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California Imposes Greater Pay Transparency and Pay Data Requirements


Starting January 1, 2023, California employers will be required to include in job postings the pay range for the position and to disclose to current employees on their request the pay range for the position they hold.  Senate Bill 1162, signed into law by Governor Gavin Newsom this week, boldly proclaims California to be the harbinger of greater pay transparency.  The legislation also greatly expands the information employers must disclose to the state in their annual pay data reports.

New Obligations to Disclose Pay Scales

California employers with 15 or more employees will be subject to the new requirement that they include in job postings the pay scale for the position.  Where an employer uses a third party to publicize a job posting, the employer will be required to give the pay scale for the position to the third party and include it in the third party’s posting.

All employers operating in the state, regardless of size, will be required to disclose the pay scale of a current employee’s position on request.  SB 1162 does not specify that employers must provide the information in writing.  State law already in effect requires that employers provide applicants the pay scale for the position on the applicant’s “reasonable request.”  The requirement concerning applicants continues in effect.

The thought behind such pay transparency mandates is that employees and applicants knowing where they stand within a pay range is necessary if they are to identify pay disparities, that is, potentially unlawful circumstances in which employers are paying employees of a particular gender, race or ethnicity less than their peers. 

SB 1162 authorizes the Labor Commissioner to accept complaints of violations and award civil penalties against employers ranging from $100 to $10,000 per violation.  Employees and applicants are also authorized to sue employers in Superior Court for violations.

Given that the new pay transparency requirements will be set out in the Labor Code, it appears that alleged violations will be yet another basis for employees and former employees to sue under the California Private Attorneys General Act (PAGA).  In fact, SB 1162 is likely to subject employers to greater exposure through PAGA lawsuits than through the Labor Commissioner complaints authorized by the new legislation.

Pay Data Reporting Requirements are Expanded

Under existing law, California employers of 100 or more employees are required to file with the state an annual report detailing the number of their employees by race, ethnicity and gender in each of 10 job categories.  SB 1162 adds a new requirement that employers with 100 or more workers obtained through labor contractors (e.g., temp agencies) in the prior calendar year will be required to file a separate pay data report covering the workers obtained through labor contractors.  Those reports must also include the names of the owners of the labor contractor company.

The new pay data reports also must include, within each of the 10 job categories, for each combination of race, ethnicity and gender, the median and mean hourly rate of pay.

California employers must file their first pay data report complying with the new requirements no later than the May 10, 2023.  In each subsequent year, employers must file their report no later than the second Wednesday in May.  Pay data reports must be filed with the California Civil Rights Department (CRD), formerly named the Department of Fair Employment and Housing.

SB 1162 eliminates employers’ current ability to satisfy the state filing requirement by filing with California their federal EEO-1 Reports. 

A civil penalty of up to $100 per employee may be awarded against employers in violation of the pay data reporting requirements.  For subsequent failures to comply, a civil penalty of up to $200 per employee may be awarded.

The pay data reports are used by the CRD in order to identify workplaces exhibiting pay disparities by gender, race or ethnicity and, potentially, to initiate investigations and enforcement action.

Early Steps to Consider Taking

Employers may wish to consider proactive steps including:

1. If an employer does not have a written pay range for each position, consider preparing them.  Where an employer does not have a formal pay range for each position, the risk arises of different supervisors or managers disclosing inconsistent pay scales for the same position, which, itself, may be alleged to be evidence of discrimination.

2. Train managers and supervisors how to respond to employees requesting pay ranges.  Designate who will disclose pay scales and how they will do so.

3. Update recruiting processes to ensure that pay scales are included in job postings.

4. With respect to pay data reports, make sure data is being gathered and will be accessible as needed to prepare reports setting out, within each of the 10 job categories, for each combination of race, ethnicity and gender, the median and mean hourly rate of pay.

5. Employers who obtain 100 or more workers from labor contractors this year should begin to work with their labor contractors to decide how and when the labor contractors will provide the data needed for employers to prepare their separate pay data reports on such workers.

Closing

SB 1162 builds on legislation Governor Newsom signed in 2020.  My post at that time explaining the initial legislation is here.

The text of SB 1162 is here.

If you would like help on this subject, please reach the author or your Fox Rothschild LLP counsel.

This post provides general information and does not constitute legal advice to any person with respect to any circumstance.  This post does not create an attorney-client relationship with any person.    



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