Employment lawyer breaks down California's pay transparency law, urges preparation to begin ASAP
Have you begun compiling your pay data report for the California Civil Rights Department?
Sure, it’s not due until May 10, but depending on the size of your company, you’ll want to get started right away considering all the new requirements under SB 1162, which went into effect at the dawn of 2023.
“This is a big deal,” says employment lawyer Robert Nichols, partner at national law firm Bracewell LLP. “It’s intended to achieve better pay equity. The notion is that historically, women and certain racial and ethnic groups have been underpaid. Those disparities perpetuate themselves, so the disclosure will help to alleviate those disparities over time.”
The new law expands upon the framework of the California Equal Pay Act, which requires employers in the state to disclose the pay range for a job if an applicant asks for it after an initial interview, as well as Senate Bill 973, in which private employers with 100 or more employees are required to submit a pay data report to the California Department of Fair Employment and Housing (DFEH) that includes the number of employees by race, ethnicity and sex.
Under the new California law, employers in the state with at least 15 workers must include the hourly rate or salary range on job listings, even when using a third party. All employers, regardless of size, must also provide a salary range for a current employee’s position at the employee’s request. Employers are required to maintain records of a job title and wage rate history for each employee for the duration of their employment and for three years after.
Here's where HR leaders start pulling their hair out:
The new law also requires California employers with 100 or more employees to report the median and mean hourly rate within each job category, for each combination of race, ethnicity and sex. Furthermore, California employers with 100 or more employees hired through labor contractors must produce a similar pay data report. These annual reports are due the second Wednesday of May.
“Some people also think this may drive up wages,” Nichols adds, “based on the notion that if companies have to disclose what they might pay, they won’t want to look like their pay range is low, especially in a competitive job market.”
Similar to a recent Colorado law, California’s new legislation also applies to companies located outside of the state hiring California residents for remote positions. Even if there’s not a specific focus on hiring California workers, as long as the remote position could conceivably be filled by a California resident, the company must comply with the law.
“National companies that operate everywhere will have to throw in the towel and have some kind of ‘across the board’ pay transparency system that abides by these various laws,” Nichols told HRD. “It won’t be easy because they’re not consistent. Something really frustrating about the current growth of state-specific employment laws is there’s no real effort among these states to be uniform in their approaches. That makes compliance a nightmare for employers.”
For example, if a company posts job openings on its website, the description of the listing will now have to be crafted in such a way that it complies with the various pay transparency laws across the United States. If companies aren’t interested in that degree of disclosure, they’ll have to limit hiring to only in states where these laws haven’t been established yet.
Or they can risk potentially hefty fines – the California Labor Commissioner may order the employer to pay a civil penalty of no less than $100 and no more than $10,000 per violation, according to the law.
In one less headache for HR leaders, employers with multiple establishments are no longer required to submit a consolidated report, but they’ll still have to submit a report for each establishment.
Of course, employers must also be careful about comparing notes with competitors about how they’re complying with pay transparency laws. You can end up violating antitrust laws by communicating with other companies, especially competitors, about how they’re setting wages. “Pay transparency laws are well intentioned, but administratively doing them and complying with them is just extraordinarily difficult,” Nichols says.
His advice to HR leaders: Don’t procrastinate.
“Start early and follow any more guidance that might be issued by the state on how you do this,” Nichols says.
