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Gender pay gap and reporting obligations – what SMEs need to know
TL;DR: the most important facts in brief
- The gender pay gap in Germany is currently around 16%, meaning that women earn an average of 16% less per hour than men
- Around two thirds of this pay gap is due to structural factors (e.g. part-time work, industry, position), but even with comparable qualifications and activities, there is still a pay gap of around six percent.
- This makes Germany one of the worst performers in Europe in terms of the gender pay gap.
- Politicians and legislators have set themselves the goal of reducing the gap to ten percent by 2030.
- New ESRS sustainability standards have required large companies to disclose the percentage pay gap between women and men since the 2024 reporting year.
- Companies – especially SMEs – should act now and, for example, review salary structures, create transparency, promote flexible working models and specifically support women in their careers and leadership, while employees should know their rights and actively campaign for fair pay.
What is the Gender Pay Gap?
The gender pay gap refers to the percentage pay gap between men and women. The average gross hourly wage of all employed women is usually compared with that of men. It is important to distinguish between the unadjusted and adjusted gender pay gap:
- Unadjusted Gender Pay Gap: The simple comparison of average wages without taking other factors into account. This figure reflects the overall pay gap and was around 16% in the UK in 2023 (2024: 14%). This means that women recently earned 14% less per hour than men on average.
- Adjusted gender pay gap: Structural differences are factored out here – i.e. women and men with similar qualifications, jobs and employment histories are compared. The adjusted value is significantly lower and most recently amounted to around four percent in the United Kingdom. This remainder could be due to gender-specific discrimination or unrecorded differences, as women still receive around 4% less on average, even for the same job and similar characteristics.
Put simply, the gender pay gap shows that women earn less than men on average – a sign of persistent inequalities in the labor market. The figure serves as an important indicator for measuring equal pay between the sexes. However, the unadjusted value does not allow any direct conclusions to be drawn as to whether there is unequal pay for equal work because it does not take into account the fact that women and men often work in different occupations and in different volumes. For this reason, the adjusted gender pay gap is also considered in order to better assess possible discriminatory pay differences.
Why is there a gender pay gap? – Causes at a glance
The gender pay gap is the result of several factors. It is often emphasized that it is not exclusively the result of different pay for the same work, but primarily reflects structural differences in the labour market:
Career choice and sectors
Women are disproportionately represented in lower-paid sectors and occupations (horizontal segregation). For example, many women work in the care, education or service sectors, which offer lower wages on average. Men, on the other hand, are more likely to be found in better-paid technical or management-related occupations. Around 24% of the pay gap can be explained by the fact that women are more likely to work in lower-paid sectors. In addition, typical “female professions” such as nursing or administration are often undervalued by society, which is reflected in pay.
Working hours and family leave
Women are more likely to work part-time or interrupt their employment for family and care. They continue to take on a large proportion of unpaid care work (raising children, housework, etc.). Worldwide, women perform billions of hours of unpaid work every day. In Germany, the employment rate for women is around 69%, but significantly more women than men reduce their working hours for family tasks. These reduced working hours and career-related breaks slow down salary development and promotion opportunities. The gender pay gap typically increases with age: while it is low for women starting out in their careers (around seven percent for 25-29-year-olds), it gapes to over 20% for women over 50, because many women go part-time after starting a family and miss out on salary increases. This pattern – often referred to as the “mothers’ trap” – significantly increases the income gap over the working life.
Fewer women in management positions
The income gap increases at higher hierarchical levels. Women are still underrepresented in management and top positions. Fewer than one in ten CEO positions in large companies in Europe are held by women. In Germany, the proportion of women on the boards of large companies is slightly higher than before (around 15% in 2022) thanks to quota regulations, but remains low. This “glass ceiling” phenomenon means that women are less likely to rise to the highest-paid positions. In addition, data shows that the pay gap is particularly high for senior employees and managers: across the EU, female managers earn around 23% less than male managers. This depresses the average earnings of women overall.
Direct pay discrimination
Although equal pay for equal work is enshrined in law, there are still cases in which women are paid less for work of equal value. The adjusted gender pay gap of six percent is often interpreted as possible discrimination. This means that even if factors such as occupation, education, working hours and experience are taken into account, there is still an unexplained remainder that could indicate gender-specific discrimination. This can arise, for example, through unconscious bias in salary negotiations, grading or promotions. A lack of transparency also makes it possible for women to accept lower salaries or for their performance to be valued lower. However, the majority of the gender pay gap remains unexplained and could therefore also be due to invisible unequal treatment. More transparency about salaries should help to uncover such unjustified differences.
ESRS and reporting obligations: What companies must disclose
Companies in Europe have recently been made more responsible for making their pay differences transparent. The European Sustainability Reporting Standards (ESRS) as part of the new EU sustainability reporting are a key instrument in this regard. These standards, which are binding under the Corporate Sustainability Reporting Directive (CSRD), cover social aspects, in particular fair wages and diversity, in addition to environmental and governance issues.
The ESRS S1-16 standard stipulates that companies must disclose the percentage pay gap between their female and male employees, i.e. their de facto gender pay gap. This indicator is intended to provide a clear picture of equal pay within the workforce. Specifically, all components of remuneration (basic salary, bonuses, benefits in kind, etc.) must be included in order to provide a comprehensive picture. The calculation is based on the average gross hourly wage, analogous to the unadjusted gender pay gap. From the second reporting year onwards, comparative figures from the previous year must also be provided so that progress or deterioration can be seen.
As a component of social sustainability (the “S” in ESG), equal pay thus becomes a top priority. It is not just about compliance, but also about reputation and employer branding: a high gender pay gap could damage the image, while progress is perceived positively. Especially against the backdrop of a shortage of skilled workers, many applicants pay attention to whether an employer pays fairly. Transparent data in the sustainability report is used in the decision-making process.
In addition to the ESRS requirements, companies are also faced with the new EU Pay Transparency Directive. This obliges all companies with 100 or more employees to provide greater pay transparency. Specifically, companies must regularly report on their gender pay gap (from 250 employees annually, 100-249 employees every three years) and provide employees with information on pay levels on request. If the internal gender pay gap exceeds five percent, employers will in future even be obliged to carry out an equal pay assessment together with employee representatives, i.e. to analyze the reasons and develop countermeasures. This directive must be transposed into national law by 2026 and supplements the ESRS reporting obligations. For companies and many SMEs, salary transparency will therefore become a tangible compliance issue. Those who are not able to explain their own remuneration structure in a comprehensible manner risk legal and reputational consequences.
Practical tips for large companies and SMEs
For companies ranging from large corporations to SMEs, there are various levers for analyzing and reducing the gender pay gap. A proactive approach is important: instead of waiting until the gap becomes a public problem (be it through reports, audits or employee dissatisfaction), those responsible should take countermeasures at an early stage. Here are some practical measures that have proven successful:
Carry out salary analyses and audits
Companies should first assess the status quo. A regular pay analysis (e.g. once a year) reveals whether and where there are pay differences between men and women in the company. Tools such as Logib-D (an analysis tool developed by the federal government) or external remuneration benchmarks can help. It is important to evaluate the data according to comparable positions: Where do women earn less for the same job? This diagnosis forms the basis for all further steps. SMEs should carry out such surveys regularly, even without legal requirements. Surprising gaps often come to light that can be closed in a targeted manner.
Creation of transparent salary structures
Lack of transparency encourages inequality. Define clear salary bands and criteria for each position. If employees know what their salary range is and what the requirements are for higher grades, this reduces the scope for arbitrary differences. Standardized evaluation benchmarks (for experience, performance, responsibility, etc.) for hiring and promotions ensure that women are not hidden in lower grades. Some companies introduce internal salary benchmarks or salary ranges in job advertisements. Transparency creates trust and gives women in particular a better basis for negotiation because the taboo surrounding money is broken. The German Pay Transparency Act already provides a framework for this: Companies with more than 200 employees must provide information on pay criteria and those with more than 500 employees must report on the status of equal pay. Companies that actively practice this transparency signal fairness to their employees.
Equal career opportunities and advancement of women
A central key to closing the gender pay gap is to get more women into well-paid positions. Companies should systematically check whether women in the company go through the same promotion and development programs as men. If not, special mentoring or support programs can help.
Some companies have successfully set up women’s networks or internal “leadership programs” to increase the proportion of female managers. Models such as part-time management or job sharing in management also enable more women to take on management roles without having to choose between career and family.
Companies should also actively screen talent: Anyone awarding internal promotions or prestigious projects should be careful not to overlook qualified female employees. Targets (such as a certain quota of women in management teams) can provide management with clear guidance. The role model function from the top is important here: If the company management promotes diversity and makes successes visible, this will have a knock-on effect. Ultimately, retaining and promoting women is worthwhile, otherwise the company will lose potential or highly qualified women will leave for the competition.
Improving the compatibility of work and family life
Because a large part of the pay gap is due to family-related factors, companies can take direct action here. Flexible working hours, home office options and individual part-time models make it easier for women (and of course men) to reconcile work and family life without having to fear a career setback. For example, flexitime or trust-based working hours can take the pressure off parents without restricting development opportunities. Company childcare or subsidies for daycare places are further effective measures. They reduce time off after childbirth and facilitate an earlier return to work.
Companies should also promote a culture in which parental leave is also a matter of course for fathers. If more fathers take longer parental leave, care work is distributed more evenly and women can return to full-time work more quickly, which in the long term promotes equal pay. Some companies even explicitly reward the use of parental leave by men, for example through bonus points in the internal evaluation system – this signals that equal care is desired.
Corporate culture and sensitization
The gender pay gap can only be closed in the long term if equal opportunities are part of the corporate culture. This includes creating a corresponding awareness among managers and employees. Training on “unconscious bias” can help personnel decision-makers to make fairer assessments. A clear position from company management (e.g. “Equal pay for work of equal value is a must for us”) and, if necessary, a diversity or equality officer in the company can support implementation. Some companies carry out internal equal pay reviews and report to employees on results and measures. This increases credibility. Ultimately, everyone should understand: Equal pay is not only a legal obligation, but also a competitive advantage – because a fair, open working atmosphere attracts motivated talent and keeps the workforce satisfied.
Support for SMEs
SMEs in particular sometimes find it difficult to set up formal programs, but a lot can also be achieved on a smaller scale. Hierarchies are often flatter and salaries can be negotiated more individually, which harbors risks such as unequal treatment of individuals, but also opportunities: In a small company, line managers can exert direct influence and, for example, pay attention during salary rounds to whether men may systematically receive higher bonuses than women. Just a few conscious decisions can reduce the gap.
Overall, the motto is: transparency, analysis, action: companies that are aware of their gender pay gap and take targeted countermeasures not only meet the legal requirements, but also improve their organizational culture and attractiveness. Fairness in pay is a factor that is becoming increasingly important – and one that can be controlled.
Tips for employees
Employees can also take steps to counteract the pay gap. Although the responsibility for structural changes lies primarily with employers and politicians, the following strategies can help in individual working life:
- Find out about your rights: Knowledge is power. Familiarize yourself with laws such as the Remuneration Transparency Act. Make use of these rights if you suspect that you are being paid unfairly. Keep up to date with new developments (e.g. EU Pay Transparency Directive), as these will create even more transparency in the future.
- Check and compare your own salary: Do the market value check regularly. Online salary portals, industry reports or trade unions offer salary benchmarks for certain professions and experience levels. This will give you a feeling of whether your salary is within the range or should be renegotiated. If possible, discuss salaries confidentially with colleagues. In many companies, the taboo is already crumbling. Transparency among colleagues is legal and often the first step towards uncovering inequalities.
- Negotiate confidently and know the value of your own work: Statistically, women often tend to be cautious in their salary demands. Be aware of your own value. Keep a record of your successes, qualifications and contributions at work. Actively bring these up in salary negotiations or promotion interviews. Demand an appropriate salary, even when changing jobs. Initially negotiated salary differences add up over the course of your career. Have the confidence to ask for what your work is worth. If in doubt, get tips from your career network or experienced mentors to improve your negotiation strategies.
- Further training and career planning: Keep your qualifications up to date and take advantage of further training opportunities to advance. Additional certificates, further training or a supplementary degree can qualify you for higher-paying positions and increase your salary potential. Actively look for mentors or sponsors within the company who will support you. A mentor can open doors and help you get into projects or roles that offer better opportunities for advancement. Plan your career strategically: if salary is important to you, take this into account when choosing your job and industry.
- Network and look for like-minded people: Join forces with other women (and men) for whom fair pay is important. Internal networks for women or diversity initiatives can help you to make joint demands (e.g. for more transparent salary structures) and support each other. Outside of your own company, it is worth exchanging ideas in industry-wide networks or associations. You learn from the best practices of others and gain the courage to campaign for change yourself.
- Question the private division of labor: Include your partner and your family in the discussions. A fair distribution of childcare and household chores at home is a prerequisite for you to be able to give your all at work. Plan parental leave and part-time work together so that no one is permanently disadvantaged. For example, both partners could take turns reducing their working hours or financial compensation could be agreed. Ultimately, both partners benefit when women remain financially independent and can take advantage of career opportunities.
FAQs
What is the gender pay gap?
The gender pay gap refers to the percentage difference in the average earnings of men and women, usually in relation to gross hourly pay.
What is the current gender pay gap in Germany?
The unadjusted gender pay gap is around 16% (as of 2024) – women earn on average 16% less per hour than men (adjusted, the difference is around six percent).
Why do women often earn less than men?
The main causes are structural differences: women are more likely to work in lower-paid jobs and part-time, are less likely to be in management positions and are sometimes paid less even if they have the same qualifications.
What obligations do companies have under the new ESRS rules?
From the 2024 financial year, large companies must disclose their gender pay gap in the sustainability report and thus make transparent how large the pay gap is between women and men in the company.
What can companies do to reduce the gender pay gap?
Employers can ensure that women and men are paid and promoted equally through salary analyses, transparent pay structures, support for women (mentoring, career programs) and a better work-life balance.
