California’s Gov. Newsom Expands Pay Transparency and Employee Data Reporting Laws

By: Sheeva Ghassemi , Matthew Damm , Oliver Katz

On September 27, 2022, California Governor Gavin Newsom signed into law SB 1162, which expands California’s existing pay transparency and employee data reporting laws. California joins New York and Colorado, which have similarly expanded, or are set to expand, their pay transparency laws. The new law goes into effect January 1, 2023.

Salary Transparency Requirements

Existing Law: California’s existing pay transparency law, codified in Section 432.3 of the Labor Code, requires that employers provide an applicant with the pay scale for a position upon the applicant’s reasonable request. The law also prohibits certain inquiries by employers related to an applicant’s salary history.

New Requirements: The new law expands on these requirements and provides the following:

For employers with 15 or more employees:

  • Employers must include the pay scale for a position in any job posting. “Pay scale” is defined as the salary or hourly wage range the employer reasonably expects to pay for the position.
  • Employers that engage a third party to announce, post, publish or otherwise make a job posting known must provide the pay scale to the third party, and the third party must include the pay scale in the job posting.

The following obligations apply to all employers:

  • Employers, upon reasonable request, must provide the pay scale for a position to an applicant for employment.
  • Upon request, employers must provide a current employee the pay scale for the position in which the employee is currently employed.
  • All employers must maintain job title and wage rate history for each employee for the duration of their employment plus three years after their employment ends. These records are subject to the California Labor Commissioner’s inspection.

Exposure for Violations: Employees or applicants claiming violations of these pay transparency requirements may either file a written complaint with the California Labor Commissioner within one year of the date they learned of the violation and/or bring a civil action for injunctive and other relief. In addition, the state imposes civil penalties for violations, which can range from $100 to $10,000 per violation. For a first violation of Section 432.3(c) of the Labor Code (i.e., the pay scale transparency requirements), no penalty will be assessed if the employer shows that all job postings for open positions have been updated to reflect the pay scale. If an employer fails to keep the proper records, as outlined above, there will be a rebuttable presumption in favor of the employee’s claim.

Comparison Against Wage Transparency Laws in New York City and Colorado

  • New York City: Similar to California’s pay transparency law, New York City’s version requires employers to state the minimum and maximum salary (or hourly rate) they in good faith believe, at the time of the posting, they are willing to pay for the applicable position and provides employers the opportunity to cure any violation before a fine is imposed. However, the New York City law differs from the California law in the following key areas: it applies to employers with as few as four employees and it expressly applies to any advertised position that can (or will) be performed in New York City, meaning that a posting for a fully remote position that could potentially be filled by a New York City employee would be covered (the California law is silent on the treatment of fully remote positions that could be performed in California). The New York City law takes effect November 1, 2022.
  • Colorado: Colorado’s Equal Pay for Equal Work Act also requires employers to state the compensation range (which can be listed as a fixed salary, an hourly rate or a day rate) on all job postings. While the law applies to all employers who employ at least one individual working in Colorado, unlike California’s law (but similar to New York City’s law), the salary range must be included for postings directed at remote workers. Additionally, Colorado’s law requires employers to provide a general description of all employment benefits for a particular job, which is not required under either the California or New York City law. The Colorado law became effective in 2021.

Pay Data Reporting Requirements

Existing law: Existing law provides that California private employers with 100 or more employees that are required to file the annual federal Employer Information Report (EEO-1) must submit a pay data report to the Civil Rights Department (CRD) (formally known as the California Department of Fair Employment and Housing). The law outlines the specific types of information to be included in the pay data report and when it must be submitted.

New Requirements:

  • Covered Employers: California private employers of 100 or more employees, regardless of whether they are required to file an EEO-1, must submit a pay data report.
  • EEO-1: Employers can no longer submit an EEO-1 to the CRD in lieu of a pay data report, as they were permitted to do under existing law.
  • Multiple Establishments: Employers with multiple establishments will no longer need to submit a consolidated report, but they must continue to submit reports for each establishment.
  • Timing: The new law revises the timeframe in which covered employers must submit information. Previously, the data report had to be submitted on or before March 31 of each year. Now, employers will need to provide the report on or before the second Wednesday of May 2023, and for each year thereafter on or before the second Wednesday of May.
  • Labor Contractors: California private employers that have 100 or more employees hired through “labor contractors” must also submit a separate pay data report to the CRD for those employees hired through a labor contractor in line with the above timeframe. The pay data report must include the ownership names of all labor contractors used to supply employees. A “labor contractor” is defined as an individual/entity that supplies, either with or without a contractor, a client employer with workers to perform labor within the client employer’s usual course of business. Although this is not explicitly stated in the statute, this arguably includes workers engaged by employers through a staffing agency. There may be court-imposed penalties available to penalize labor contractors for failing to provide pay data to employers.
  • Contents of Report: Previously, the pay data report needed to include, among other things, the number of employees by race, ethnicity and sex in specified job categories. Under the new law, the pay data reports must additionally include the median and mean hourly rate for employees by each combination of race, ethnicity and sex within each job category.

Exposure for violations. Penalties for failing to file the pay data report can range from $100 (first violation) to $200 (subsequent violations) per employee. In addition, the CRD may seek an order requiring non-complying employers to comply and is entitled to recover associated costs.

In light of the above changes, and as the new year approaches, employers should revisit their job postings, policies and procedures and bring them in line with these new salary transparency and reporting requirements.