New California Law Expands Pay Transparency and Reporting Requirements

California is not alone in this effort to increase pay transparency. Similar laws exist in Nevada, Colorado and Washington and the New York State Legislature recently passed a similar bill to require employers with four or more employees to include salary ranges in their job postings.

SB 1162, which amends Section 12999 of the Government Code and Section 432.3 of the Labor Code, includes the following key requirements:

1. Private employers with 100 employees or more must submit annual pay data reports to California’s Civil Rights Department (formerly, the Department of Fair Employment and Housing), with the first report due on May 10, 2023. Prior to this amendment, these reports only needed to be submitted by employers with 100 employees or more who were also required to file an annual Employer Information Report (EEO-1) pursuant to federal law.

• These pay data reports must include the “median” and “mean” hourly rates for employees categorized by each combination of race, ethnicity and sex.
• Whereas prior law allowed employers with multiple establishments to submit consolidated reports, this amended Labor Code section requires such employers to submit a report covering each individual establishment.
• Private employers with 100 or more workers hired by or through labor contractors must submit a separate pay data report covering workers hired by or through labor contractors in the prior calendar year. This report must disclose the legal names of all labor contractors used to supply the workers.
• In addition to existing enforcement mechanisms, employers who fail to file pay data reports may be subject to a civil penalty of up to $100 per employee for initial failures to file and $200 per employee for subsequent failures.

2. Employers with 15 or more employees must include the “pay scale” for a position in any job posting. No such job posting requirement existed under the previous law.

• The law defines “pay scale” as the “salary or hourly wage range that the employer reasonably expects to pay for the open position.” It addresses base pay, not benefits, equity or bonuses.
• This pay transparency requirement extends to any postings on third-party job market sites like LinkedIn or Indeed. Under this new requirement, employers must provide these third parties with pay scale information and, in turn, these third-party sites must include this information in any job posting they promote.
• Employers of any size, upon an employee’s request, must also provide the “pay scale” for the position in which the employee is currently employed.
• The new law authorizes the Labor Commissioner to order an employer to pay a civil penalty of no less than $100 and no more than $10,000 per violation of the “pay scale” disclosure requirement.

3. California employers must maintain records of job title and wage rate history for each employee for the duration of their employment plus three years after the employment period. No such record keeping requirement existed under the previous law.

• Should an employer fail to keep such records, there is a rebuttable presumption in favor of the employee’s claim.
• The purpose of this provision is to ensure that the Labor Commissioner can determine if there is any historic pattern of wage discrepancy.
• Employers must be prepared to provide these records to the Labor Commissioner for inspection upon request.

Open Questions

• Definition of “Pay Scale”: As employers scramble to comply with the new pay transparency laws, many open questions remain, particularly relating to the specifics of what a “pay scale” is and how it should be determined and reported. The statute defines “pay scale” as a range that the employer “reasonably expects” to pay for the open position. But when evaluating the pay for an open position, many companies “price” jobs individually, aiming to pay the market midpoint but understanding that a particular candidate might be offered a salary that is above or below that mid-point. Covering these contingencies might prompt employers to provide a wide range, or set upper and lower caps. Another practical challenge is that some employees or applicants may be paid above the standard range for a variety of legitimate, individually specific reasons. The law does not address these issues and whether such deviations from the standard range must also be disclosed as part of the “pay scale.”
• Application to Remote Workers. With the recent proliferation of remote workers, it is unclear whether a remote employee (or an applicant for a remote position) will have the right to receive pay scale information. Typically, California’s laws protect workers who work/reside in the State, but the statute does not provide clarification on this point.

Conclusion
The Legislature’s intentions behind California Senate Bill 1162 were to pursue inequity and to create compliance obligations that prompt employers to detect and avoid discriminatory pay patterns. However, this comes with an increased administrative and potentially financial burden especially for employers who routinely use temporary agencies or other labor contractors. Not only can failure to comply result in financial penalties for employers, but non-compliance could raise questions regarding an employer’s overall commitment to diversity or cause an employer to become a litigation target. Employers should begin preparing now to ensure compliance starting January 2023.

To begin that process, employers should review all current job postings and job descriptions to set reasonable pay ranges, and consider whether there are any pay equity issues that should be corrected. This is a good time to ensure that jobs are properly classified as exempt or non-exempt, with exempt jobs meeting both the minimum salary threshold and the duties requirements, and it is advisable for both pay equity and exempt classification reviews to be done with the assistance of legal counsel. Employers should also get ahead of things by reviewing all of their job positions and setting reasonable pay ranges in case employees should ask for the range of their position. Setting pay scales/ranges can be a daunting task, so starting now will help alleviate the administrative burden come January.

In addition to these new pay transparency rules, there are a number of other new California employment laws that will become effective as of January 1, 2023, including a state minimum wage hike to $15.50 per hour, mandatory unpaid bereavement leave, expanded sick and family leave to care for “designated persons,” restrictions on adverse action for an employee’s off-duty cannabis use, and expanded employer responsibilities under the California Consumer Privacy Act.

If employers are interested in keeping abreast of these types of updates and more, sign up to receive an invitation to Pillsbury’s Annual Employment Law Outlook presentation by clicking here.