Are You Prepared to Submit Your Employee Pay Data to the DFEH?

By Fred Alvarez and Crista Welch

On September 30, 2020, the California legislature passed SB 973, California’s pay equity data law. The law, codified under Government Code section 12999, requires certain employers with California employees to file an annual Employer Information Report that includes employee data on pay, hours, and demographics (“pay data”). Pay data is due to the DFEH (California Department of Fair Employment and Housing) on March 31, 2021.

Who Must Report?

All private employers with “100 or more U.S. employees and who [are] required to file an annual Employer Information Report (EEO-1) pursuant to federal law,” and at least one California employee must file an annual Employer Information Report.

An employer has the requisite number of employees if the employer either employed 100 or more employees in the Snapshot Period chosen by the employer or regularly employed 100 or more employees during the Reporting Year. The Snapshot Period is a single pay period between October 1 and December 31 of the Reporting Year, which is “the prior calendar year.” For this year, then, the Reporting Year is January to December 2020, while the Snapshot Period is any pay period between October 1 and December 31, 2020.

What Must Employers Report?

Employers must report data similar to what was required in the federal EEO-1, Component 2 form. The EEOC has since discontinued the use of the Component 2 form, but is studying the data it has collected from employers so far. In enacting SB 973, the California legislature has decided to pick up where the EEOC left off.

DFEH has now provided a data report template for both Excel and CSV files here.

As seen in the template reports, employers must provide the following data:

  • For each establishment, during the Snapshot Period, the number of employees by race, ethnicity, and sex in ten different job categories.
  • The number of employees—by race, ethnicity, and sex—whose annual earnings fall within each of twelve pay bands ranging from $19,239 and under to $208,000 and over.
  • The total number of hours each employee worked during the entire Reporting Year, plus any paid time off hours.
  • The Reporting Year and the Snapshot Period the employer selected.
  • Additional employer information, including contact information, NAICS codes, total number of employees, and total number of establishments.
  • Any clarifying remarks.
  • A certification that the information contained in the pay data report is accurate and prepared in accordance with the law.

Employers must submit their pay data reports to DFEH’s pay data submission portal here. DFEH has also provided answers to common questions here.

How Will The Pay Data Be Used?

The California Legislature enacted this bill to encourage employers to self-assess potential pay disparities among their employees across race, gender, or ethnicity lines, and to promote compliance with equal pay and anti-discrimination laws.

It is important to note that the law now empowers DFEH to “receive, investigate, conciliate, mediate, and prosecute” complaints alleging unlawful practices in violation of the Equal Pay Act. The law also provides the Division of Labor Standards Enforcement access to this data, an authority already empowered to enforce labor laws.

These pay data reports are supposed to be a tool for self-compliance by employers and a tool for California agencies to enforce equal pay and anti-discrimination laws. As explored further below, however, challenges may arise when analyzing the pay data. For example, the reported job categories easily encompass employees with a variety of educational and professional backgrounds, roles, and responsibilities. In fact, the EEOC recently announced a contract with the National Academies of Sciences, Engineering, and Medicine’s Committee on National Statistics to independently assess the “quality and utility” of the equivalent federal pay data. The analysis is expected to conclude in 2021, but may shed significant light on employer concerns about the usefulness and validity of combining so many different jobs into the broad EEO-1 categories.

The California pay data is confidential under the law, and not subject to the California Public Records Act. It will not, however, be kept confidential for “administrative enforcement or through the normal rules of the discovery in a civil action.” DFEH is also empowered to publish aggregated data from multiple employers.

What Issues Should I Be Aware of When Gathering and Submitting Pay Data?

Identifying Employees

The definition of employee under Government Code section 12999(m)(1) is, “an individual on an employer’s payroll, including a part-time individual, whom the employer is required to include in an EEO-1 Report and for whom the employer is required to withhold federal social security taxes from that individual’s wages.” This definition raises a number of considerations when categorizing and counting employees.

Some issues to watch out for when identifying employees and tallying up your total number of employees include:

  • Making sure that you count both full-time and part-time workers;
  • Determining whether any temporary workers provided by a staffing agency or independent contractors still meet this definition of “employee;” and
  • Identifying employees located both inside and outside of California, and correctly categorizing teleworking employees (for example, all employees assigned to California establishments must be reported whether or not they are teleworking).

Multiple Establishment Companies & Multiple Entities

Both single-establishment and multiple-establishment employers should submit single pay data reports. Multiple-establishment employers should report on all of their establishments.

Additionally, if your company is a parent company or a subsidiary, you should consider how to collectively submit pay data. Parent companies may submit a pay data report for themselves and their subsidiaries if the companies constitute a single legal entity. Alternatively, parent companies and their subsidiaries may each submit their own pay data reports.

Gathering and Submitting Pay Data

There are a number of challenges embedded in the pay data reporting framework.

Employee Demographic Data

First, employers must report on employees race, ethnicity, and sex. While employee self-identification is the preferred method of identifying an employee’s race, ethnicity, and/or sex, employers must still report the demographic data of employees who decline to provide this information. That means employers should use current employment records, other reliable records or information, or, as a last resort, observer perception. Employers should be particularly sensitive regarding the use of observer perception to categorize and report on an employee’s demographic data. In fact, the DFEH has indicated that observer perception should not be used to identify employees’ sex, but rather information such as the employees’ preferred pronouns.

Moreover, the available demographic categories are themselves limited. Employers should report employees’ sex by the three genders recognized in California: female, male, and non-binary. Employers should report race and ethnicity according to the following seven categories:

  • Hispanic/Latino
  • Non-Hispanic/Latino White
  • Non-Hispanic/Latino Black or African American
  • Non-Hispanic/Latino Native Hawaiian or Other Pacific Islander
  • Non-Hispanic/Latino Asian
  • Non-Hispanic/Latino American Indian or Alaskan Native
  • Non-Hispanic/Latino Two or More Races

But not all employees will easily fit into one of these categories. For example, a male trans employee may self-identify as either male or non-binary. Similarly, an employee with both Hispanic/Latino heritage and Non-Hispanic/Latino heritage may not self-identify with any of the race/ethnicity categories above.

Employee Job Category Data

Second, employers must categorize employees as fitting into one of ten broad EEO-1 job categories used by the EEOC:

  • Executive or senior level officials and managers;
  • First or mid-level officials and managers;
  • Professionals;
  • Technicians;
  • Sales workers;
  • Administrative support workers;
  • Craft workers;
  • Operatives;
  • Laborers and helpers; and
  • Service workers.

Each of these categories is extremely broad both in terms of the types of job it encompasses, and the educational or experiential backgrounds of individual employees in that category. For example, the “Professionals” category includes both architects and dentists—and it includes architects and dentists with both thirty years’ experience and with five years’ experience. Further guidance on these categories is available on the EEOC.gov website.

Employee Salary Data

Employers must provide employee salary data into one of 12 pay bands increasing from $19,239 and under to $208,000 and over. These pay bands are thus particularly limited for highly-paid employees. For example, if all of a company’s employees in the job category “executive or senior level officials and managers” are paid $250,000 or more, the pay bands would not track differences in that high level of compensation among employees of different races, ethnicities, or sexes.

Putting It All Together

Given the analytical limitations of combining numerous, distinctive jobs into one of ten broad job categories, and then inserting them into 12 arbitrary pay bands, and the likelihood that the data will be (1) used in an enforcement action by a California state agency, or (2) uncovered via civil discovery methods, employers should consider providing “clarifying remarks” when submitting pay data. Clarifying remarks provide employers the opportunity to note the problems inherent in the pay data categories, and to preemptively note that any apparent pay disparities do not reflect comparisons of comparable jobs, employee roles, educational backgrounds, or seniority associated with jobs included and aggregated for reporting purposes only.

What Should I Do If I Have Additional Questions?

If you have specific questions or want to discuss how the Pay Equity Data Law may affect your business, please contact Fred Alvarez at falvarez@coblentzlaw.com, Crista Welch at cwelch@coblentzlaw.com, or any attorneys from the Labor and Employment team here at Coblentz Patch Duffy & Bass LLP.