Employers in California must include pay ranges in all job advertisements effective January 1, 2023, and must submit comprehensive pay data for employees and subcontractors to the California Civil Rights Department starting on May 10, 2023.

Background

Since January 1, 2018, California has required employers to disclose the pay scale for an open position to any applicant upon reasonable request. Following in the footsteps of Colorado, New York City, and Washington, SB 1162 now also requires (1) employers with 15 or more employees[1] to include the pay scale in any job posting; (2) all employers to provide upon an employee’s request the pay scale for the job in which the employee is currently employed; and (3) all employers to keep records of the job titles and wage rate history of each employee for three years post-termination, effective January 1, 2023.

Since March 31, 2021, California has required private employers with 100 or more employees that are required under federal law to file annual Employer Information Reports to the Equal Employment Opportunity Commission (EEOC) to also submit certain pay equity data to the California Civil Rights Department (CRD) (formerly the Department of Fair Employment and Housing (DFEH)) every year. SB 1162 expands this requirement to all private employers with 100 or more employees, regardless of whether they are required to submit annual reports to the EEOC. See our prior LawFlashes on the existing requirements: California Requires Employers to Submit Pay Data Report and California’s DFEH Provides Guidance on Pay Data Reporting.

What’s New

SB 1162 amends two separate laws that both concern pay transparency: Labor Code 432.3 and Government Code 12999.

Labor Code 432.3

Effective January 1, 2023, in addition to existing law, the following actions will be unlawful:

  1. For an employer with 15 or more employees, to issue a job posting (itself or through a third party) without including the pay scale for the advertised position.
  2. For all employers, to refuse to provide an employee, upon the employee’s request, the pay scale for the position in which they are employed.
  3. For all employers, to fail to maintain records of job titles and wage rate history for each employee for three years post-termination.

A “pay scale” means “the salary or hourly wage range that the employer reasonably expects to pay for the position.” Cal. Labor Code 432.3(m)(1) (emphasis added).

An aggrieved employee may either file a complaint with the California Division of Labor Standards Enforcement (DLSE) or file a civil action for injunctive relief and any other relief that the court deems appropriate. If the DLSE finds that an employer violated this section, it may order the employer to pay a civil penalty of $100 to $10,000 per violation.

Government Code 12999

By the second Wednesday in May 2023 (May 10, 2023), private employers with 100 or more employees must submit to the CRD a pay data report for each establishment covering the prior calendar year, with the following information:

  1. The number of employees by race, ethnicity, and sex[2] in specific job categories (e.g., executives, professionals, technicians).
  2. The number of employees by race, ethnicity, and sex whose annual earnings fall within each of the pay bands used by the US Bureau of Labor Statistics in the Occupational Employment Statistics Survey.
  3. Within each job category, for each combination of race, ethnicity, and sex, the median and mean hourly rates.
  4. The total earnings for each employee.
  5. The total number of hours worked by each employee.
  6. The employer’s North American Industry Classification System (NAICS) code.
  7. Optionally, any clarifying remarks.

Employers that employ 100 or more employees hired through labor contractors must also submit a separate pay data report covering those employees. The statute defines “labor contractor” 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.” Cal. Govt. Code 12999(k)(2). Labor contractors are required to supply all necessary pay data to the reporting employer. If a labor contractor does not cooperate, then a portion of any penalty can be assessed on the contractor.

Going forward, these reports will be due every year on the second Wednesday of May. If the CRD does not receive the required report, it may seek an order requiring the employer to comply with these requirements and may also seek costs associated with seeking this order. The CRD may also seek civil penalties of $100 per employee for initial violations and $200 per employee for subsequent violations.

Analysis

SB 1162’s pay scale disclosure requirements leave many questions open; for example:

  1. Does the job posting requirement apply to jobs that could be performed from a variety of locations, including California? Does it apply to jobs for which California residents could apply, even if they would have to move to a different state to perform the job? What about remote positions where the individual would work outside of California but work with a California-based team? Or the reverse (and individual works in California but reports to a team outside of California)?
  2. What does the “pay scale” mean when employees request the pay scale for their current job? The statute’s definition of pay scale does not make sense in this context because it is defined as the employer’s “reasonable expectation” of what they would pay for a position. For this situation, would an employer’s “reasonable expectation” just be the lowest and highest pay for the position?
  3. What does “reasonable expectation” mean?
  4. What if an employer sets a pay scale, but then cannot find any applicant who will accept that pay? Can they accept an employee’s counter-offer for a higher salary?
  5. How should bonuses, equity, commissions, and other benefits be factored into the pay scale, if at all?

We will report on any additional guidance from the CRD and DLSE on these topics.

Next Steps

Employers should consider taking steps now to comply with the new law, including the following:

  1. Determining and documenting salary ranges for all positions with incumbents currently working in California.
  2. Reviewing existing job posting templates or creating new templates to use after January 1, 2023.
  3. Training supervisors, managers, compliance personnel, human resources, and legal professionals on the implications of the new law—including as to appropriate communications with applicants and employees.
  4. Conducting a privileged pay equity audit (either for certain positions in California or a broader review of current pay for departments within California) because salary information provided in external job postings will become public on January 1, 2023.
  5. Monitoring for additional rulemaking and guidance from the CRD and DLSE on implementation of the new law.