California continues to implement pay equity measures for employees with legislative action aimed at closing gender and other pay gaps in the workplace. Senate Bill 642 (“SB 642”), signed into law by Governor Newsom on October 8, 2025, was one of many pieces of legislation introduced in the 2024-2025 legislative session. SB 642 introduces significant amendments to the state’s Equal Pay Act—expanding what “equal pay” means and how it must be measured, including extending the statute of limitations to three (3) years. With new changes taking effect January 1, 2026, it is critical for California employers to understand and adhere to the new developments to maintain compliance and uphold workplace fairness.

Pay Equity Law Before SB 642

Before SB 642’s 2026 amendments, California’s Equal Pay Act (“Act”) required that employees performing substantially similar work receive equal pay, regardless of gender, race, or ethnicity. The Act applied broadly to all forms of compensation in principle, but in practice, most wage reviews and pay equity analyses focused on base wages (hourly rates or salaried amounts). Non-wage elements like bonuses, equity, and incentive pay were generally excluded from the core review process. Employers were expected to justify wage differences with legitimate factors, such as seniority or merit, and keep records of pay decisions.

What Changes With SB 642?

SB 642 expands pay equity in a number of ways. Key provisions include:

  • Good Faith Pay Scale - A pay scale must now be a “good faith estimate” of what the employer reasonably expects to pay upon hire. This amendment makes clear that the pay scale provided is what the candidate can expect immediately upon hire, as opposed to some point in the future.
  • Expanded Definition of “Sex” - California’s Equal Pay Law, codified at Labor Code section 1197.5, previously prohibited employers from paying an employee less wages than an employee of the “opposite sex.” SB 642 amends the law to prohibit a pay disparity between an employee of “another sex,” now encompassing non-binary genders. This means employees who have different gender identities or gender expressions, whether or not associated with the person’s biological sex, must be compensated equally to other genders when performing substantially similar work.
  • Broadened Definition of “Wages” - The term “wages” now includes all types of compensation, including, for example, base salary, bonuses, incentive payments, stock options, commissions, expense reimbursements for travel, and any other financial benefits. Accordingly, employers must now examine all forms of compensation when determining pay equity for employees performing substantially similar work. SB 642 clarifies, however, that this expansive definition of wages applies only to section 1197.5, not to any other section of the Labor Code.
  • Statute of Limitations Extended - SB 642 extends the statute of limitations for an employee bringing a claim under the Act to three (3) years from the date of the alleged violation, including each time the employee is affected by an application of an unlawful compensation decision (i.e., each pay day), with a look-back period of six (6) years.
  • Recordkeeping and Justification - Employers must document and retain business justifications for all forms of pay differentials. Bona fide factors (such as experience, merit, or production) must explain any disparity in total compensation, not just base wage.

Who Must Comply With SB 642?

SB 642 applies broadly to all California employers regardless of business size or industry. Employers using variable or diverse compensation structures should pay particular attention to the new requirements. California employers are encouraged to take the following steps:

  • Conduct a Total Compensation Audit - Review all components of employee compensation, not just salary or wages, to identify and address pay disparities among employees performing substantially similar work.
  • Update and Document Pay Policies - Ensure compensation policies state how all forms of pay are determined. Document the legitimate business reasons (such as seniority, experience, or merit) supporting any differences in total pay.
  • Train HR Personnel and Managers - Provide updated training so those involved in compensation decisions understand the new legal requirements and the importance of equity across all pay elements.
  • Establish Clear Communication Channels - Ensure employees know how to request pay equity information or raise concerns and provide appropriate guidance and mechanisms to allow requests to be reviewed in a timely and compliant manner.
  • Consult Legal Counsel - Pay equity compliance is complex and highly fact-specific. Regular review by legal counsel is highly recommended to avoid liability and support best practices.