As reported in a prior client alert, California Governor Gavin Newsom signed Senate Bill 1162 last September, requiring private employers with more than 100 employees to submit significantly more pay data to the California Civil Rights Department (CRD) beginning in May 2023. The statute left a number of critical questions unanswered and CRD has now updated its Frequently Asked Questions (FAQs), providing some additional guidance for the 2022 reporting year, including on labor contractor worker reporting.
Labor Contractor Employee Report
Now, in addition to the “Payroll Employee Report” that all private employers with 100 or more employees (with at least one employee based in California) must file, private employers with 100 or more workers hired through labor contractors in the prior calendar year (with at least one worker based in California) must file a separate “Labor Contractor Employee Report.” An employer submitting a Labor Contractor Employee Report is required to submit one report that covers labor contractor workers at all of its establishments. Employers that are not required to file a Payroll Employee Report because they have fewer than 100 payroll employees must still file a Labor Contractor Employee Report if they have 100 or more workers hired through labor contractors.
In its updated FAQs, CRD has provided the following definition of “Labor Contractor Employee”: “An individual on a labor contractor’s payroll, including a part-time individual, for whom labor contractor is required to withhold federal social security taxes from that individual’s wages, and who performs labor for a client employer within the client employer’s usual course of business.” CRD has not provided any guidance on the meaning of “usual course of business.” Looking to California Labor Code § 2810.3, however – which concerns joint employer liability – the term “usual course of business” is defined as “the regular and customary work of a business, performed within or upon the premises or worksite of the client employer.”
The FAQs clarify that a client employer has the requisite number of labor contractor employees if the employer either had 100 or more labor contractor employees in the Snapshot Period – across all of its labor contractors, not per labor contractor – or regularly had 100 or more labor contractor employees during the Reporting Year. “Regularly had 100 or more labor contractor employees during the Reporting Year” means 100 or more labor contractor employees worked for the client employer on a regular basis during the Reporting Year. “Regular basis” refers to the nature of a business that is recurring, rather than constant.
As with Payroll Employee Reports, Labor Contractor Employee Reports must include the mean and median hourly rate of labor contractor employee groupings (that is, groupings of employees with the same establishment, job category, race/ethnicity, and sex).
CRD recommends that a client employer, which is ultimately responsible for the Labor Contractor Employee Report, collaborate with each of its labor contractors to choose the single pay period between October 1 and December 31 of the Reporting Year that will serve as their Snapshot Period for that labor contractor. If a client employer has more than one labor contractor, CRD encourages the use of the same Snapshot Period across labor contractors; however, the Snapshot Period does not need to be the same for each labor contractor a client employer uses, provided the Snapshot Period otherwise complies with CRD’s instructions.
Senate Bill 1162 specifically requires an employer’s labor contractors to provide all necessary data and information to the employer submitting the report to CRD. If an employer is unable to submit a complete report because a labor contractor has not provided required pay data, then a court may apportion an appropriate amount of any penalties to the labor contractor that failed to provide the pay data to the employer. As a result, we recommend that organizations entering into agreements with labor contractors providing workers in California – or reporting to a California establishment – consider including a requirement that labor contractors provide pay data, and indemnification in the event they fail to provide such information.
Federal EEO-1 Reports No Longer a Substitute in California
CRD’s updated FAQs also clarify that private employers of at least 100 employees are now required to file a Payroll Employee Report regardless of whether the employer files a federal EEO-1 report, removing a prior limitation that an employer is only obligated to file a Payroll Employee Report if the employer is required to submit a federal EEO-1 report. Furthermore, Payroll Employee Reports (and Labor Contractor Employee Reports) may no longer include employees who are working outside of California and are assigned to an establishment outside of California.
In prior years, employers were asked to provide establishment IDs in their pay data reports. This year, CRD will automate the creation of establishment IDs. In future years, CRD intends to supply establishment IDs to employers.