October 5, 2022Client Alert

California’s New Pay Transparency Law – Effective January 1, 2023

On September 27, 2022, California Governor Gavin Newsom signed SB 1162 into law, expanding employers’ pay reporting and disclosure requirements, creating new recordkeeping obligations, and enhancing remedies for non-compliance. The new law is effective January 1, 2023.

Pay Data Reporting

Current California law requires private employers with 100 or more employees (with at least one employee in California) to report annually certain pay data for California employees by establishment, covering each calendar year, broken down by sex, race/ethnicity, and job category (similar to the EEO-1 categories). The report is filed with and reviewed by the Civil Rights Department (the “Department”). The new law makes the following changes:

  • New May Deadline. The new law extends the current March deadline to the second Wednesday of May each year starting in 2023 for 2022 data.
  • New Information Added to Current Report. The new law requires employers to augment the data it currently provides with the median and mean hourly rate within each job category and for each combination of race, ethnicity, and sex.
  • Changes to Current Report Format. Likely recognizing that the EEO-1 reports have not included salary data since 2019, the law removed the option to file EEO-1 reports with the same or similar pay data.
  • New Report for Some Temporary Workers. Covered employers with 100 or more employees hired through labor contractors within the prior calendar year must submit a separate pay data report to the Department covering the employees hired through labor contractors in the prior calendar year. This separate report must include the ownership names of the companies used to supply employees. It is likely that the filing instructions for this new report will mirror the current report so that the 100-worker threshold will apply to workers in the United States, but the report will be limited to those working in California or reporting to a California establishment.
  • Expanded Penalties for Employers and Labor Contractors. In addition to the Department’s ability to recover costs associated with seeking an order of compliance, the law also now authorizes a court to impose a civil penalty not to exceed $100 per employee for any employer who fails to file the report, and not to exceed $200 per employee for a subsequent failure to file the report. If the employer’s violation results from a failure of a labor contractor to provide the required pay data, the law empowers the court to apportion an “appropriate amount” of penalties to the labor contractor. Penalties collected will be deposited into the Civil Rights Enforcement and Litigation Fund, essentially funding future compliance enforcement.

Pay Range Disclosure and Recordkeeping

California now joins several other jurisdictions requiring affirmative disclosure of salary ranges. Prior to SB 1162, California law only required employers to disclose a pay scale upon reasonable request by an applicant after an applicant completed an initial interview. While all employers must continue to respond to applicant requests, SB 1162’s amendment imposes the following additional requirements and remedies:

  • Pay Scales Required on Job Postings. Employers with 15 or more employees must include the “pay scale” for each job opening in any job posting. “Pay scale” is now defined as the “salary or hourly wage range that the employer reasonably expects to pay for the position.” This requirement also applies when an employer uses a third party to announce, post, publish, or otherwise make known a job posting. The employer must provide the pay scale to the third party and the third party must include the pay scale in the job posting. Although SB 1162 is silent on how many of the 15 employees need to be working in or reporting to California for the law to apply, we anticipate the Labor Commissioner will count employees in the same manner as minimum wage and COVID-19 Supplemental Paid Sick Leave, where all employees, including out-of-state employees, are counted. We expect future regulations or enforcement guidance to address open questions such as whether and how it applies to remote work and/or jobs not primarily performed in California.
  • Required Disclosure of Pay Scale to Applicants and Employees. Employers (of any size) are now required to disclose a job position’s pay scale at any time to any applicant or employee that requests it for a position for which they are applying or in which they currently work.
  • Recordkeeping Requirement. SB 1162 also requires employers to “maintain records of a job title and wage rate history for each employee for the duration of the employment plus three years after the end of employment.” These records must be accessible to the Labor Commissioner upon request, but there is no requirement to provide such records to a requesting employee or anyone else. Should an employee bring a claim, employers who fail to keep these records will have to overcome a rebuttable presumption in favor of the employee’s claim.
  • Private Right of Action. The amended law creates a private right of action for individuals who claim violations of the law, as well as the ability to file a written complaint with the Labor Commissioner. Penalties for violations of the law range from $100 to $10,000 per violation, depending on the totality of the circumstances, including (but not limited to) whether the employer has previously violated the law. However, an employer will be not assessed a penalty on its first violation of the disclosure requirements if it can demonstrate that all job postings for open positions have been updated to include the pay scale as required.

What Should Employers Do?

California joins several state and local jurisdictions, including Colorado; Jersey City, New Jersey; Ithaca, New York; New York City, New York; Westchester County, New York; New York State; and Washington with pending legislation, pending effective dates, or currently requiring the inclusion of salary ranges and other compensation related information in job postings. While other states and local jurisdictions, such as Connecticut; Maryland; Nevada; Cincinnati, Ohio; Toledo, Ohio; and Rhode Island, do not require pay information to be included in job postings, they each require disclosure at one or more points during the application and hiring process, such as upon request, completion of an interview, at the time an offer is made to an applicant or when an employee has applied for a promotion or transfer. Employers should start preparing now to comply with California’s new law, including reviewing their HRIS system capabilities to produce the new report data and retain job title and wage history information, training managers and individuals involved in recruiting on how to respond to pay scale requests, and updating their job postings to include the required pay scale information.

Employers that have not yet conducted a pay equity study should consider whether the new report requirements change their risk calculations. The new requirement to provide median and mean hourly wages enhances the Department’s view into pay practices and could help identify gender or race/ethnicity pay differences not highlighted by the broader total compensation and hours bands previously required. Federal contractors should also note that the new requirement that job and salary history records be kept for three years past termination opens a new avenue for OFCCP questions about compensation during compliance reviews.

Finally, covered employers that use contingent workers should review their practices to be sure that they are able to comply with the new requirements. With California’s emphasis on the treatment of contingent workers and the potential for co-employment, employers should be sure that their suppliers are complying with the pay scale disclosure requirements for their jobs and that they are able to supply the required data for the employer report in a timely basis.

We encourage you to reach out to one of the authors listed below or your Michael Best attorney with any questions or inquiries related to this recent update.

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