Employment Law Alert: New Pay Transparency Law Requirements

As we discussed in our recent webinar Changes California Employers Must Make by January 1, 2023, California employers should be finalizing preparations to comply with new pay transparency law requirements under California Senate Bill 1162.

Effective January 1, 2023, the new law requires employers with at least 15 employees to include in any job posting the pay scale for the position (including direct job postings by the employer, and job postings by a third party). While prior law required employers to provide the pay scale for a position to an applicant upon reasonable request after completion of an initial interview, the new law provides applicants with the right to receive the pay scale regardless of whether they have completed an initial interview. The new law also adds a right for current employees to receive the pay scale for their position upon request. California law defines pay scale to mean the salary or hourly wage range that the employer reasonably expects to pay for the position.

The legislation also expands the pay data reporting obligations for private California employers with 100 or more employees. These employers are currently required to submit to the California Civil Rights Department (formerly the Department of Fair Employment & Housing) an annual pay data report detailing the number of employees within each establishment by race, ethnicity and sex. The data is grouped according to designated job categories and 12 “pay bands” based on earnings during the prior year.

SB 1162 adds the following pay data reporting obligations for covered employers:

• Within each job category, for each combination of race, ethnicity, and sex, the median and mean hourly rate.
• Employers with 100 or more employees hired through labor contractors must submit a separate pay data report for those employees.
• Employers with multiple establishments must submit a report covering each establishment.

For more detailed information about these requirements, please see the California Pay Data Reporting Portal.

Senate Bill 1162 also requires all employers to maintain records of a job title and wage rate history for each employee for the duration of the employment plus three years after the end of the employment.

The new California law is part of a wave of new state/local pay transparency laws sweeping the country. For example, Colorado has an existing pay transparency law that requires employers with at least one employee in Colorado to meet greater job posting requirements for any position that could be performed in Colorado (even remotely). Colorado requires the job posting disclosure to include hourly/salary compensation or range, a general description of other compensation (e.g., commissions, bonuses), and a general description of all employment benefits. Connecticut law requires disclosure of a wage range to applicants and employees not only upon request, but also automatically (i.e., without a request) before an offer is made, upon hiring, and upon a position change. Other jurisdictions with their own unique pay transparency law requirements include, but are not limited to, Maryland, Nevada, New York City, Rhode Island, and Washington State. These laws generally also have their own unique employer record-keeping requirements.

Employers should work with their employment law counsel to identify applicable requirements based upon their employee work locations. For most employers, the most practical solution would likely be to craft a form of posting that will comply in all jurisdictions where the employer has at least one employee (i.e., rather than trying to administer different job posting practices in different locations). Similarly, employers should prepare employee/applicant pay scale/benefit disclosure policies compliant in all of their employee locations. Employers should also review their record-keeping practices to ensure compliance with all applicable laws.

Long before the recent wave of pay transparency laws, employers were well advised to conduct pay equity analyses to identify and correct discriminatory pay disparities. These new laws should light a fire for pay equity analyses under employers that have not recently done them. The increased disclosure of pay data to the California Civil Rights Department, and applicants/employees, is obviously intended to subject pay disparities to greater external scrutiny. Naturally, an employer can better protect itself from legal exposure by discovering and addressing any problematic pay disparities first through internal analyses before being confronted about them in the setting of a government audit or litigation.

Employers seeking further guidance may contact any of the firm’s attorneys.