California has taken a bold step toward pay equality and fairness with the recent implementation of Senate Bill (SB) 1162. This dynamic piece of legislation, which has been dubbed a victory for employees, is set to shake up the employment landscape and address the long-standing issue of wage disparity and unequal pay. However, this new bill may prove to be a burden on employers, which will now be required to devote time and resources to complying with the new law, not to mention the ramifications employers may face in disclosing sensitive pay information. This article will examine what employers and HR professionals need to know about SB 1162’s requirements and regulations and its potential benefits and drawbacks.
Pay Data Reporting
One of the key provisions employers must be aware of is SB 1162’s rigorous new pay data reporting requirements. SB 1162 requires employers with 100 or more employees to submit annual pay data reports to the California Civil Rights Department (CRD), which was formerly known as the Department of Fair Employment and Housing (DFEH).
Employers with 100 or more employees may already be accustomed to the Equal Employment Opportunity Commission’s (EEOC) annual requirement to submit an EEO-1 Employment Information Report. Before SB 1162, employers could satisfy state pay data reporting requirements by submitting a copy of their EEO-1 to the CRD. However, under SB 1162, covered employers must now submit a separate annual report to the CRD on the second Wednesday of May each year beginning May 2023.
SB 1162 also expands upon the type of data that must be reported. The EEO-1 only asks employers to report the number of employees in each job category by sex, race, and ethnicity, whereas SB 1162 requires employers to report the median and mean hourly pay rate for each of these groups.
The new law also requires that a separate report be submitted for employers with 100 or more employees hired through labor contractors in the prior calendar year. Employers will need to disclose the names of all labor contractors used to supply employees, and the labor contractors shall supply all necessary pay data to their employer clients. If an employer is unable to submit a complete and accurate report because a labor contractor has not provided the pay data, the court may apportion an appropriate amount of penalties to the labor contractor.
As with the prior pay data reporting law, the CRD may seek an order compelling compliance for which the employer may be responsible for the CRD’s costs. But under SB 1162, the CRD may also request civil penalties up to $100 per employee for the first violation and up to $200 per employee for subsequent violations.
Proponents of SB 1162 believe that having accurate data on pay practices in the workplace is essential to identify areas where pay disparities exist and will empower the state to craft policies and initiatives that promote equal pay for equal work. Furthermore, the law can serve as a deterrent and hold employers accountable for their pay practices.
On the other hand, there are some potential drawbacks to the new law for employers, mainly the time and resources needed to submit the required pay data to the CRD. The May 2023 reporting deadline is fast approaching, so employers and HR professionals should start preparing now.
Whether it’s implementing new protocols, utilizing software, or outsourcing work, companies should ensure that processes are in place to collect and store the data.
SB 1162 may prove to be particularly burdensome on employers that use labor contractors, staffing agencies, payroll companies, and professional employer organizations (PEOs), as employers will need to ensure they have access to pay data information for all labor obtained from contractors. Employers should communicate with their contractor partners to make sure they are equipped to provide the data and may want to revise their labor agreements so that contractors are contractually obligated to supply the data.
Employers may also be concerned about what the pay data reveals and how it may be used against them. Businesses should regularly review their pay data to evaluate their pay practices and ensure employees are paid fairly and equitably. When potential pay disparities are identified, employers should take steps to correct them.
Pay Scale Disclosure
The second major component of SB 1162 is the pay scale disclosure requirement. Following in the footsteps of several other states, California aims to increase wage transparency and fairness by making pay scale information available to prospective employees, as well as current employees. Previously, employers were required to provide a position’s pay scale (which Labor Code Section 423.3 defines as “the salary or hourly wage range that the employer reasonably expects to pay for the position”) only to job applicants upon reasonable request. But under the new law, employers must also provide this information to current employees. SB 1162 also requires employers with 15 or more employees to publish the pay scale for a position in all job postings.
The new pay scale disclosure requirement is seen as a success for employees, who will be able to use this information to make informed decisions about their careers. HR professionals should be trained on how to respond to pay scale requests from current employees and prepared to handle the inevitable request for a raise.
By unveiling pay scale information for jobseekers, SB 1162 will create increased competition for high-paying jobs, and employers will need to ensure their pay scales are competitive in order to attract the best candidates. Companies can separate themselves from the competition by evaluating what benefits and perks can be advertised to prospective employees.
SB 1162 gives jobseekers additional tools to combat pay disparities and negotiate for equal pay. Hiring managers should be trained in the job interview process and ready to respond to questions related to pay expectations. While the additional burdens of SB 1162 may leave employers questioning the effectiveness of the law and its impact on their ability to do business, it may streamline the hiring process by eliminating candidates with unreasonable salary expectations.
While SB 1162 seems to be an important step toward achieving equal pay in California, it certainly places a substantial burden on employers. California employers should take steps now to ensure they are complying with the new law and should consult counsel when in question.
Jonathan J. Brown is a Senior Associate in Pearlman, Brown & Wax, LLP’s Encino, California, office, where he represents employers in all aspects of employment law, including wrongful discharge, discrimination, harassment, retaliation, accommodation, interactive process, wage and hour claims, and more. Brown also represents employers and insurance carriers in workers’ compensation claims throughout the state of California. He can be contacted directly at email@example.com.