New California Pay Transparency Law - American Society of Employers - Anthony Kaylin

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New California Pay Transparency Law

California legislature passed S.B. 1162 and is currently waiting for the Governor’s signature, creating new obligations for California employers by amending the earlier pay reporting requirements. 

Under the current law, employers with 100 or more employee  are required to submit a pay data report to the California Department of Fair Employment and Housing ( DFEH) yearly by March 31st that includes the number of employees by race, ethnicity, and sex by EEO categories using W2 Box 5 data.  The data is based on salary levels and how many employees are in those salary levels.  DFEH creates and publishes reports based on this data.

The new bill, S.B. 1162, would require private-sector businesses with 100 or more workers to submit pay data reports that contain median and mean hourly rates broken down by race, ethnicity, and sex within several job categories, from executives to service workers.  A separate report would have to be filed for those employees hired through labor contractors. 

Specifically, the new bill will:

  • Revise the deadline to submit pay data reports, with the new deadline occurring annually on the second Wednesday of May each year.   
  • Within each job category, require that employers report the median and mean hourly rates by each combination of race, ethnicity, and sex compared to current law that requires only numerical counts of employees by race, ethnicity, and sex within each job category and pay band).
  • Multi-site employers would no longer be required to provide a consolidated report; instead, multi-site employers will be required to “submit a report covering each establishment.”
  • Require employers that have 100 or more employees hired through labor contractors to produce data on pay, hours worked, race/ethnicity, and gender information in a separate report.

With respect to the labor contractor reporting, this situation will force changes in contracts with these agencies as employers generally do not have access to this data and there is no mandate for the labor contractors to collect the “necessary pay data,” or define the data required or address issues with regard to timing of such disclosures.  Labor contractors who fail to provide this information would be jointly liable for any penalty assessed to the California employer for failure to comply. 

Pay transparency would be required in all job listings.  All employers with more than 15 employees would be required to include a pay scale in all job postings.  California may be requiring this of employers who may have less than 15 employees in California but more throughout the U.S.  Moreover, all employers, regardless of size, would be required to provide a pay scale for a current employee’s position at the employee’s request.

Penalties under SB-1162:

  • “A court may impose a civil penalty not to exceed…$100…per employee upon any employer who fails to file the required [annual pay] report and not to exceed…$200…per employee upon any employer for a subsequent failure.” 
  • When an employer fails to provide pay scales to applicants or employees for open positions, the State of California “may order the employer to pay a civil penalty of no less than…$100…and no more than…$10,000…per violation.”  If this is a first violation for failing to provide pay scale information, “no penalty shall be assessed upon demonstration by the employer that all job postings…have been updated to include the pay scale…”

Therefore, it is important for employers to start reporting pay scales in job listings soon, if not doing so already.  As more jurisdictions require this requirement of reporting pay scales, a number of employers are taking this new approach for all jobs no matter where they are located.

The good news for employers is that there is no agency reporting requirement of individual companies.  However, the DFEH is allowed to publish “aggregate” reports that do not associate the pay data with individual employers as they currently do now.

Will this data reporting have any meaning?  Likely not.  The data is still based on Box 5 of the W2.  An employee may have been hired later in the year or work different shifts which potentially creates a red herring of a disparity.  As Denise Visconti, a shareholder for Littler Mendelson points out, "[It's] potentially creating a situation where it might look like the hourly rates are different when in fact it's really just a matter of someone working different types of hours."


Source:  Law360 9/14/22, DCI 9/6/22, Seyfarth Shaw 8/29/22



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