What California’s Pay Transparency Law May Mean for You

October 25, 2022 Articles
Human Resource Executive

California Gov. Gavin Newsom has signed a new pay transparency act that will require significant changes in how employers draft job postings and how they report pay data to the state. Given the scope of the changes, many employers should begin preparing now.

These are a few of the most significant provisions of the law, which could become a model for other states seeking to enhance pay transparency:

Job postings must include wage ranges

Starting Jan. 1, 2023, California employers with 15 or more employees must include a position’s salary or hourly wage range (not including bonuses or equity-based compensation) in any internal or external job posting. This requirement extends to job postings published by a third party at an employer’s request.

Expansion of pay scale disclosures upon request

Under existing California law, after an external applicant has completed an initial interview for a position, an employer must provide the position’s salary or hourly wage range upon the applicant’s reasonable request.

Starting in January, SB 1162 expands this requirement to cover current employees who request the pay scale for the position in which they are currently employed, as well as any external applicants seeking employment with the employer who make such a request. The new requirement to share wage range information with current employees and applicants applies to all employers in California, including those with fewer than 15 employees.

SB 1162 also establishes a civil penalty of up to $10,000 per violation of its pay scale disclosure and job posting requirements. However, there is no penalty for a first violation of the job posting requirement if the employer can show that all job postings for open positions have been updated to include the pay scale.

Expansion of pay data reporting requirements

Similar to federal pay data reporting requirements, existing law in California requires employers with 100 or more employees to annually report pay data on each of 10 specified job categories to the California Department of Fair Employment and Housing (DFEH). This report is calculated from a “snapshot” of a single pay period of the employer’s choice between Oct. 1 and Dec. 31.

Beginning in May 2023, SB 1162 expands these DFEH reporting requirements. For each job category, employers must include the median and mean hourly rate, broken down by race, ethnicity and sex. This is a material change from existing law, which only requires numerical counts of employees by race, ethnicity and sex within each job category’s pay band. In addition, SB 1162 removes a logistical burden by eliminating the requirement that employers with multiple establishments provide both a consolidated report of all establishments and a separate report for each establishment. Instead, employers need only provide a report for each establishment.

Employers who have retained at least 100 individuals through labor contractors the prior calendar year (e.g. starting in 2022) must produce the pay data outlined above for those individuals if they were performing labor within the employer’s usual course of business. This new requirement will highlight the pay differences between employees and contractors retained through third parties. As with employees, this pay data must be provided by the second Wednesday of May each year.

Liability risk

If there are differences between protected categories of employees within the same job category, this new reporting requirement could lead to claims of discrimination or equal pay violations. The pay data reports are not publicly reported at this time due to a late amendment to the bill, which originally would have required the state to post the reports on a public website. However, it is likely that such reports would be available via a FOIA request or through civil discovery.

SB 1162 also establishes a civil penalty of up to $100 per employee for an employer that fails to report and a civil penalty of up to $200 per employee for a subsequent reporting violation.

Reminder on other existing pay transparency requirements

Existing California law prohibits employers from asking job applicants for “salary history information.” However, employers may ask about an applicant’s “salary expectation” for the position. In addition, employers are not prohibited from making a compensation decision based on a current employee’s existing salary (or an applicant’s salary if they have voluntarily disclosed it), so long as any wage differential resulting from that compensation decision is justified by one of the Equal Pay Act factors: seniority or merit system, production system or a bona fide factor such as education, training or experience.

Pay transparency and data reporting laws in other jurisdictions

Employers operating outside of California should also confirm pay transparency and pay data reporting requirements in other jurisdictions. Right now, Colorado state and Jersey City are the only jurisdictions that require certain employers to provide wage ranges in job postings. However, Washington state and three New York localities (Ithaca City, New York City, and Westchester County) have passed similar laws, scheduled to go into effect within the next few months. New York state also has approved legislation that, pending the governor’s signature, would require any employers with at least four employees to include the wage ranges and job descriptions (if they exist) in their advertisements for a job, promotion or transfer opportunity. Other jurisdictions have pay transparency laws requiring employers to provide wage ranges at an applicant’s request and/or have compulsory disclosure requirements at other points in the hiring/employment process. Each jurisdiction has taken its own approach and has slightly different requirements.

In addition to federal and California pay data reporting requirements, Illinois passed a pay data collection last year, requiring employers with 100 or more employees to report pay data to the state and obtain an equal pay registration certificate. We are likely to see more states and jurisdictions pass similar pay data reporting laws in the coming years.

What you should do

We expect this trend will continue to expand to other states. Employers are encouraged to consult with employment counsel on their job listings and should develop pay bands for each role in advance of posting the role. To prepare for new job posting requirements, employers should develop a process for consistently publishing wage range information in internal and external job postings, as well as a process for preserving such publications to prove compliance. Relatedly, employers should train managers, recruiters and human resources professionals on these processes and the new law’s requirements.

To prepare for expanded public reporting in 2023, employers may also consider an internal audit of current employee wages to ensure there are not any significant discrepancies or inequities. Even if pay reporting is not currently mandated for your employer’s jurisdiction or size, an audit will help prepare for possible pay equity reporting that may be required in the future.

Given the growing number of states and localities requiring wage transparency, multistate employers may consider a national policy for including wage ranges in job postings and/or providing wage ranges to applicants.

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