California’s New Pay Transparency Law Will Take Effect in 2023

Background

On September 27, 2022, Governor Gavin Newsom signed the “Pay Transparency for Pay Equity Act,” also known as SB 1162, into law.  In doing so, California joins a handful of other jurisdictions—including states like Colorado and Connecticut, and cities like New York City—in enacting legislation that requires heightened transparency around pay scales for open positions.  This new law is part of a broader nationwide trend of measures aimed at eliminating pay gaps.  SB 1162 also expands California’s current law around pay data reporting for qualifying employers and imposes additional disclosure requirements.

Pay Scale Information Must Be Made Available to Current Employees; Published In All Job Postings; and Maintained in Employer Records  

The new law mandates disclosure of pay scales—defined as the “salary or hourly wage range that the employer reasonably expects to pay for the position”—to both current employees and applicants.  The law applies, based on employer size, as follows:

• Employers with 15+ employees:  Employers must include pay scales for open positions in any job postings.  This applies whether employers are posting open positions on their own internal websites or third-party providers.  Employers relying on third-party providers—such as LinkedIn, Indeed, or Zip Recruiter—to announce, post, or publish job postings must ensure that pay scales are included in the job posting. 

• All employers:  Upon request, an employer must provide salary ranges not only to applicants for the positions to which they are applying (which was a requirement under the prior law)—but also to current employees for the positions in which they are employed.

SB 1162 also imposes recordkeeping requirements.  Employers must maintain records of job titles and wage rate history for each employee for the duration of their employment, and for three years following the end of their employment.  These records may be made available to the California Labor Commissioner, for purposes of determining if a “pattern of wage discrepancy” exists.  If an employer fails to keep required records, the law creates a rebuttable presumption in favor of any potential claim made by an employee. 

Any employee claiming to be aggrieved by a violation of SB 1162 has a period of one year to file a written complaint with the Labor Commissioner and/or a civil action for injunctive relief.  The law provides authority to the Labor Commissioner to order the payment of civil penalties upon a finding that an employer has violated its provisions.

Employers With 100+ Employees Have Additional Pay Data Reporting Obligations

Under a prior law, SB 973 (codified at Cal. Gov. Code § 12999) California already required private employers with 100+ employees to file annual reports with California’s Civil Rights Department (“CRD”) that provided detailed pay data by establishment, job category, sex, race, and ethnicity.  Under the new law, SB 1162 adds a number of requirements to qualifying employers’ pay data reporting obligations.  Key changes include:

• EEO-1 Reports No Longer Sufficient:  Prior law permitted employers to comply with California’s pay data reporting requirements by submitting an EEO-1 Report—which contains the same, or substantially same pay data information—to the CRD.  SB 1162 makes clear that, regardless of whether employers are required to submit an EEO-1 report under federal law, they now must separately submit pay data reports to the CRD. 

• Pay Data Reports Now Due in May, Instead of March:  Employers will now have more time to comply with SB 1162.  Under the prior law, for pay data reports covering the reporting year 2021, employers had a filing deadline of April 1, 2022 (and on or before March 31 each year thereafter).  Now, under SB 1162, employers have until May 10, 2023—and, thereafter, until the “second Wednesday of May.” 

• Employers Must Identify Median and Mean Hourly Rates:  For each combination of race, ethnicity, and sex within each job category, employers must now include the “median and mean hourly rate.” 

• Individual Reports Now Required for Multiple Establishments:  The new law eliminates a prior provision allowing employers with multiple establishments to submit one consolidated report.  For employers with multiple establishes, SB 1162 now requires the submission of a report for each establishment. 

• Labor Contractors Included:  SB 1162 defines “labor contractors” an “individual or entity that supplies, either with or without a contract, a client employer with workers to perform labor within the client employer’s usual course of business.”  For any employer with 100+ labor contractors within the prior calendar year, they must submit a separate pay data report to the CRD covering all such employees hired through labor contractors.

Key Takeaways for Employers

SB 1162 will take effect as of January 1, 2023.  In advance of that deadline, employers with 15+ employees should begin preparing for compliance with the law’s job posting requirements.  Employers may consider conducting audits of all job positions to identify pay scales, as well as to prepare for the job posting requirements. Additionally, since the record-keeping requirements apply to all employers—regardless of size—employers should develop internal practices to confirm that data related to job titles and wage rate histories for each employee will be maintained, and implement training for applicable personnel in compliance with the new law.

With respect to SB 1162’s new pay data reporting requirements, employers with 100+ employees will have until May 2023 to comply with their next reporting cycle, but should begin preparation now.  Qualifying employers should carefully review their current pay data reporting plan, and update it to ensure compliance with the additional requirements imposed by SB 1162.  

The information, comments, and links posted herein do not provide specific legal advice. For legal advice, please contact an attorney at FitzGerald & Mulé LLP.