Most employers doing business in California are likely to soon face increased reporting and pay transparency requirements under a new law that is set to be signed by Governor Gavin Newsom. The law, which would expand California’s current pay transparency scheme, reflects a recent national trend of legislation aimed at increasing salary transparency.

New Reporting Requirements for California Employers

Under current California law, private employers with 100 or more employees are required to submit a yearly pay data report to the California Civil Rights Department. This report must show the total number of employees by race, ethnicity and sex who work in several specified job categories. The report must also show a similar breakdown for the number of employees by race, ethnicity and sex whose annual earnings fall within each of the U.S. Bureau of Labor Statistics’ pay bands.

The new law would expand these reporting requirements in a few significant ways:

• Employers with 100 or more workers who have been hired through labor contractors would be required to file a separate report for those workers. To help employers meet this new obligation, the law would require labor contractors to provide employers with “all necessary pay data” to prepare the yearly report. The term “labor contractor” is broadly defined under the law as “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.” 
• In addition to breaking down employee demographics by race, ethnicity and sex, the yearly reports would also be required to include median and mean hourly rates within each specified job category. This new information would again be required to be listed by race, ethnicity and sex. 
• Failure to provide the required reports would now allow for the imposition of civil monetary penalties. If requested by the Civil Rights Department, courts would be allowed to impose a penalty of up to $100 per employee for an initial failure, and a penalty of up to $200 per employee for each subsequent failure. 

New Pay Disclosure Requirements for California Employers

Currently, California employers must provide a position’s pay scale to any applicant who reasonably requests this information. Thus, under existing California law, employers must disclose a position’s “salary or hourly wage range” only to individuals who are not currently employed by the employer.

The new law would expand these disclosure requirements in several significant ways:

• Employers would also be required to disclose “pay scale” information to any employee that requests such information for the position in which the employee is currently employed. For both applicants and current employees, the new law would change the definition of “pay scale” to mean “the salary or hourly wage range that the employer reasonably expects to pay for the position.”
• Any employer with 15 or more employees would be required to include a position’s pay scale information in any job posting, including postings made by third parties that have been authorized to make or disseminate such postings.
• Employers would be required to maintain pay records for each employee for the duration of the employee’s employment, and for a further three years thereafter. The Labor Commissioner would be allowed to inspect these records to determine whether the employer is engaging in a pattern of wage discrepancy. Failure to keep these records would create a rebuttable presumption in favor of an individual’s claim under this section. 
• If an employer is found to have violated its requirements under the new law, the Labor Commissioner would be able to order civil penalties ranging from $100 to $10,000 per violation. There would be no penalty for first-time offenses where an employer demonstrates that “all job postings for open positions have been updated to include the pay scale as required.”

Recommendations for Compliance

All employers doing business in California should assume that the new law will soon go into effect. Governor Newsom has until September 30, 2022, to sign Senate Bill 1162, and he is likely to do so. Once signed, the new pay disclosure requirements would take effect on January 1, 2023, and the new pay data reports would be due starting May 10, 2023. It is likely, therefore, that a significant amount of work must be done in the near future to ensure compliance with the new requirements. As such, California employers would be well-advised to proactively implement new policies and procedures to fulfill these new obligations, and to contact legal counsel with any questions.

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