California is a pioneer in the nation with its existing pay transparency law. Current law requires, among other things, that employers provide applicants the pay scale for a position, upon request, and that employers with 100 or more employees submit a detailed pay data report to the state on an annual basis (although currently, an employer may submit a report to the EEOC in lieu of the state report). Now, California is poised to further expand that law in September 2022. Senate Bill 1162 has two key components: (1) pay scale posting transparency, and (2) additional pay data reporting. It also removes the option for employers to submit a report to the EEOC in lieu of their California report. The bill has passed the California Senate and Assembly, and Governor Newsom will have until September 30, 2022 to either veto it, or sign it into law.

While a handful of states have pay scale posting requirements, California is the first in the nation to propose expanding pay data reporting to this extent. The bill has polarized legislators and sparked debate about whether the legislation will further its stated goal of increasing pay equity in California or merely increase litigation and the cost of doing business for California employers.

Proponents of the bill argue that pay transparency is critical for working Californians to determine whether they are receiving fair compensation. Supporters believe that the new law would help ensure that employers are addressing pay equity and reducing wage gaps along race and gender lines. They cite a 2019 Harvard Business Review study, the first empirical study on the impact of mandatory wage transparency, which found that wage transparency and reporting in other countries has successfully narrowed the wage gap and increased the number of women hired and promoted into leadership positions.

Opponents of Senate Bill 1162 view it as overly burdensome on employers, and likely to spur a flood of litigation. The California Chamber of Commerce, along with a group of employer-advocate organizations, filed a Coalition Letter in opposition to the bill, arguing that it imposes burdensome record keeping requirements on employers, and subjects employers to additional litigation and possible penalties. These critics believe that employers will enlarge posted pay ranges to a degree that does not assist applicants with salary negotiations, but still deprives employers of flexibility in hiring decisions. In addition, the California Chamber of Commerce voiced concern over the private right of action contained in Senate Bill 1162, arguing that it exposes employers to claims under the Private Attorneys General Act (PAGA). In essence, opponents believe that the bill will discourage growth and expansion in California and continue to drive employers out of state.

Employers should be aware of the changes that Senate Bill 1162 would require and prepare to comply with the new requirements summarized below in this article.

Mandatory Pay Scale Posting for Employers with 15 or More Employees

Employers with 15 or more employees would be required to publish the pay scale for any position that they post. In addition, employers with 15 or more employees that engage a third-party labor contractor to “announce, post, publish, or otherwise make known a job posting” would be required to provide pay scales to the third party, and require the third party to post the pay scale with any position.

Pay Scale Requests from Current Employees

Existing law permits an applicant who has completed an initial interview to request the pay scale for the position for which they are being considered. Under the new law, an employer, upon request, would be required to provide a current employee the pay scale for the position which they currently occupy.

Expanded Pay Data Reporting Obligations

First, the bill would remove the provision of existing law that permits an employer to submit an EEO-1 to the Equal Employment Opportunity Commission (EEOC) in lieu of a pay data report to the Civil Rights Department of the California Business, Consumer Services, and Housing Agency. The separate California pay data report would be due the second Wednesday of May each year.

Second, employers with 100 or more employees would also be required to submit a pay data report that now includes the addition of median and mean hourly rates for each combination of race, ethnicity, and sex by job category. This requirement would apply to the following job categories: (1) executive or senior-level officials and managers; (2) first or mid-level officials and managers; (3) professionals; (4) technicians; (5) sales workers; (6) administrative support workers; (7) craft workers; (8) operatives; (9) laborers and helpers; and (10) service workers.

Employers would be required to submit a “snapshot” that counts all of the individuals in each job category by race, ethnicity, and sex, employed during a single pay period of the employer’s choice between October 1 and December 31 of the reporting year. Employers would be allowed, but not required, to submit “clarifying remarks” along with their pay data report.

Separate Report for Employees Hired Through Third-Party Labor Contractors

The bill also imposes new reporting obligations on employers who work with third-party labor contractors, or professional employer organizations (PEOs). Employers with 100 or more employees hired through third-party labor contractors, would also be required to submit a separate pay data report for those employees, which also discloses the “ownership names of all labor contractors used to supply employees.” The PEO would be required to supply all necessary pay data to the employer for submission. If the PEO does not provide the necessary information to the employer, a court could apportion the amount of penalties (discussed below) to any labor contractor that fails to provide the pay data to the employer.

Publication of Pay Data

Existing law permits the Department of Fair Employment & Housing (DFEH) to aggregate and publish pay data as long as it is anonymized, or “reasonably calculated to prevent the association of any data with any individual business or person.” The new law continues to allow the DFEH to publish aggregated pay data on a website available to the public, without identifying employers by name or providing any “individually identifiable information.” Any public reports would still have to be published in such a way that they prevent the association of the data with an individual employer.

Added Penalties for Noncompliance

Existing law permits the Civil Rights Department to seek an order requiring an employer to comply with the reporting obligations and permits the Department to recover the costs associated with seeking such an order. The new law would also authorize the Labor Commissioner to investigate complaints alleging violations of the reporting requirements and would authorize the Commissioner to order an employer to pay a civil penalty upon finding an employer has failed to file the required pay data report on or before the second Wednesday of May in each reporting year. The penalty for noncompliance would be up to $100 per employee for any employer who fails to file the required report. A second offense would permit a penalty of up to $200 per employee.

Suggested Preparation for Employers

Employers should prepare pay scales that can be posted with new positions and provided to third-party staffing agencies or PEOs who post positions. Employers who work with staffing agencies or PEOs should review and update their agreements with these agencies to specifically indemnify the employer in the event the PEO fails to comply with the pay scale reporting requirement.

Employers should also ensure that they are tracking the new categories of data (median and mean hourly rate for each combination of race, ethnicity, and sex within each job category) for the job categories listed above, so that they can be prepared to begin reporting this information in May 2023.

Maier Law Group is tracking Senate Bill 1162 and will send further updates and compliance tips if the bill becomes law in September 2022.

Author: Emily Harrington, Associate.

Please contact the team at Maier Law Group if you would like to learn more about this law. We invite you to reach out to us at info@maierlawgroup.com for more information.

This article has been prepared for general informational purposes only and does not constitute advertising, solicitation, or legal advice. If you have questions about a particular matter, please contact the Maier Law Group directly.