Employee compensation may become more transparent in 2023 in the Golden State. The California Legislature recently passed SB 1162, currently under consideration by Governor Gavin Newsom, which would create new pay reporting and disclosure obligations for private employers in California beginning in January 2023 if it becomes law. Following a growing trend, these obligations would require greater transparency in pay equity reports, permit employees to receive pay scale information and establish new requirements about pay in job postings. If the bill becomes law, employers who fail to comply could face administrative claims, civil lawsuits and penalties.

Additional Disclosures in Pay Equity Reporting and Changed Filing Deadline

Existing federal law requires employers with 100 or more employees to file with the Equal Employment Opportunity Commission annual EEO-1 workforce data collection reports, including data based on job category, race, ethnicity and sex. Reporting of pay data was added in 2017, with the EEOC collecting that data in 2017 and 2018 until the practice was halted. Since March 2021, employers in California who submit EEO-1 reports have been required to submit similar reports, including pay data, sorted by establishment to the California Civil Rights Department (formerly known as the Department of Fair Employment and Housing). See our prior Alert. Existing state law allows employers to sidestep the state reporting requirement if their submissions to the EEOC contain the same or substantially similar pay data information required under California law.

If SB 1162 becomes the law, significant changes in reporting would occur:

  • Employers subject to EEO-1 reporting will no longer be able to satisfy pay equity reporting by submitting an EEO-1 report to the EEOC. Instead, separate and more detailed reports must be filed with the state.
  • The pay data reports would have to include the median and mean hourly rate for each combination of race, ethnicity and sex within each job category.
  • Employers who use labor contractors, as defined by the law, would also have to submit pay data for employees hired through those contractors under a separate report.
  • Employers with multiple locations would be required to submit a separate report for each establishment, eliminating the option of a single consolidated report.
  • The deadline for reporting would move from March each year to the second Wednesday in May.

Even Greater Pay Transparency to Employees and Job Applicants

Current California law prohibits employers from asking job applicants for their salary or wage history and requires them, upon request, to provide applicants with a pay scale for the position for which they are applying. However, there is currently no corresponding requirement to make similar disclosures to existing employees. See our prior Alert. The new SB 1162, if it becomes law, would require employers provide to employees, upon request, the pay scale for the position in which the employee is current employed.

SB 1162 would also require employers of 15 or more employees to include the pay scale for positions in job postings, including postings made by third parties on behalf of employers, such as on social media, job search websites and recruiting firms. Colorado and New York already have similar laws in place, and one in Washington state is scheduled to take effect in 2023.

New Recordkeeping Obligations

If SB 1162 becomes law, employers would be required to maintain job title and wage rate history for each employee for a minimum of three years beyond employment and that information would be open to inspection by the California Labor Commissioner.

Enforcement, Civil Actions and Penalties

The bill permits aggrieved employees to file complaints with the California Labor Commissioner and requires that agency to investigate complaints. The bill calls for a rebuttable presumption in favor of the employee's claim if the employer fails to keep required records. Further, it permits the Labor commissioner to order an employer to pay civil penalties for failure to comply with the new law and to recover costs. Employers who fail to report required pay data would be subject to fines ranging from $100 to $200 per employee. Similarly, employers who fail to include pay scale in job postings would be subject to civil penalties ranging from $100 to $10,000. Aggrieved employees could also bring civil actions for injunctive and other appropriate relief.

What This Means for Employers

Gathering pay data and hours worked for hundreds of employees, separating it into specific categories by establishment and reporting it to agencies can be overwhelming for many employers. As the bill may become law soon, employers should consider preparing now for the potential changes in the law. Prudent employers may wish to familiarize themselves now with the specifics of the new reporting requirements. Employers who contract with others to provide workers should be prepared to coordinate with those entities if the bill becomes law. Recruiters may wish to familiarize themselves with the new possible posting requirements. California employers should prepare and train personnel to respond to requests for greater pay information from employees. Additionally, employers should stay informed on the rise of increased pay transparency legislation nationally, a trend that we continue to monitor and analyze.

For More Information

If you have any questions about this Alert, please contact Lori Ocheltree, Brooke B. Tabshouri, any of the attorneys in our Employment, Labor, Benefits and Immigration Practice Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.