Citing the pay gap between men and women, and an even larger gap for women of color, the California legislature passed SB 973 in September 2020. The new law requires that most private employers with a total of 100 or more employees, regardless of work location, file an annual pay data report if they had at least one employee working in California in 2020. While all company employees are considered to determine if the 100-employee threshold is met, only employees with a sufficient nexus to California need to be included in the report. The first report, covering 2020, is due by March 31, 2021 and must be filed using the state’s online portal.
California recently announced that a pay report user guide and template form will be available by February 1, 2021, and the data submission portal will open on February 15, 2021. While the final report format is not yet available, it will be similar to the now defunct EEO-1 Component 2 report grid. Each EEO-1 category will be divided into 12 pay bands. For each pay band, employers will report the total number of California-related employees as of a specific date, their total annual earnings, and their total annual work hours by race, ethnicity, and sex. The California Department of Fair Employment and Housing (DFEH) also has been regularly updating a list of FAQs to help covered employers begin to gather and analyze the required data. The most recent update was on January 15, 2021.
Which Employers Are Required to Submit a Pay Data Report?
For larger employers this question has a simple answer. An employer meeting all of the following criteria must file a pay data report by March 31, 2021: (1) the employer had at least 100 employees regardless of work location in all pay periods in 2020; (2) the employer is required to file an EEO-1 report for 2020; and (3) the employer had at least one employee working in California. Employers not required to file an EEO-1 report are exempt from the pay data report requirement, regardless of their employee count. Similarly, companies with 50-99 employees who file EEO-1 reports because they are government contractors are not required to file a California pay data report.
For smaller employers with workforces that fluctuate above and below 100 employees during the year, determining coverage is more complicated. To make this calculation, the employer needs to understand how California counts employees and in which pay periods it employed at least 100 employees. In making this calculation, employers must count the number of employees, not the full-time equivalents. The employer must also count employees on paid or unpaid leave “including California Family Rights Act leave, pregnancy leave, disciplinary suspension, or any other employer-approved leave of absence.” Employers must also count temporary employees that “the employer is required to include in an EEO-1 Report and for whom the employer is required to withhold social security taxes.” If the employer uses temporary workers “provided by staffing agencies or independent contractors that meet this definition of employee,” they must be counted toward the 100-employee threshold. Finally, if the employer is owned or affiliated with another company, and if the group is considered a single enterprise for EEO-1 purposes, it will be for California purposes as well. Employers that met the 100-employee threshold for some but not all pay periods in 2020 should carefully review the requirements to determine whether they need to file a report.
What Should Covered Employers Be Doing Now?
Although the actual report format is not yet available, covered employers should start now to ensure they have enough time to gather and quality check their data. The first step is to identify the pay period between October 1, 2020 and December 31, 2020 that they intend to use as their snapshot. Then employers need to identify the employees with a sufficient nexus to California that need to be included in the report. More detail is available in the DFEH FAQs. Because DFEH will be using these reports “for the effective enforcement of equal pay or anti-discrimination laws, where appropriate,” employers may want to analyze data from more than one pay period before settling on a snapshot period so that they file a report that presents the fewest questions. This particularly applies to employers:
- Whose salary increase date is in the fourth quarter;
- Whose workforce numbers fluctuated significantly in the fourth quarter; and
- Who will have a difficult time obtaining pay data for employees on leave and who have certain fourth quarter pay periods with large numbers of employees on leave.