September 08, 2022

California Legislature Passes Pay Transparency Law

On August 30, 2022, the California legislature passed SB 1162, that would amend Section 12999 of the Government Code and Section 432.3 of the Labor Code, which expands pay data reporting obligations, requires certain-sized employers to provide the pay scale for an open position in job postings and imposes new record-keeping requirements. The bill was sent to Governor Gavin Newsom for signature and would become law once signed. If he signs the bill, it will become effective on January 1, 2023. The deadline for Governor Newsom to sign the bill is September 30, 2022. 

Expanded Pay Reporting Requirements 

As we previously reported (here and here), California already requires private employers with 100 or more employees (with at least one employee in California) to annually submit a pay data report classified by race, sex and ethnicity. 

While the existing law allows employers to submit an EEO-1 in lieu of a pay data report, the new law imposes more detailed requirements, including: 

  • A specialized report, which must include the median and mean hourly rate for each combination of race, ethnicity and sex within various job categories
  • A separate pay data report for employees hired through labor contractors
  • A pay scale for a position in any job posting and maintenance of records for a job title and wage rate history for each employee for a specified time frame

The new law will also impose a civil penalty of up to $100 per employee for an employer’s failure to file the report and up to $200 per employee for an employer’s subsequent failure to file the report. 

Pay Scale Requirement for Job Postings 

If the new law is signed, California will join several other states and localities, including Colorado (see here and here) and New York City, that require employers to list the pay scale for positions on job postings. This requirement will apply only to employers with 15 or more employees. For purposes of this law, “employee” is defined as an individual on an employer’s payroll and includes part-time individuals. The law does not appear to limit employees to individuals working in the state of California and does not specify whether it will apply to remote positions that may be performed outside of California. “Pay scale” is defined as “salary or hourly wage range that the employer reasonably expects to pay for the position.” Although the benefits and other forms of compensation are not included in the definition of “pay scale,” employers may want to include that information in order to attract applicants. 

Employers who engage a third party to announce, post, publish or otherwise make known a job posting must provide the third party with the pay scale related to the posting, and then ensure the pay scale is included in the third party’s posting.  

The new law reiterates the requirement in existing law that employers of all sizes must, upon reasonable request, provide the pay scale for a position to an applicant applying for employment or to a current employee. 

Record-Keeping Obligations 

The new law requires employers to maintain records of job title and wage rate history for each employee for the duration of their employment plus three years after the end of employment. These records must be made available for inspection by the Labor Commissioner. SB 1162 creates a rebuttable presumption in favor of an employee’s claim if an employer fails to keep the required records. 

Steep Potential Penalties 

The law may be enforced by the filing of a complaint with the Labor Commissioner, which the Labor Commissioner is obligated to promptly investigate. Further, the legislation creates a private right of action and the possibility of penalties ranging from $100 to $10,000 per violation to be determined by the Labor Commissioner. Penalties based on failure to provide a pay scale in a job posting will not be assessed when an employer demonstrates that all job postings for an open position have been updated to include the pay scale.

Employer Takeaways

With the anticipated signing of this bill, we recommend that California employers promptly work with legal counsel to conduct privileged audits to proactively identify any pay disparities and determine if legitimate, non-discriminatory business reasons for any discrepancies exist, and implement any proactive remedial measures. Privileged pay equity audits are also an effective means to help align positions and appropriate pay scales, and will better prepare companies to answer questions from current employees about their pay with the obligation to publicly report pay scales. 

Employers should also incorporate compliance with SB 1162 into training protocols. In addition, California employers should review employee job title and pay records to ensure they are compliant with the records maintenance requirements of the new law.

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