Part 2: California’s Pay Transparency Act (SB 1162) – Are You Ready?

Last week I reported that more pay transparency was coming to California. The Golden State is joining New York City, Colorado, and Washington in requiring employers to disclose pay ranges in job ads.

Under the law, employers with 15 or more workers will be required to include pay ranges in job postings and those with at least 100 representatives or workers for hire should report mean and median pay data as well as payment data of employees supplied by labor contractors in pay data reports in each combination of race, ethnicity, and sex.

Regardless of where you sit on this law; proponents claim that this will be an important step in equalizing the playing field for the 1.9 million contractors, temps, vendors, and contingent workers in California or you could argue that pay transparency would increase compression between newer and more experienced employees and possibly deter candidates from applying before learning about other fringe benefits.

Senate Bill 1162 (SB 1162) doesn’t make clear how the law applies to companies that employ workers remotely.

Last week I provided a quick overview of the seven (7) things California employers need to know about these new obligations… I’ll recap them today with a little more detail.

1. Employers Will Need to Increase Wage Transparency with Employees
Currently, California prohibits employers from asking applicants about their salary history, including compensation and benefits, during the hiring process. It also requires employers to provide the pay scale for a position upon reasonable request by an applicant. SB 1162 increases these transparency requirements in several new ways

Not only can applicants request the pay scale for the position that they are applying for, but employers must now also provide the pay scale for the position that they are currently employed upon request.

In addition, for employers with 15 or more employees, you must include the pay scale for a position in any job posting. A “pay scale” is defined as the salary or hourly wage range that the employer “reasonably expects” to pay for the position.

If you use a third party to “announce, post, publish, or otherwise make known a job posting,” you must provide the pay scale to the third party and it must include the pay scale on the job posting.

You must further maintain records of job titles and wage rate history for each employee for the duration of their employment plus three years after the end of employment. The DLSE can inspect these records to see if there is a pattern of wage discrepancy.

Beyond these additional legal requirements, SB 1162 comes with some bite. If you do not abide by any of these requirements, an employee or applicant who claims to be aggrieved may file a written complaint with the DLSE within one year after the date they learned of the violation. An employee or applicant may also file a civil action for injunctive relief or any other relief that a court deems appropriate.

If you are found to have committed a violation of these requirements, the Division of Labor Standards Enforcement (DLSE) may order you to pay a civil penalty between $100 and $10,000 per violation. Importantly, DLSE will not assess a penalty for the first violation if you can demonstrate that all job postings for open positions have been updated to include the required pay scale information. Finally, if you fail to keep records in violation of SB 1162, there will a rebuttable presumption in favor of the employee’s claim.

The job posting requirements of SB 1162 will pose unique challenges to employers who hire nationally or may hire workers who work remotely. As more jurisdictions adopt such requirements, employers will need to evaluate whether they can maintain separate job postings and processes in different jurisdictions or whether it makes sense to adopt a uniform national process.

The increased use of remote work can create challenges. For example, an employer may not be based in California but may be hiring from a pool of applicants who could be working remotely from California. For these reasons, you should work closely with counsel to ensure that your job postings are compliant come 2023.

2. You Will Need to Comply with Significant Changes to Pay Data Reporting Requirements
SB 1162 makes a number of significant changes to California’s existing law that requires large employers to submit pay data reports, including modifying the timing of when such reports must be submitted beginning in 2023.

Many employers are already familiar with their federal reporting obligation to the Equal Employment Opportunity Commission (EEOC) through the execution of the standardized form known as the “Employer Information Report EEO-1.” Covered employers are required to annually submit the EEO-1 form to provide data about the representation of men and women of different ethnic groups in nine distinct occupational classifications or job categories.

Current law requires such reports to be submitted each March. SB 1162 now requires all private employers of 100 or more employees by the second Wednesday of May 2023, and on or before the second Wednesday of each May thereafter, to submit specific pay data to the CRD covering the prior calendar, or “Reporting Year.” The report must include the following information:

  1. The number of employees by race, ethnicity, and sex for 10 job categories.
    This is established by providing a “snapshot” that counts all employees in each job category by race, ethnicity, and sex, employed during a single pay period of your choice between October 1 and December 31 of the Reporting Year. The 10 job categories are as follows:
    • 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
    • Service workers
  2. The number of employees by race, ethnicity, and sex, whose earnings fall within each of the pay bands used by the U.S. Bureau of Labor Statistics in its Occupational Employment Statistics Survey. This is established by calculating the total earnings shown on the IRS Form W-2 for each employee in the “snapshot” for the entire Reporting Year, regardless of whether an employee worked the full calendar year.
  3. With each job category listed above, for each combination of race, ethnicity, and sex, the median and mean hourly rate. This is a new data element added to the required information by SB 1162
    The total number of hours worked by each employee counted in each pay band during the Reporting Year.
  4. Your North American Industry Classification System (NAICS) code.
  5. The Report may include a section for clarifying remarks (however, it is not required).

3. Employers who Contract with Labor Contractors Need to Provide Separate Report
The new California law will also require employers with 100 or more employees hired through labor contractors to submit a separate pay data report to the California Civil Rights Department (CRD) covering the employees hired through labor contractors in the prior calendar year.

4. There is a Required Format That Must Be Followed
All employers subject to the law must submit the required data in a format that allows the CRD to “search and sort the information using readily available software.”

5. Employers With Multiple Establishments No Longer Required to Submit a Consolidated Report
SB 1162 eliminates language that requires employers with more than one establishment to also file a consolidated report that includes all employees. Employers with multiple establishments must submit a report that covers each establishment.

6. There are Significant Consequences for Non-Compliance
The law authorizes the CRD to seek a court order requiring an employer to comply with all requirements and entitles the Department to recover costs associated with seeking compliance. SB 1162 significantly raises the stakes for noncompliance by authorizing the CRD to now request a civil penalty for the failure to file the required report, up to $100 per employee for the first violation and up to $200 per employee for each subsequent violation.

Note: if the employer is not able to submit a complete and accurate report because a labor contractor has not provided it with the required pay data, the Court can apportion the penalty amount to any labor contractor that has failed to provide the required pay data.

7. The Time to Act to Come into Compliance is Now
As SB 1162 certainly creates additional hefty burdens on covered employers’ data reporting obligations, job posting requirements, and records maintenance duties, you are strongly encouraged to take action now.

You should make sure that all of your job postings, including those on third-party boards or websites, include the required pay scale information for all open positions. Taking care of this now will allow you time to correct and avoid continued disparity and missing job-posting information through changed recruiting, hiring, and retention practices. By taking these invaluable actions now, you may avoid the prying eyes of a California Civil Rights Department (CRD) or DLSE investigation, the large fines associated with non-compliance, and the onerous costs of a potential lawsuit.

We at Morris + D’Angelo will certainly be watching this new legislation and its effect on California employers as it develops further so that you may avoid large fines associated with non-compliance and the onerous costs of a potential lawsuit and the prying eyes of a CRD or a DLSE investigation.

If you have questions, need clarity, or need help determining how to navigate this new law (SB 1162) to help protect, retain, or maximize your gains, please contact us at Morris + D’Angelo. This is our Expertise!

At Morris + D’Angelo, we believe that Tax Optimization is one of the most empowering and responsible things you can do to protect your growing financial assets. Tax optimization looks at a multi-year approach to minimizing tax costs. Tax avoidance is integral to tax optimization.

Daniel Morris
Daniel frequently provides Media Content via Workshops, Podcasts, and Printed Articles on topics like Bitcoin and Cryptocurrency, Wealth Preservation and Planning, Global Banking, and many other high-level financial topics that serve and demonstrate the Value of our Global Network that should be of interest to those who need Private High-Wealth Services.

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Daniel Morris, Dan Morris, CPA, Portland Oregon, Dragon Slayer

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