report falls due. Keeping the figures on an ongoing basis is recommended practice; the underlying reporting information is mandatory. Recommended KPIs:

• unadjusted gender pay gap — mandatory information under Art. 9(1)(a) (mean) and (c) (median)
• bonus difference — mandatory information under Art. 9(1)(b) and (d) (complementary or variable components overall)
• pay gap per pay group — practice KPI; the mandatory information under Art. 9(1)(g) is the pay gap by category of employee (equal work or work of equal value)
• share of women and men in each of the four pay quartiles — mandatory information under Art. 9(1)(f) (not only the top and bottom quartile)
• adjusted gender pay gap — practice KPI; not listed in the mandatory catalogue of Art. 9(1)(a) to (g); supports the justification under Art. 10(1)(b)
• promotion rate by sex — practice KPI; not listed in the mandatory catalogue of Art. 9(1)(a) to (g)

Recommended practice: update the figures at least once per reporting cycle and reconcile them against the raw data extract (step 2) before every reporting cut-off date — a practice rhythm, not a statutory deadline.

Data protection when publishing: pay data may be used only for the purpose of applying the principle of equal pay (Art. 12(2) Directive 2023/970); where disclosure would directly or indirectly reveal the pay of an identifiable worker, Member States may restrict access to employee representatives, the labour inspectorate or the equality body (Art. 12(3)). The publication of individually attributable salary data must be measured against Art. 6(1)(c) GDPR (legal obligation). Recommended practice — not a statutory threshold: aggregate or suppress reports with fewer than four people per comparison group, because the pay of individual employees can be derived from an average of a very small group broken down by sex. Supervision under data protection law lies in Germany with the state data protection authorities (private sector, supplemented by the German Federal Data Protection Act (BDSG)) and in Austria with the Austrian Data Protection Authority (Datenschutzbehörde) on the basis of the GDPR and the Austrian Data Protection Act (DSG).