California Employers: Prepare for Greater Pay Transparency and Pay Data Reporting Requirements

By Anthony Risucci

On September 27, 2022, Governor Newsom signed Senate Bill (“SB”) 1162 into law. The law alters and expands pay reporting obligations to California’s Civil Rights Department (“CRD”)1 for private employers with 100 or more employees. The law also increases pay transparency obligations under Labor Code Section 432.3, including changes that apply to both public and private employers of all sizes.

As explained in more detail below, SB 1162 requires employers to do the following:

  • Private employers with more than 100 employees must submit detailed “pay data reports” to the CRD by the second Wednesday of May every year. The pay data report submission obligation now exists independently of similar federal reporting obligations to the Equal Employment Opportunity Commission.
  • All employers must provide pay scale information to employees and job applicants for their position upon request.
  • All employers with more than 15 employees must publish pay scale information on every job posting for the position being filled.
  • All employers must maintain pay history information for every employee for the duration of their employment, and for three (3) years beyond the date their employment ends.

Pay Data Reporting Requirements

A. Pay Data Reporting Requirements Before SB 1162
Prior to the enactment of SB 1162, private employers with 100 or more employees were required to file a “pay data report” to the CRD. Pay data reports are required to contain employee pay data for specific job categories broken down by race, ethnicity, and sex.  

California law allowed for this requirement to be met by filing an Employer Information Report (“EEO-1”) (a form specifically prepared for the Equal Employment Opportunity Commission for similar federal reporting requirements) on or before March 31 each year, so long as the EEO-1 report included substantially similar pay data information. California law also required employers with multiple establishments to submit a report for each establishment and a consolidated report that included all employees. The first such reports were due in 2021.  

B. New Pay Data Reporting Requirements
SB 1162 simultaneously streamlines and complicates pay data reporting requirements by amending Government Code Section 12999. That statute now requires private employers with more than 100 employees to submit a pay data report to the CRD. An EEO-1 form is no longer sufficient. (See Gov. Code § 12999, subd. (a)(1).) Private employers with 100 or more employees hired through labor contractors within the prior calendar year are also now covered by the reporting requirements (collectively referred to as “Covered Employers”).2 (Gov. Code § 12999, subd. (a)(2).)   

Covered Employers must now submit pay data reports containing all of the following information:

1. The number of employees by race, ethnicity, and sex in each of the following job categories:

  • 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.

2. The number of employees by race, ethnicity, and sex whose annual earnings fall within each of the pay bands used by the United States Bureau of Labor Statistics in the Occupational Employment Statistics survey.

3. The median and hourly wage rate within each job category, for each combination of race, ethnicity, and sex.

4. A “snapshot” that counts all of the individuals employed in each job category by race, ethnicity, and sex during a single pay period of the employer’s choice between October 1 and December 31 of that reporting year.

5. A calculation of the total earnings, as shown on Internal Revenue Service form W-2, for each employee in the “snapshot,” for the entire reporting year, regardless of whether or not an employee worked for the full calendar year. The employer must tabulate and report the number of employees whose W-2 earnings during the reporting fell within each pay band.

6. The total number of hours worked by each employee counted in each pay band during the reporting year.

7. The employer’s North American Industry Classification (NAICS) code.

(Gov. Code § 12999, subd. (b).) Pay data reports must also include a section for employers to provide clarifying remarks on the information provided and be made available in a format that allows the CRD to search and sort the information using “readily available software.” (Gov. Code § 12999, subds. (d)-(e).) Covered Employers that hire employees through a labor contractor are also required to disclose the ownership names of all labor contractors used to supply employees. (Gov. Code § 12999, subd. (a)(2).)

Pay data reports must be submitted on or before the second Wednesday of May 2023 and on or before the second Wednesday of May each year thereafter.3 (Gov. Code § 12999, subd. (a)(1).) Covered Employers with multiple establishments are still required to submit pay data reports for each establishment but are no longer required to submit a consolidated report for all employees in addition to establishment-specific reports.4 (See Gov. Code § 12999, subd. (c).)

Failure to comply with pay data reporting requirements may subject an employer to one or more of the following: (1) an order requiring compliance (with all costs associated with seeking the order being recoverable by the CRD); (2) a civil penalty not to exceed one hundred dollars ($100) per employee for an initial failure to file a report; and (3) a civil penalty not to exceed two hundred dollars ($200) per employee for continued failure to file a report. (Gov. Code § 12999, subd. (f).)

C. Confidentiality of Pay Data Reports Submitted by Covered Employers
Earlier versions of SB 1162 would have required CRD to publish individual employers’ pay data reports on a publicly accessible website. That is not the case with the version of the bill that Governor Newsom signed. The public posting requirement was removed from the bill by the Assembly Appropriations Committee.  

As was the case prior to SB 1162, CRD is permitted to compile data from pay data reports and publish “aggregate reports” that are available to the public. (Gov. Code § 12999, subd. (i).) Importantly, such reports must be drafted so as to be “reasonably calculated to prevent the association of any data with any individual business or person.” (Ibid.)  

SB 1162 also makes it “unlawful” for CRD “to make public in any manner . . . any individually identifiable information obtained” from a pay data report unless an investigation or enforcement proceeding is initiated against an employer.5 (Gov. Code  § 12999, subd. (g).) Any individually identifiable information submitted to CRD is also considered “confidential information and not subject to disclosure pursuant to the California Public Records Act.” (Gov. Code Section 12999, subd. (h).)

Pay Transparency Obligations

SB 1162 also greatly increases employer obligations under Labor Code Section 432.3. Unlike the pay data reporting requirements of Government Code Section 12999, changes to Labor Code Section 432.3 apply to all public and private employers. 

Prior to SB 1162, Section 432.3 primarily served to prohibit an employer from seeking salary history information about a job applicant or relying upon such information as a factor in determining what salary to offer that applicant. (Lab. Code § 432.3, subds. (a)-(b).) SB 1162 left those prohibitions in place, but added additional requirements for employers aimed at increasing pay transparency.  

All employers are now required to provide the pay scale for a position to a job applicant upon their request.6 (Lab. Code § 432.3, subd. (c)(1).) Current employees are also entitled, upon request, to the pay scale for the position they are currently employed in. (Lab. Code § 432.3, subd. (c)(2).)  

If an employer has 15 or more employees, they are required to include the pay scale for a position on any job posting—a significant change to the prevailing practice of not including salary information on job postings. (Lab. Code § 432.3, subd. (c)(3).) Use of a third party to announce, post, publish, or otherwise make an employer’s job posting known does not eliminate the requirement to include the pay scale in the job posting. (Lab. Code § 432.3, subd. (c)(5).) 

Employers are required to maintain records of job title and wage rate history for each employee for the duration of their employment, and until 3 years after their employment ends. (Lab. Code § 432.3, subd. (c)(4).) These records are open to inspection by the Labor Commissioner. (Ibid.) Failure to keep such records creates a rebuttable presumption in favor of an employee’s claim that the Labor Code has been violated. (Lab. Code § 432.3, subd. (d)(5).) 

An employee or job applicant that claims a violation of this statute may file a written complaint with the Labor Commissioner within one year of the alleged violation, or file a civil action that can provide “for injunctive relief or any other relief the court deems appropriate.” (Lab. Code § 432.3, subds. (d) (1)-(2).) The Labor Commissioner may levy fines against violating employers between one hundred dollars ($100) and ten thousand dollars ($10,000) per violation. (Lab. Code § 432.3, subd. (d)(4).) First time violators, however, may avoid civil penalties by demonstrating that all job postings for open positions have been updated to include pay scales. (Ibid.)

Conclusion

SB 1162 is part of a growing wave of pay transparency laws, including recently enacted laws in New York City, Colorado, and Washington state. Employers should prepare for pay transparency obligations to continue to arise in various jurisdictions. Attorneys of Coblentz Patch Duffy & Bass LLP’s Labor and Employment practice group are familiar with the new requirements imposed by SB 1162 and can assist employers in complying with these changes in the law.

 

[1] Formerly known as the Department of Fair Employment and Housing (“DFEH”).
[2] SB 1162 defines “employee” as “an individual on an employer’s payroll, including a part-time individual, and for whom the employer is required to withhold federal social security taxes from that individual’s wages.” (Gov. Code § 12999, subd. (k)(1).) A “labor contractor” is defined 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.” (Gov. Code § 12999, subd. (k)(2).) If an employer has both 100 or more employees and 100 or more employees hired through a labor contractor, the legislation appears to require two separate reports, one for each category of employees. (See Gov. Code § 12999, subd. (a)(2).)
[3] SB 1162 does not alter pay data reporting obligations for 2021 or 2022, which were due on or before March 31 of each of those years. (Gov. Code § 12999, subd. (m).) The legislation also does not eliminate the possibility of administrative enforcement actions for failure to comply with reporting requirements in those years. (Ibid.).
[4] An “establishment” is defined as “an economic unit producing goods or services.” (Gov. Code § 12999, subd. (k)(3).)
[5] “Individually identifiable information” means “data. . . that is associated with a specific person or business.” (Gov. Code § 12999, subd. (g).)
[6] A “pay scale” means the salary or hourly wage range that the employer reasonably expects to pay for the position. (Lab. Code § 432.3, subd. (m).)