What does California’s new pay transparency law mean for employers?
Senate Bill 1162 (SB 1162) amends California Government Code section 12999 and California Labor Code section 432.3. It expands pay data reporting and increases pay scale transparency, showing the state’s commitment to leveling up the field of pay, helping close racial and gender pay gaps, and achieving pay equity.
There are four main components to the new bill: pay transparency, recordkeeping obligations, annual pay reporting, and contractor pay reporting. We discuss the new key requirements below.
1. Pay scale transparency
- Employers with 15 or more employees must include the pay scale for the position in any job posting. Pay scale is defined as the salary or hourly wage range that the employer reasonably expects to pay for the position. (This means base pay, not benefits, equity or bonuses.) Under previous law, employers were only required to provide applicants with the pay scale for a position upon request.
- If an employer engages a third party to post, publish, or advertise a job posting, the employer must provide the pay scale to the third party to include in the job posting.
- Employers with one or more employees are required to continue to provide the pay scale to applicants. They must also start to provide it to employees for their current position upon request.
2. Recordkeeping obligations
- Employers are required to keep records of the job title and wage rate history for each employee for the duration of their employment plus three years after termination. These records must be made available to the Labor Commissioner, who may inspect them for historic patterns of wage discrepancy.
3. Annual pay reporting
- All private employers with 100 or more employees must now submit a separate annual pay data report to the California Civil Rights Department (formerly the Department of Fair Employment and Housing). Employers can no longer satisfy this requirement by submitting an EEO-1 containing the same or substantially similar pay data.
- The report must now include the median and mean hourly rate for each combination of race, ethnicity, and sex within each job category. (Under previous law, the report only had to include the number of employees for each combination.)
- Employers with multiple establishments must submit a separate pay data report covering each individual establishment. Prior to the amendment, employers could submit a consolidated report that included all employees.
4. Contractor pay reporting
- Private employers with 100 or more employees hired through labor contractors within the previous calendar year must submit a separate pay data report covering those workers.
- Employers must also disclose in the pay data report the ownership names of all labor contractors used to supply employees.
- A labor contractor is defined as “an individual or entity that supplies, either with or without a contract, a client employer with workers to perform labor within the client employer’s usual course of business.”
When do the new requirements take effect?
There are two key dates to remember:
- The pay scale disclosure and recordkeeping requirements take effect on January 1, 2023.
- The annual pay report and the new contractor pay report are due on the second Wednesday of May each year, beginning on May 10, 2023.
What are the enforcement mechanisms in place and the penalties for non-compliance?
Pay transparency and records retention violations:
- Violation of the new pay scale disclosure requirements could result in fines from $100 to $10,000 per violation.
- There will be no fine for the first violation if the employer updates the job posting to include the pay scale.
- A person aggrieved by a violation can file a written complaint with the Labor Commissioner or file civil action.
- An employer’s failure to keep employees’ records creates a rebuttable presumption in favor of an employee’s claim.
Annual pay reporting and contractor pay reporting violations:
- Employers who fail to submit the required annual reports may face fines of up to $100 per employee for initial violations and up to $200 per employee for subsequent violations. They may also be held responsible for the California Civil Rights Department’s costs associated with obtaining a court order to ensure compliance.
How can PayAnalytics help California employers meet the new pay transparency requirements?
PayAnalytics supports companies all over the world in their pay equity journey, whether they are just getting started or have been conducting pay equity audits for years. It’s a global solution adaptable to all primary regulatory environments, including California SB 1162. With our universal, scientifically driven pay equity tool, California employers can easily:
Analyze data, and measure and monitor pay gaps by any demographic variable.
Look for and analyze outliers (individual employees whose pay presents a significant discrepancy compared to their peers).
Correct pay discrepancies and close pay gaps by making the appropriate changes suggested by the software and understanding the associated costs.
Analyze salary structure to allow more transparency with employees, making it easier to talk with them about why they’re being paid what they’re paid.
Prevent pay disparities and sustain fair pay with ongoing decision support.
Report and share pay equity information with a user friendly, flexible reporting feature. In three easy steps, PayAnalytics automatically generates a report ready to upload to the California Civil Rights Department portal:
- Input your data, either by uploading an Excel file or by connecting to our API.
- Label the dataset by identifying the demographic variables and salary information.
- Generate the California Civil Rights Department report with a click of a button.
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