Senate Bill 1162, set to take effect on January 1, 2023, amends Section 12999 of California’s Government Code, and Section 432.3 of the Labor Code, to expand requirements for pay data and pay scale reports, and imposes civil penalties for employers who fail to file. California employers, particularly those with 100 or more employees, may need to audit their salary and wage practices to ensure compliance with the new laws.
Current laws require equal pay for those who do “substantially similar work” when viewed as a composite of skill, effort, and responsibility under similar working conditions. SB 1162 was developed to strengthen the state’s efforts to enforce equal pay by increasing transparency in pay scale and pay data reports.
New Pay Data Report Mandates
SB 1162 expands the information required of the annual pay data report and pushes back the deadline to the second Wednesday of May each year, giving employers over a month to adjust from the prior deadline of March 31st.
Additionally, private employers that have hired 100 or more employees through labor contractors must submit a separate pay data report. Here, it is crucial to note that the scope of work of the labor contractors may affect whether they are counted as employees. Those who perform labor in line with the company’s usual course of business are considered employees and included in the pay data report. However, other types of outsourced labor contractors, for example, janitors for an accounting firm, are not considered employees for the purposes of the report.
Previously, employers that supplied a copy of their EEOC-1 report were exempt from submitting a separate pay data report, but that will no longer be the case moving forward.
Starting in 2023, the pay data report must also include: the median and mean hourly rate for each combination of race, ethnicity, and sex within each job category, providing additional context to the pay data reports. The expanded report shall include the following information:
(1) The number of employees by race, ethnicity, and sex in each of the following job categories:
(A) Executive or senior level officials and managers. (B) First or mid-level officials and managers. (C) Professionals. (D) Technicians. (E) Sales workers. (F) Administrative support workers. (G) Craft workers. (H) Operatives. (I) Laborers and helpers. (J) 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) Within each job category, for each combination of race, ethnicity, and sex, the median and mean hourly rate.
(4) For purposes of establishing the numbers required to be reported under paragraph (1), an employer shall create a “snapshot” that counts all of the individuals in each job category by race, ethnicity, and sex, employed during a single pay period of the employer’s choice between October 1 and December 31 of the “Reporting Year.”
(5) For purposes of establishing the numbers to be reported under paragraphs (2) and (3), the employer shall calculate the total earnings, as shown on the 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 shall tabulate and report the number of employees whose W-2 earnings during the “Reporting Year” fell within each pay band.
(6) The employer shall include in the report the total number of hours worked by each employee counted in each pay band during the “Reporting Year.”
(7) The report shall include the employer’s North American Industry Classification System (NAICS) code.
Last but not least, employers are subject to civil penalties of up to $100 per employee for a failure to report, and up to $200 per employee for subsequent failures to report the required pay data. Previous law only required that the recovery cost associated with compliance be imposed on the employer, so this increased penalty shows that California will be taking the new requirements very seriously.
Accessible Pay Scale Information
The onus of responsibility to request pay scale information was solely on the job applicant, but that will change in the new year as SB 1162 laws kick into effect. Employers with 15 or more employees will be required to disclose pay scales for all job postings, regardless of whether they are posted via a third party. Additionally, employers must provide pay scale information to current employees who request such details about their positions.
A violation of this law may result in a civil penalty that can range from $100 to $10,000.
Currently, pay transparency in job postings are only required by law in California, Colorado, New York, and Washington, although Massachusetts and New Jersey are in line to do the same. The advantages that accompany the inclusion of pay scale in a job posting are many: there is an increase of 40% in applicants, more applicants are aligned with the job requirements and duties, which saves you time and money in finding the right fit, and you have a tactical advantage over competitors. When everyone is on the same page, you can save time, money, and energy.
Required Record Keeping
All employers, private and public, are required to keep the records of all employees, their job titles, and wage history, for the duration of their employment and three years thereafter. A failure to do so creates a rebuttable presumption in favor of an employee’s claim, so record-keeping must be taken with care.
The NLRA gives all employees the right to discuss wages, not just unions. As employers disclose pay scale and other required information with the new year, existing employees may have questions about their position and pay data. Be prepared to answer questions and administer changes where necessary by conducting a thorough audit of your company’s salaries and wages for compliance.
There are two types of audits for employers who wish to reduce liability in the future:
Regression Analysis: Best for large employers and consider the gold standard in litigation.
Cohort Study: Generally used for looking at small groups and requires more qualitative analysis.
Once the audit is complete, the employer must explain the results. Using the employee information available internally, the company must find the differences in pay data and determine why they exist.
Acceptable reasons for pay differences include:
System measuring earning by quantity, quality, or production
Education, training, or experience
Combination of factors
Here, we recommend you work with an attorney to obtain detailed information about the job types and the various responsibilities required of each role. It is crucial to distinguish the skill, effort, responsibility, working conditions, and establishment of the employees in determining wages.
Once you determine why certain pay differentials exist, you can also see if there are any remaining that need adjustment. Then, your company can start to make corrections to ensure compliance with the state’s new laws.
If you’re curious how this may affect your business, The Grady Firm can help. Schedule a call with an attorney at your convenience on our website: www.gradyfirm.com/schedule
Are you confident you are compliant with the latest employment laws and policies? The Grady Firm can assist you with updating your documents and provides legal counsel to employers. Schedule a consultation with The Grady Firm’s attorneys, or call 949-798-6298.
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This article is for informational purposes only, and does not constitute legal advice or create an attorney-client relationship. This article does not make any guarantees as to the outcome of a particular matter, as each matter has its