Alex,
What Lee has explained is that the software in PAW is clever enough to know whether it is comparing altitude with a Mode C or Mode S transponder, an MLAT report originally generated from a transponder, or ADSB (whether DF17 from a transponder or DF18 from a SkyEcho) - in which case it calculates relative altitude using its inbuilt barometric cell, - or with another PilotAware or Flarm transmitter - in which case it uses GPS altitude.
In all cases it calculates the correct relative altitude, which is then passed to the EFB and displayed.
Hope this helps clarify the position.
Regards
Peter