MEMORANDUM
NEW PAY TRANSPARENCY LAW IN CALIFORNIA
On September 27, 2022, Governor Newsom signed into law Senate Bill 1162 – California’s new pay transparency and pay scale disclosure law that amends Section 432.3 of the California Labor Code and is effective January 1, 2023. It imposes the following significant requirements on covered employers:
- Job posting requirements
- Pay scale requests
- Record Retention
- Pay data disclosures
Job Posting Requirement: The law requires all employers, private and public with 15 or more employees and at least one employee in California (“Covered Employers”) to include a minimum-maximum pay scale in job postings, and is meant to address wage discrimination at the beginning of employment. Covered Employers also include third-party advertisers who are in a contractual relation with the employer to publish job postings. Pay Scale is defined broadly and is left open to interpretation. It is defined as “the salary or hourly wage range that the employer reasonably expects to pay for the position”[1]. It is unclear if bonuses, benefits, commissions or paid time off are included under Pay Scale.
Pay Scale Requests: All Covered Employers are obligated to provide current employees with a pay scale for their position upon request. Prior to the enactment of the new law, applicants for employment were allowed to request a pay scale but only after the initial interview. Now, applicants have the right to ask for this information prior to their first interview.
Record Retention: There are new record retention requirements under which Covered Employers must maintain a record of each employee’s job title and wage history during their employment and for three years thereafter. The intent of the legislature is to highlight a pattern of wage discrepancy. These records are to be submitted to the Labor Commissioner for inspection. [2]
Pay Data Disclosures: Earlier, only private employers with 100 or more employees were required to submit pay data reports to the Civil Rights Department, and only if they were already required to file an annual EEO-1[3] Employer Information Report. Employers were also permitted to submit their annual EEO-1 report to satisfy the State’s pay data reporting obligations.
Now, all private employers with 100 or more employees, including contractors hired through staffing agencies are required to submit an Annual Pay Data Report, irrespective of whether they need to file an annual EEO-1 Employer Information Report. Further, they cannot submit an EEO-1 in lieu of a pay data report. The law also directs employers to include pay data of remote employees, if the employees are assigned to a California establishment and regardless of whether they reside in California. Employers are required to submit a separate report for each establishment and will no longer be allowed to submit a consolidated report for multiple establishments that includes records of employees across all establishments.
The Pay Data Report must disclose the pay data according to race, ethnicity, and gender within different job categories, such as the number of employees in each category, the mean, median and hourly rate for each combination of race, ethnicity and gender, the number of hours worked by each employee as counted in each pay band during the reporting year and highlighting the employees whose annual earnings fall within each of the pay bands used by the US Bureau of Labor Statistics in the Occupational Employment Statistics Survey. The new law also requires labor contractors (staffing agencies) to provide employers with the necessary pay data to complete the report. The employer is responsible for the reports and must disclose the names of labor contractors who supplied workers in the previous year.
The fine for not filing the Annual Pay Report is $100 per employee for initial violations, and up to $200 per employee for subsequent violations. The employer will also be liable to incur cost of the Civil Rights Department that are associated with obtaining a court order to ensure compliance.[4] The filing deadline for the first report is May 10, 2023, and annually thereafter on the second Wednesday in May. Employers must upload their data files using the California Pay Data Reporting Portal[5].
Private Right of Action: A new private right of action for injunctive action and other relief has been established under this California law. A person can file a written complaint with the Labor Commissioner within one year from the date they learned of the violation (not when the violation may have occurred.)[6]
- Steps Employers should take to adopt Pay Transparency
- Work on the following key dimensions and strengthen where necessary
» Job organization: Jobs should be well defined as a well-defined role helps in understanding the pay for that particular role. Conduct career seminars for employees as once pay scales are included in job postings employees will want to navigate their career a step ahead to achieve higher salary.
» Pay Strategy: It is important to have salary ranges up to date and decide on benchmark jobs as competitive pay ranges on the job posting will attract the right pool of applicants. The compensation philosophy should be well articulated and explain what skills ore performances are rewarded.
» Pay equity: Use robust analysis to check for any gender pay disparities and share the report with employees to gain their trust. Make sure that management can handle questions from employees and have a policy in place that mitigates inequities and ensures employees pay equity. Assess pay ranges to check if there are any discrepancies based on race, ethnicity, or gender and take steps to address and correct those discrepancies.
» Employee perception: Conduct surveys and know what the employees, stakeholders think about the organization. It is important to ascertain the value proposition of the organization to ensure that the employees are satisfied with what they are being offered.
- Define your pay transparency strategy
» What is the information related to salary that will be shared?
» Will the information be shared externally or internally?
» How will the information be shared?
» When will the pay transparency policy/strategy be ready to implement?
- Adopt new practices
» Create a digital platform where employees and external candidates can access the salary information.
» Develop training modules and tool kits for managers, supervisors to ensure compensation strategy is effectively and consistently communicated.
» Conduct statistical modeling to see how employee’s perception of pay affects the outcome (turnover).[7]
Summary:
- What does the new California pay transparency law require?
The new law going into effect from January 1, 2023, requires all employers with 15 or more employees and to:
- disclose salary or hourly wage range in any internal or external job posting for that position;
- provide current employees with a pay scale for their position upon request;
- maintain a record of all employees’ job titles and wage history and;
- submit an Annual Pay Data Reports to the Civil Rights Department (applicable to employers with 100+ employees)
2. Which employers are covered under this law?
California’s new pay transparency laws will apply to all employers, private and public, with at least one employee based in California, and a total of at least 15 employees in total, regardless of location of company headquarters (“Covered Employers”). The law is silent with respect to remote workers but, in states like Colorado, similar job posting requirements have been extended to any job that can be performed in the state.
3. Who is an employee?
An “employee” under this law is defined as an individual on an employer’s payroll and includes part-time individuals. This can include remote employees or those working outside of California for the purposes of the Pay Transparency Law.
4. Do third parties have to comply with the law?
Third-party advertisers who are in a contractual relation with the employer to publish job postings must also include a minimum-maximum pay scale in job postings.
5. Do subsidiaries of a company or company outside California need to comply as well?
If the subsidiary or company based outside California has at least one employee in California and overall has at least 15 employees, the law will apply to them, regardless of where they are located.
6. What is “Pay scale” that employers are required to disclose in the job listings?
“Pay scale” is defined under the new law as “the salary or hourly wage range that the employer reasonably expects to pay for the position”. It is unclear if bonuses, benefits, commissions or paid time off are included under Pay Scale.
7. Who is entitled to request for “Pay scale” information under this law?
All Covered Employers are obligated to provide current employees with a pay scale for their position upon request. Prior to the enactment of the new law, applicants for employment were allowed to request a pay scale, but only after the initial interview. Now, applicants have the right to ask for this information prior to their first interview.
8. What employee records must employers keep regarding the employees and for how long?
There are new record retention requirements under which Covered Employers must maintain a record of each employee’s job title and wage history during their employment and for three years thereafter. The intent of the legislature is to highlight a pattern of wage discrepancy. These records are to be submitted to the Labor Commissioner for inspection.
9. What is a Pay Data Report?
A Pay Data Report is a Report prepared by employers that discloses the employee pay data according to race, ethnicity, and gender within different job categories, such as the number of employees in each category, the mean, median and hourly rate for each combination of race, ethnicity and gender, the number of hours worked by each employee as counted in each pay band during the reporting year and highlighting the employees whose annual earnings fall within each of the pay bands used by the US Bureau of Labor Statistics in the Occupational Employment Statistics Survey.
10. Who must submit a Pay Data Report and what is the penalty for non-compliance?
With regards to Pay Data Reports, private employers with 100 or more employees including contractors hired through staffing agencies that are required to file the EEOC’s annual Employer Information Report (EEO-1) must also file an annual wage data report with California’s Civil Rights Department (CRD). The filing deadline for the first report is May 10, 2023, and annually thereafter on the second Wednesday of May.
11. What are the penalties for non-compliance?
The new law imposes both significant civil liability and penalties for non-compliance. In terms of liability, it provides individual with a private right of action. An individual may file a complaint with the Labor Commissioner and lawsuits for alleged violations, including failures to provide salary information to current employees and job seekers, within one year from the date they learned of the violation. Employers that do not file the Annual Pay Data Reports on time or include required pay scale information in job postings will also face civil penalties. These penalties range from $100 to $10,000 per violation. However, for a first violation, employers can avoid penalties if they show that all job postings for open positions.
The fine for not filing the Annual Pay Report is $100 per employee for initial violations, and up to $200 per employee for subsequent violations. The employer will also be liable to incur cost of the Civil Rights Department that are associated with obtaining a court order to ensure compliance
If you want additional information on this memorandum or have any questions, please contact Christopher L. Rasmussen, Managing Partner – Commercial, Trademark and Privacy Practice Group – for Inventus Law, PC at chris@inventuslaw.com, Alan Haus, Partner, at alan@inventuslaw.com, Chaitrali Kale, Associate Attorney, at chaitrali@inventuslaw.com, or Anuja Shah, Law Clerk at anuja@inventuslaw.com.
[1] https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201720180AB2282
[2] https://www.littler.com/publication-press/publication/show-me-money-california-enacts-new-pay-disclosure-requirements
[3] The EEO-1 report is a survey mandated by the U.S. Equal Employment Opportunity Commission (EEOC). It aims to provide a demographic breakdown of the employer’s workforce by race and gender.
[4] https://www.gibsondunn.com/california-enacts-pay-transparency-and-disclosure-requirements-effective-january-1-2023
[5] https://pdr.dfeh.ca.gov/s/
[6] https://www.littler.com/publication-press/publication/nyc-amends-wage-transparency-law
[7] California to Impose More Salary Disclosure, Pay Data Reporting by Stephanie Rosseau and Fiona Webster, Mercer’s Law & Policy Group and Tauseef Rahman, Mercer
