A number of new laws went into effect in 2023 affecting California employers, including the Pay Transparency Act (SB-1162). This law imposes new requirements for certain employers with regard to pay scale disclosures and pay reporting. The purpose of the law is to promote greater transparency in pay rates and prevent illegal wage disparities on grounds such as race and gender.
Pay disclosure requirements
Beginning on January 1, 2023, the new law requires ALL employers (regardless of size) to disclose “pay scales” for job positions to current California employees or job applicants upon their reasonable request. Current employees must be provided the pay scale for their current positions and applicants must be provided the pay scale for the position they are seeking. “Pay scale” refers to the salary or hourly wage range the employer reasonably expects to pay for the position.
Additionally, employers with 15 or more employees must disclose pay scales in job postings, both internal and external. This applies to any job position fillable by a California employee, including remote-work positions, as well as positions posted on behalf of an employer by a third-party service or platform, such as a recruiter or LinkedIn.
Who counts as an employee?
To determine the number of employees for pay scale posting purposes, employers must count all of the employees that work for the employer, including those employed outside of California. Thus, if an employer with 15 employees has only a single employee located in California, the employer must comply with the job posting requirements. Employers may, however, exclude bona fide independent contractors from their calculation.
More detailed wage recordkeeping requirements
Existing law still requires employers to keep wage records of individual employees for three years. However, as of January 2023, employers must also maintain job title and wage history records for each employee. Those records must also be retained for at least three years after the employment ends. The Labor Commissioner may request those records for inspection to determine whether there is a pattern of illegal wage discrepancies.
A new iteration of pay data reporting for large employers
The new law also impacts pay data reporting for employers with 100 or more employees (again, with at least one of whom is based in California). Previously, these same large employers were required to provide this data pursuant to federal law. Now, such employers are required to provide detailed wage data via a separate report for each establishment to the California Civil Rights Department (formerly the California Department of Fair Employment and Housing) no later than the second Wednesday of May. Covered employers may no longer rely on submission of the federal EEO-1 report to comply with state law, nor can they submit a consolidated report for multiple establishments. In addition, employers with 100 or employees hired through labor contractors must also submit a separate report. Failure to comply can result in substantial civil penalties.
Employers cannot prevent discussion of pay by employees or ask for applicants’ salary information
Nothing in the new law affects California Labor Code section 232, which disallows employers from preventing employees from disclosing wages or discussing pay with other employees. Employers also cannot retaliate against employees for doing so. And of course, employers must continue to pay employees similar wage rates for performing substantially similar work regardless of race or sex.
Finally, as has been the case for a few years now, employers may not ask about or rely upon an applicant’s salary history for employment or salary decisions. However, employers may ask applicants their salary expectations, and they may rely on salary information that applicants voluntarily disclose without prompting by the employer.
Our employment lawyers are available to provide guidance for employers on any pay transparency or reporting questions.