New California Pay Reporting Requirements Coming

By: Bill Osterndorf

With the likely passage of SB-1162, new California pay reporting requirements are coming. SB-1162 is a final version of a law that would add new provisions to the existing requirements California has on reporting pay data

The bill would also expand California’s requirements to provide pay range information to applicants and employees. SB-1162 only awaits California Governor Gavin Newsom’s signature by September 30, 2022, to go into effect.

Changes to Annual Pay Reporting 

The State of California currently requires organizations that have 100 or more employees with at least one employee based in California to file a report on how employees are paid. This report, which was required to be filed in 2021 and 2022, had the following parameters: 

  • Data were provided on race, ethnicity, and sex 
  • Data were provided on hours worked 
  • Employees were grouped together into 12 pay bands within EEO-1 categories 

For 2023, the passage of SB-1162 would result in the following changes: 

  • Reports would be due by the second Wednesday in May of any given year rather than the end of March. 
  • Employers would be required to report “within each [EEO-1] category, for each combination of race, ethnicity, and sex, the median and mean hourly rate.”
  • Multi-site employers would no longer be required to provide a consolidated report; instead, multi-site employers will be required to “submit a report covering each establishment.” 

Reporting on “Labor Contractors” 

A foundational change under SB-1162 is that employees having 100 or more “employees hired through labor contractors within the prior calendar year shall submit a separate pay data report…covering…labor contractors.”  Under SB-1162: 

Labor contractor’ means 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.” 

It appears that the State of California is attempting to have employers report on temporary workers, contingent workers, and true contractors who are not on the regular company payroll.  However, SB-1162 appears to focus on the organizations supplying workers and not the contingent workers themselves.  Thus, an employer would need to report on contingent workers supplied by a temporary staff agency.  It is less clear whether the employer would report on a contingent worker who self-referred to the employer and did not work for a “labor contractor.” 

Analysis of Wage Data 

It is not clear what analyses the State of California has prepared from the 2021 and 2022 data provided to the California Civil Rights Division (CRD).  However, with the inclusion of information on median and mean hourly rates, it appears that CRD intends to do additional analyses of pay data to determine whether the agency believes pay discrimination exists.  More information on how median and mean hourly rate information will be used may be forthcoming from CRD after SB-1162 is signed into law. 

Changes to Reporting on Pay Scales 

SB-1162 also has changes relating to information employers must provide to applicants and employees on pay scales.  Currently, applicants may request the pay scale for a position in which the applicant expresses interest.  SB-1162 adds the following new requirements.  An employer must: 

  • Provide an employee with the pay scale for the position where the employee is currently employed 
  • Include the pay scale for a position in “any job posting” if the employer has 15 or more employees 
  • Ensure that third parties provide pay scales in any of their postings on behalf of an employer 

SB-1162 states that pay scale “means the salary or hourly wage range that the employer reasonably expects to pay for the position.” 

Penalties for Failing to Meet Requirements 

There are new penalties for the failure to meet requirements relating to reporting pay data on employees or to providing pay scales for open positions. Under SB-1162: 

  • “A court may impose a civil penalty not to exceed…$100…per employee upon any employer who fails to file the required [annual pay] report and not to exceed…$200…per employee upon any employer for a subsequent failure.” 
  • When an employer fails to provide pay scales to applicants or employees for open positions, the State of California “may order the employer to pay a civil penalty of no less than…$100…and no more than…$10,000…per violation.”  If this is a first violation for failing to provide pay scale information, “no penalty shall be assessed upon demonstration by the employer that all job postings…have been updated to include the pay scale…” 

Previously, CRD was allowed to recover “costs” associated with seeking compliance for failure to provide the required pay report, though it was unclear how these costs were to be determined). The penalties for failure to provide pay scale information appear to be entirely new. 

Considerations for Employers 

The State of California seems to be on the cusp of doing more analysis with pay information. Employers should carefully consider how reports are prepared and should determine whether an analysis of median and mean hourly rates might show disparities involving any protected classification. Analyses of hourly rates may require involvement of inside or external legal counsel. 

Employers should also examine all job postings to ensure that pay scales are included. A determination of what constitutes a pay scale for each position will be important. Employers should also be prepared to provide pay scale information upon request to applicants or employees. 

PLEASE NOTE that SB-1162 is not yet the law in California.  Something could happen to change the current contents of the law before the Governor signs it. However, it seems likely that most if not all the provisions of SB-1162 will be going into effect soon. 

DCI will continue to monitor the implementation of SB-1162 and will provide updates on what employers can expect in this changing environment. 

Authors:
Bill Osterndorf

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