California Governor Gavin Newsom has signed a new salary transparency law that will require significant changes to how employers write job postings and how they report salary data to the state. Given the magnitude of the changes, many employers should start preparing now.
Here are some of the most important provisions of the law, which could become a model for other states seeking to improve pay transparency:
Job offers must include salary ranges
Effective January 1, 2023, California employers with 15 or more employees must include a position’s wage or hourly wage range (not including bonuses or stock-based compensation) in any internal job posting or external. This requirement extends to job offers published by a third party at the request of an employer.
Extension of information on salary scales on request
Under current California law, after an outside candidate completes an initial interview for a position, an employer must provide the position’s salary or hourly wage range upon the candidate’s reasonable request.
Beginning in January, SB 1162 expands this requirement to cover current employees applying for the pay scale for the position in which they are currently employed, as well as any external applicants seeking employment with the employer. who request it. The new requirement to share salary range information with current employees and applicants applies to all California employers, including those with fewer than 15 employees.
SB 1162 also establishes a civil penalty of up to $10,000 per violation of its salary range disclosure and job posting requirements. However, there is no penalty for a first violation of the job posting requirement if the employer can demonstrate that all job postings for vacant positions have been updated to include the wage scale.
Expanded Compensation Data Reporting Requirements
Similar to federal wage data reporting requirements, existing California law requires employers with 100 or more employees to report wage data on each of 10 specified job categories to the California Department of Fair Employment and Housing annually ( DFEH). This report is calculated from a “snapshot” of a single pay period chosen by the employer between October 1 and December 31.
As of May 2023, SB 1162 extends these DFEH reporting requirements. For each job category, employers must include the median and average hourly rate, broken down by race, ethnicity and gender. This is a significant change from the existing law, which only requires the numerical counting of employees by race, ethnicity and gender in the pay band of each job category. Additionally, SB 1162 removes a logistical burden by eliminating the requirement for employers with multiple locations to provide both a consolidated report of all locations and a separate report for each location. Instead, employers only need to provide a report for each establishment.
Employers who have retained at least 100 people through labor contractors in the previous calendar year (for example, from 2022) must produce the salary data described above for these persons if they were performing work in the normal course of the employer’s business. This new requirement will highlight compensation differences between employees and third-party contractors. As with employees, this salary data must be provided no later than the second Wednesday in May of each year.
Liability risk
If there are differences between protected categories of employees within the same job category, this new reporting requirement could lead to claims of discrimination or equal pay violations. Salary data reports are not being made public at this time due to a late amendment to the bill, which initially would have required the state to post the reports on a public website. However, these reports are likely to be available through a FOIA request or civil discovery.
SB 1162 also establishes a civil penalty of up to $100 per employee for an employer who fails to report and a civil penalty of up to $200 per employee for a subsequent reporting violation.
Reminder of other existing pay transparency requirements
Current California law prohibits employers from asking job applicants for “salary history information.” However, employers may ask about a candidate’s “salary expectations” for the position. Additionally, employers are not prohibited from making a compensation decision based on a current employee’s current salary (or an applicant’s salary if they have voluntarily disclosed it), as long as any discrepancy salary resulting from this remuneration decision is justified by one of the Factors of the law on remuneration: system of seniority or merit, system of production or a genuine factor such as education, training or experience.
Pay Transparency and Data Reporting Laws in Other Jurisdictions
Employers operating outside of California must also confirm payroll transparency and payroll data reporting requirements in other jurisdictions. Currently, the State of Colorado and Jersey City are the only jurisdictions that require certain employers to provide salary scales in job postings. However, Washington State and three New York localities (Ithaca City, New York, and Westchester County) have passed similar laws, which are expected to go into effect in the coming months. New York State has also approved legislation that, pending the governor’s signature, would require any employer with four or more employees to include salary ranges and job descriptions (if they exist) in their job advertisements. promotion or transfer opportunity. Other jurisdictions have pay transparency laws requiring employers to provide salary ranges upon request by an applicant and/or impose mandatory disclosure requirements at other stages of the hiring/employment process . Each jurisdiction has taken its own approach and has slightly different requirements.
In addition to federal and California salary data reporting requirements, Illinois passed salary data collection last year, requiring employers with 100 or more employees to report salary data to the state and obtain a certificate of registration of equal pay. We will likely see more states and jurisdictions adopt similar salary data reporting laws in the years to come.
what you should do
We anticipate this trend will continue to spread to other states. Employers are encouraged to consult an employment attorney on their job postings and should develop salary ranges for each role before posting the position. To prepare for the new job posting requirements, employers should develop a process for systematically posting information about salary ranges in internal and external job postings, as well as a process for preserving these postings. to prove compliance. Similarly, employers should train managers, recruiters and human resource professionals on these processes and the requirements of the new law.
To prepare for expanded public reporting in 2023, employers may also consider an internal audit of current employee wages to ensure there are no significant gaps or inequities. Even if wage reporting is not currently required for the jurisdiction or size of your employer, a check will help you prepare for any pay equity reporting that may be required in the future.
Given the growing number of states and localities requiring salary transparency, multistate employers may consider a national policy to include salary scales in job postings and/or provide salary scales to job applicants.
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