On September 27, 2022, California Governor Gavin Newsom signed into law the Pay Transparency for Pay Equity Act, a new pay transparency law imposing increased payroll reporting requirements on large employers and placing additional requirements on employers of all sizes related to salary history inquiries and pay scale disclosures.
What Does the Bill Require?
Additional Pay Reporting Requirements for Large Employers
The new law amends and imposes new payroll reporting requirements for large employers relating to workforce demographics and pay.
Under existing law, private employers with 100 or more employees are required to file an annual Employer Information Report (EEO-1) pursuant to federal law, and to submit a pay data report to the California Civil Rights Department by March 31st of each year. Employers were previously in compliance with the California requirement if they submitted an EEO-1 to the Department in lieu of a separate pay data report.
Under the new law, private employers with 100 or more employees, and private employers with 100 or more employees hired through labor contractors are now required to submit a separate annual pay data report to the Department by the second Wednesday in May, beginning May 10, 2023. The new bill no longer allows employers to submit an EEO-1 in lieu of the pay data report. This new separate report must include:
- The employer’s number of employees by race, ethnicity, and sex broken down according to job categories specified under the law;
- The number of an employer’s employees whose annual earnings fall within each of the pay bands used by the United States Bureau of Labor Statistics in the occupational employment statistics survey, broken down by race, ethnicity, and sex;
- The median and mean hourly rate for each combination of race, ethnicity, and sex within each job category;
- The total number of hours worked by each employee counted in each pay band during the reporting year; and
- The employer’s North American Industry Classification System (NAICS) code.
- A section for employers to provide clarifying remarks regarding any of the information provided – though employers are not actually required to complete the section or to provide clarifying remarks.
Employers with labor contractors must also include the ownership names of all labor contractors used to supply contractor employees, and employers with multiple establishments must submit a separate report covering each establishment.
Failure to submit the required report may result in an order requiring compliance with the statute and an award of costs associated with seeking the order for compliance. Additionally, upon request by the Department, a court may also impose a civil penalty of up to $100 per employee on an employer who fails to file the required report, and up to $200 per employee upon any employer for a subsequent failure to file the required report. However, if an employer with 100 or more employees through labor contractors is unable to submit a report because a labor contractor has not provided the employer with the requisite data, any fees/penalties may be apportioned between the two parties according to the level of fault.
Limitations on Applicant Salary Inquiries
In addition to the new reporting requirements, the statute also limits an employer’s ability to rely on an applicant’s salary history as a factor in deciding whether to make an offer of employment or in determining an applicant’s potential salary.
Specifically, the bill prohibits an employer from relying on the salary history information of an applicant as a factor in determining whether to offer employment to an applicant or in determining what salary to offer an applicant, and similarly prohibits an employer from seeking salary history information (including compensation and benefits) from an applicant, orally or in writing, personally or through an agent. However, if an applicant voluntarily and without prompting discloses their salary history information to a prospective employer, the statute does not prohibit an employer from considering or relying on that information in determining the salary for that applicant. The statute also does not prohibit an employer from asking about an employee’s salary expectations.
Pay Scale Disclosure Requirements
The law further requires that employers notify job applicants of the applicable salary ranges for open positions under circumstances.
Notably, employers of all sizes must disclose the pay scale/salary range for vacant positions to job applicants upon reasonable request, and must also disclose the same salary information to current employees regarding their current position upon reasonable request as well. In addition, employers with 15 or more employees must include the applicable pay scale for open positions in any job posting – which also extends to job postings, announcements etc. made through third party platforms/services as well. The “pay scale” required to be disclosed in these circumstances is the amount an employer reasonably expects to pay for the position.
The bill also mandates that employers maintain records of job title and wage rate history for each of its employees for the duration of employment and for three years after termination, which must be open for inspection by the state Labor Commissioner. Employers in violation of these provisions may be subject to a civil penalty of up to $10,000.00 depending upon the particular circumstances of the violation, as well as an award of injunctive or other relief.
Looking Ahead
The new requirements bring California in line with Colorado, Washington and New York City who have also recently passed similar salary transparency statutes – the New York Legislature has also passed a similar law which is awaiting delivery for the Governor’s signature. Thus, California employers, and those utilizing large scale staff augmentation, should be on notice of the statute’s new reporting requirements, as well as its immediate ramifications relating to salary transparency and disclosure.
To prepare and ensure compliance, employers should review existing hiring practices, job vacancies/postings, and related policies and procedures for potential conflicts with the law’s new disclosure requirements, and should also review and/or audit existing compensation data in order to prepare for and ensure compliance with the statute’s new reporting framework. Employers are advised to contact their employment counsel with any questions or assistance regarding statutory compliance.
Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.
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