Pay Transparency Expansion in California
With the recent expansion of pay transparency laws in Colorado, New York City, and Washington, it should come as no surprise to employers that California has also opted to expand its existing pay transparency laws.
On September 27, 2022, California Governor Gavin Newsom signed SB 1162, which broadens the state’s pay transparency laws by requiring employers to provide pay scale information and expanding pay data reporting obligations for certain employers.
The earliest of the law’s changes go into effect on January 1, 2023, but employers should now begin the process of updating their existing organizational policies and procedures to ensure timely compliance with the new regulation when it takes effect. Here’s a brief overview of existing law and the new requirements set forth in SB 1162.
Prior to the enactment of SB 1162, under the current law, employers are required to provide an applicant for employment with the pay scale information for the position the applicant is seeking, upon reasonable request. Current law does not require employers to provide existing employees pay scale information for their current positions. SB 1162 now affords California employees the right to request pay scale information and adds the additional mandate that employers must include pay scale information in job postings. The term “pay scale” is defined as “the salary or hourly wage range that the employer reasonably expects to pay for the position.” Effective January 1, 2023, California employers must comply with the following requirements:
- Employers must provide their employees with pay scale information for their current positions, when the information is requested.
- Employers with 15 or more employees must include in any job posting the pay scale information for the position sought to be filled; and
- Employers must maintain records of a job title and wage rate history for each employee for the duration of his or her employment, plus 3 years after the end of the employment in order for the Labor Commissioner to determine if there is a pattern of wage discrepancy.
Pay Data Reporting
SB 1162 also expands the state’s existing pay data reporting obligations.
Under current law, an employer that has 100 or more employees and is required to file an Employer Information Report (EEO-1) is also mandated to submit a pay data report to the California Civil Rights Department which includes information regarding the number of employees by race, ethnicity, and sex in specified job categories.
Pursuant to SB 1162, all California employers, regardless of EEO-1 filing status, must comply with the following new requirements:
- Employers are required to file a pay data report, which includes the median and mean hourly rate for each combination of race, ethnicity, and sex for each job category, for both traditional employees and those hired through labor contractors.
- Employers must submit a separate pay data report for employees hired through a labor contractor (defined as an entity that supplies a client employer with workers), including the disclosure of the ownership names of all labor contractors used to supply employees;
- Pay Data reports are now due annually on the second Wednesday of May each year, with the first such report due on May 10, 2023, based on calendar year 2022 pay data.
Under SB 1162, if an employer does not provide the required report to the California Civil Rights Department, a court may impose a civil penalty of up to $100 per employee for an initial failure and up to $200 per employee for any subsequent failure.
There are many unanswered questions regarding the new law and how it applies in practice to California employers (i.e., Does the new pay transparency law apply to employers that have less than 15 employees working in California, but more than 15 employees company-wide?). While we expect additional clarifying guidance from the state on these issues, employers can begin taking steps now to timely comply with the law.
As a starting point, California employers must assess, confirm, and document salary ranges for all positions that are based in the state.
Employers can also begin creating templates for job postings that will be posted after January 1, 2023, to include pay scale information. If employers utilize a third party vendor to manage job postings, these employers should begin to communicate with their vendors to ensure compliance with California’s new pay transparency laws.
It is fair to expect that the new law will stir up requests from current employees about salary ranges; therefore, employers should also start to think about training supervisors and human resources personnel about how to respond.
Finally, employers can consider whether now is the time to engage counsel and conduct a privileged pay equity audit before salary range information becomes public on January 1, 2023.