System Change: Pay Transparency 2026
The EU Pay Transparency Directive will take effect on June 7, 2026, and the first report for larger companies is due just one year later. The requirements for data maintenance, analysis logic, and reporting are stringent.
The countdown is on: By June 7, 2026, all EU member states must transpose the Pay Transparency Directive (EU 2023/970) into national law. ¹ For Germany, this means a fundamental revision of the existing Pay Transparency Act of 2017, with far-reaching consequences for HR departments and their systems. At the heart of these requirements is the question: Is your SAP HCM ready for this?
From the EntgTranspG 2017 to the EU Directive 2026
The German Pay Transparency Act, which has been in effect since July 2017, took a clear but limited approach: Employees at companies with more than 200 staff members have the right to receive information about the average salary of comparable colleagues. It sounds good, but in practice it has made little difference. The federal government’s second effectiveness report reaches the sobering conclusion that the law has had “essentially no measurable impact” on actual pay inequality. Furthermore, only about 42 percent of employees are even aware of their rights under this law.
This is precisely where the new EU Pay Transparency Directive comes in. It clearly shifts the responsibility to employers, establishes mandatory reporting requirements, lowers the thresholds, and introduces effective enforcement mechanisms. So it is less of an update to the existing law and much more of a systemic change. The directive is based on three equally important pillars:
01
Access to information
Job applicants and employees will benefit from greater transparency regarding pay and additional protection against wage discrimination.
02
Reporting requirement
Employers are held accountable for ensuring equal pay for work of equal value and must justify or eliminate any pay gaps.
03
Access to justice
Employees who face wage discrimination may be entitled to compensation. Employers may be fined for violating EU regulations.
An overview of the key new obligations
Even though the final draft legislation for national implementation has not yet been released, the key provisions of the EU directive are already clear. HR managers should start aligning their processes and systems with these provisions now:
- Salary transparency in recruiting: Job postings must now include the starting salary or a salary range—even before the interview. Asking applicants about their previous salaries is prohibited.
- Right to Information for Employees: Employees may request information about their own compensation compared to the average wage for their employee category, broken down by gender. This information must be provided within two months of the request.
- Tiered reporting requirements for companies with 100 or more employees: Companies with more than 250 employees must report annually; companies with 150–249 employees must report every three years. Companies with 100–149 employees will not be required to report every three years until 2031. Companies with more than 150 employees must submit their first report (for the year 2026) by June 7, 2027.
- Joint Pay Assessment: If the report reveals a pay disparity of more than 5 percent within an employee category without objective justification, a structured pay review is mandatory.
- Reversal of the burden of proof: It is no longer up to employees to prove discrimination; instead, the employer must demonstrate that no discrimination has occurred.
- Annual Duty to Inform: Employees must be actively informed of their right to access information at least once a year.
Important to know:
A majority of the German expert commission has proposed delaying the implementation of the individual right to information until June 2027 to give companies more time to prepare. However, the Federal Ministry has indicated that it intends to adhere as closely as possible to EU requirements. It would be a mistake to use this leeway as an excuse to wait and see.
SAP HCM as the foundation and where the gaps lie
For many medium-sized and large companies in Germany, SAP HCM is the leading system for personnel administration, time management, and payroll processing. The good news is that SAP HCM generally provides a solid data foundation for meeting pay transparency requirements. The less encouraging news is that, in practice, there is often still a long way to go between the data currently available and compliance with reporting requirements.
The directive requires employers to evaluate job duties based on objective, gender-neutral criteria, specifically: skills, workload, responsibility, and working conditions.
This requires that the relevant structures in SAP HCM are properly maintained and consistently mapped.
Common vulnerabilities in SAP data maintenance
In our consulting practice, we repeatedly encounter the same structural problems that stand in the way of compliance with the law:
- Inconsistent position structures: If positions are not clearly linked to job roles and organizational units, it is difficult to reliably define “equivalent work” within the system.
- Lack of evaluation criteria: SAP OM provides fields for job profiles—but many companies do not use them, or use them only sporadically and without a consistent system.
- Incomplete data on compensation components: Variable pay, bonuses, and allowances are often stored in legacy systems outside of SAP—and are missing from the overall picture of the compensation analysis.
- Missing FTE calculation: The legally required benchmark requires the conversion of part-time wages to full-time equivalents—a feature that is often not enabled by default.
Any organization that fails to maintain its job structure in SAP properly today will be unable to meet reliable information requests by 2026 and, in cases of doubt, will bear the burden of proving that there has been no violation of the principle of equal treatment.
How SAP supports you during implementation
SAP customers don’t have to implement the requirements of the Pay Transparency Directive on their own. SAP offers a comprehensive portfolio of solutions that helps companies document and actively promote transparency. We can help you implement these solutions.
The intended SAP process begins with visibility: SAP provides the foundation for a fair compensation culture, from recruiting to the ongoing employment relationship. Building on this, the solutions generate the reports required to comply with country-specific regulations, without the need for manual preparation in auxiliary systems. Those seeking deeper insights benefit from AI-supported analyses based on SAP and external data sources, which help not only to document pay gaps but also to derive concrete measures.
Especially in an environment where national implementation laws are still evolving, local expertise plays a crucial role. Regional experts ensure that legal updates are promptly incorporated into the solutions. Configurable features make it possible to adapt flexibly to unique country-specific requirements.Especially in an environment where national implementation laws are still evolving, local expertise plays a crucial role. Regional experts ensure that legal updates are promptly incorporated into the solutions. Configurable features make it possible to adapt flexibly to unique country-specific requirements.
Risks of non-compliance and the opportunities of compliance
The EU directive provides for effective sanction mechanisms for the first time. Companies that do not comply with reporting obligations or fail to correct discriminatory pay structures can expect fines and legal action. Qualified associations can henceforth represent employees in court proceedings.
However, it would be too narrow-minded to consider pay transparency merely as a compliance issue. Companies with fair and comprehensible compensation structures demonstrably experience higher employee satisfaction, lower turnover rates, and stronger positioning in the competition for talent. Salary transparency can be a genuine strategic advantage when the data foundation is sound.
Our conclusion for practice
Das Entgelttransparenzgesetz 2026 wird kommen und die Frage, die im Raum steht, ist, ob Ihr SAP HCM darauf vorbereitet ist.
Those who now invest in data management, job structures, and reporting will not experience the new requirements as a bureaucratic burden, but as an opportunity to place their own compensation strategy on a solid, future-proof foundation. The time for reactive waiting is over.
You would like to know how your SAP HCM is specifically set up for the pay transparency obligations? We analyze your current system configuration and work with you to develop a practical implementation roadmap, from data maintenance to the finished report.
