At the Eleventh Hour, California Enacts Law Requiring Employers to File an Equal Pay Report

Seyfarth Synopsis: California will now require employers to annually file an equal pay report. Governor Newsom signed into law California’s equivalent of the now-rescinded “Component 2” of the EEO-1 report that would collect pay and hours worked data from some employers. The new law requires covered employers to submit their first report, covering 2020 data, by March 31, 2021.

Late last night, on September 30, 2020, California Governor Gavin Newsom signed into law Senate Bill 973 (SB 973). This law will require employers to annually submit various pay and hours data for its workforce in a manner very similar to the now rescinded federal EEO-1 pay report (“EEO-1 Component 2”). This bill is a repeat of three prior bills, two of which were held in committee in 2018 and 2019 and one of which was vetoed in 2017.

What Does California’s Annual Pay Data Report Require?

Under the new law, on or before March 31, 2021, and each year thereafter, private employers with 100 or more employees, are required to submit a pay data report to the California Department of Fair Employment and Housing (DFEH) that includes the number of employees by race, ethnicity, and sex in the following categories, which track the federal EEO-1 categories:

• Executive or Senior Level Officials and Managers.
• First or Mid-Level Officials and Managers.
• Professionals;
• Technicians;
• Sales Workers;
• Administrative Support Workers;
• Craft Workers;
• Operatives;
• Laborers and Helpers; and
• Service Workers.

The pay data report must include previous year W-2 earnings and hours worked for all employees and must be submitted in a searchable and sortable format. Employers must submit information based on an employee workforce snapshot taken from the end of any pay period between October 1st and December 31st. The submission must account for and include all employees who were active as of that snapshot pay period.

Like the rescinded federal EEO-1 Component 2 report, the W-2 income data will be reported by tallying the number of employees in each of the job categories and categorizing their pay in pay bands as established by the Bureau of Labor Statistics in the Occupation Employment Statistics Survey.

The filing deadline for each year is March 31st of the following year. So, for example, the 2020 annual pay data reports must be submitted by March 31, 2021.

What Does the DFEH Do with the Data?

The law requires the DFEH to make the reports available to the Department of Labor Standards Enforcement (DLSE) upon request and to maintain the pay data reports for a minimum of 10 years, and authorizes the DFEH to seek an order requiring non-reporting employers to comply.

The pay law also prohibits any officer or employee of the DFEH or DLSE from making public any individually identifiable information obtained from the report prior to the institution of certain investigation or enforcement proceedings, and requires the Employment Development Department to provide the DFEH with the names and addresses of all businesses with 100 or more employees.

Critics say this requires California employers to submit potentially incomplete or misleading pay data to state agencies that may allow advocates to characterize a false impression of wage disparity where none exists.

Concerns with California’s Proposed Annual Pay Data Report Law

There are significant issues implicated by the collection of compensation information in SB 973 which were not addressed before Governor Newsom signed the bill into law. While employers will have the opportunity to provide “clarifying remarks,” that is insufficient to remedy the major issues with SB 973’s pay data reports.

• SB 973 requires overly broad aggregation of dissimilar jobs into artificial pay groupings. For instance, the annual pay data report will require a reporting hospital to combine lawyers, doctors, accountants, nurses and dieticians -- all grouped as “professionals” -- to somehow determine whether there are pay disparities based on gender, race or ethnicity. SB 973 does not consider whether the employees perform “substantially similar work.” No existing law permits comparisons of such diverse workers so the planned of objective of allowing for “targeted enforcement of equal pay or discrimination laws,” will lead only to confusion.
• Eligibility for overtime, commissions, and bonuses are typically not the same for full-time, and partial-year or part-time employees yet the report requires this kind of apples/oranges comparison.
• In addition to the concerns with the report itself, there are significant outstanding data privacy concerns for employers.
• Finally, the law does not clarify the scope of coverage. Specifically, it does not specify whether only California employees will be reported in the pay report. It also does not clarify if the reporting requirements applies only to employers with 100 or more employees in California, or 100 or more employees overall.

The First Report Will Cover 2020 Data so Employers Should Start Developing a Plan Now

The pay data report due in March 2021 will be based on 2020 pay data, so employers should begin to evaluate their readiness for compliance as soon as possible. For instance, employers should begin the process of determining how to adjust their systems and practices to ensure that the data will be available in the format mandated by the DFEH, if needed.

Employers would also be well-advised to conduct a proactive pay equity analysis now, to address any areas of concern. While the data to be reported and analyzed by the DFEH will not likely be very meaningful given the significant issues outlined above, the new pay report will likely put more emphasis on pay equity and employers should be prepared for this heightened scrutiny.

Seyfarth Shaw’s Pay Equity Group leads the legal industry in thought leadership, privileged fair pay analyses, and employer advocacy on issues relating to pay equity. We are ready to help guide you through this process.