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California’s New Pay Transparency Law
On September 27, 2022, California Governor Newson signed Senate Bill 1162, which is California’s new pay transparency and pay data disclosure law.
This new law will require nearly 200,000 California companies with 15 or more employees to include pay ranges in all job postings and advertisements, effective January 1, 2023. Also, private employers with 100 or more employees must submit pay data reports to the California Civil Rights Department, formerly known as the Department of Fair Employment and Housing, by May 10, 2023, and annually thereafter on the second Wednesday in May.
The intent of the law is to promote pay equity with an eye toward closing the wage gap between women and men—particularly minority women. Failure to comply with this new law could result in various civil penalties.
Pay Scale Disclosures for Applicants
Although most public employers routinely disclose pay scales in job postings, the new law requires both private and public employers with 15 or more employees to post the pay scale in their job postings. For purposes of this law, “employee” is defined as an individual on an employer’s payroll and includes part-time individuals. Also, third parties posting on behalf of these employers will need to post the pay range. Pay scale is defined as the salary or hourly wage range that the employer reasonably expects to pay for the position. Although the benefits and other forms of compensation are not included in the definition of “pay scale,” employers may include that information in order to attract applicants.
A notable way Senate Bill 1162 changes the law is that, before its enactment, applicants were permitted to request the pay scale for a position after the initial interview. Now, upon reasonable request, any applicant is entitled to this information before completing the initial interview.
Pay Scale Disclosures for Current Employees
All covered employers, regardless of the number of employees, upon request, are required to provide an employee with the pay scale for their current position. Therefore, starting January 1, 2023, public and private employers should expect a surge of requests from current employees.
Employers of all sizes will need to keep job title and wage rate records for each employee throughout their employment and for three years after termination. It is imperative that employers abide by this new record retention policy since, as the statute describes, failure to do so creates a rebuttable presumption in favor of any employee’s claim that the employer violated the Act. Also, these records must be made available to the Labor Commissioner for inspection to determine if there is a pattern of wage discrepancy.
New Civil Penalties
For violations of the new pay scale law, employees may file a complaint with the Labor Commissioner, which the Labor Commissioner is obligated to investigate promptly. Additionally, the new law creates a private right of action, which could lead to penalties of up to $10,000 per violation. However, the first penalty will not be assessed if the employer has demonstrated they have cured the job posting violation by updating it to include the pay scale.
Pay Data Reports
Before this law was enacted, employers with 100 or more employees were required to submit pay data reports if they were required to file an annual Federal EEO-1 Employer Information Report. Employers could also simply file the EEO-1 in lieu of filing a pay data report. Now, the new law requires pay data reporting for any employer with 100 or more employees, regardless of whether the employer must submit the Federal EEO-1 report. The new law also requires private employers with 100 or more employees hired through labor contractors in the prior calendar year to submit a separate pay data report covering labor contractors. The annual reports must disclose each employee and labor contractor’s median and mean hourly rate according to race, ethnicity, and gender in each job category. Also, employers with multiple establishments must submit a separate pay data report for each establishment.
Compliance and New Civil Penalties
To ensure that companies comply with the report filing requirements, the Civil Rights Department is authorized to request the Employment Development Department to provide it with the names and addresses of all businesses with 100 or more employees. This list will also be a public record. Failure to submit the annual reports can lead to fines/civil penalties of up to $100 per employee for initial violations and up to $200 per employee for subsequent violations, in addition to the employer potentially being responsible for the Department’s costs associated with obtaining a court order to ensure compliance. So, for example, an employer with 100 employees could face a $10,000 fine for an initial violation, plus costs.
What could this mean for employers?
Since the pandemic, wages have become competitive. Thus, one effect this law will have is that employers may feel pressured to offer higher wages because the compensation packages of their competitors will be more attractive. On the other hand, employers may benefit from these pay transparency requirements since it will likely streamline hiring, compensation, and the talent development process, and make businesses run more efficiently.
Another effect this law may have is current employees may begin more extensively discussing compensation, which is protected speech under labor relations laws. The results of sharing may be that employees discover who is getting paid more or less and why. In any case, employers should be prepared to explain any pay discrepancies and be mindful of perceived pay inequality when posting pay ranges on job advertisements.
Finally, employers should begin preparing to comply with these broad changes and consider hiring a third party to assist if they do not have a reasonable pay structure in place.