Payroll Insights
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May 31, 2023

What to know about California’s new pay transparency and pay data reporting requirements

There are new requirements for applicable employers in California. The following is a breakdown of the latest pay transparency and pay data reporting requirements.

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Adhering to pay transparency requirements

Senate Bill (SB) 1162 extends pay transparency requirements in that employers, upon request, must provide current employees with the pay scale for the position in which the employee is currently employed. Also, employers with 15 or more employees must include the pay range in any job posting. This means if you have one employee in California and 14 employees out of state, then you must comply.

What about remote work positions? The Labor Commissioner has clarified that “the pay scale must be included within the job posting if the position may ever be filled in California, either in-person or remotely.”

Employers have been wondering whether the pay range in the job posting must be set in stone. What if they decide the candidate merits higher pay than the amount listed on the job posting? What if the position is new to the employer and they have not decided on a definitive pay range? The only guidance to date is that the employer is only required to include the “salary or hourly wage range that the employer reasonably expects to pay for the position.” So, if a candidate is exceptional and the employer wants to offer a salary or hourly wage above the amount set in the job posting, then they can by all means go for it.

The Labor Commissioner also clarified that the pay scale doesn’t need to include bonuses, tips, or other benefits. However, if a “position’s hourly or salary wage is based on a piece rate or commission, then the piece rate or commission range the employer reasonably expects to pay for the position must be included in the job posting,” according to the Labor Commissioner.

What if the pay range for the job is huge? Under the current law, there is no limit on how big a pay range could be. The posted pay scale reflects what an employer reasonably expects to pay for the job and is a fact-specific determination.

Keep in mind that failing to comply with the pay scale requirement in a job posting may result in penalties, ranging from $100 to $10,000 per violation. One job posting without a pay range counts as one violation.

How to help ensure your company is compliant with pay data reporting moving forward

By now, California employers are likely familiar with pay data reporting requirements, but recent amendments under SB 1162 do make some significant changes for 2023. For one, the new pay data reporting deadline is now the second Wednesday of May every year instead of March (the most recent deadline being May 10, 2023).

There are two major changes organizations should keep in mind.

The first is that pay data reporting previously only included in-house employees. Now, companies that employ 100 or more workers and/or 100 or more workers hired through labor contractors are required to report pay data. The pay report must also disclose the ownership names of the labor contractors that supplied your company with these workers. If your company has more than 100 in-house employees and 100 contractors, then you must file two separate reports for both categories.

Remember that your company’s submission of a federal EEO-1 report no longer satisfies the state’s pay data reporting requirement.

This also means that if you have at least one employee working in California or assigned to work in California, your company is required to report pay data. The California Civil Rights Department (CRD) clarified that if you have an employee who lives in California but physically works at an establishment outside the state, then that employee usually does not need to be included in the pay data report unless the employee also works in California (e.g., the employee regularly teleworks from California).

The second major change is that pay data reporting must now include new wage data, including the mean and median hourly rates.

According to the CRD, employers must “report the mean hourly rate for each grouping of employees with the same establishment, pay band, job category, race/ethnicity, and sex combination. The mean hourly rate is calculated by adding the individual hourly rates for each employee in the group, then dividing that sum by the number of employees in the group.”

Here's how to calculate the median hourly rate, as stated by the CRD: “Employers are required to report the median hourly rate for each grouping of employees with the same establishment, pay band, job category, race/ethnicity, and sex combination. The median hourly rate is calculated by ordering the hourly wages of each employee in the group from smallest to largest and selecting the middle number.”

Failing to comply with the pay data reporting laws comes with some potential penalties. If your company fails to meet the submission deadline, the fines can be up to $100 per employee, or up to $200 per employee for repeated offenses.

What if your company has subsidiaries? According to the CRD, “Multiple entities may constitute a single employer for the purposes of pay data reporting if they constitute an ‘integrated enterprise.’” There is a four-factor integrated enterprise test that includes consideration of interrelation of operations, common management, centralized control of labor relations, and common ownership or financial control.

If your company and its subsidiaries meet the integrated enterprise test, then you may file a combined pay data report, but you have the option to file separate pay data reports for each entity.

These changes to pay data reporting requirements could have an impact on your organization.  Payroll professionals should review the law and applicable guidance and apply any necessary changes moving forward to help reduce their organization’s risk exposure.

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