Here We Go Again: California Civil Rights Department Releases FAQs on Amended Pay Data Reporting Requirements

Please join us at our upcoming webinar on this topic on February 1, 2023 at 11:00 am PT. You can register to attend the webinar here: Updates on the California Pay Reporting Requirements

Seyfarth Synopsis: On January 19, 2023, California’s Civil Rights Department (CRD) released FAQs regarding the recently amended California Pay Data Reporting Law covering the 2022 reporting period. We previously summarized SB 1162’s changes. The FAQs introduce new definitions, clarify prior reporting requirements, and answer questions concerning the contractor pay data reporting.

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Employers and “labor contractors” have anxiously awaited guidance from the California Civil Rights Department (CRD) regarding the changes to pay data reporting requirements made by SB 1162. While the changes in the text of the law were already significant, CRD has taken an expansive position on many of the key reporting requirements which will lead to crushing administrative burdens on employers and “labor contractors” alike.

The CRD’s FAQs address threshold issues regarding who must file pay data reports and which employees the reports must include. While employers have been submitting pay data reports covering their California employees since 2020, SB 1162 now requires a second report covering “employees” hired through “labor contractors.” The FAQs provide information regarding the data that must be provided and requirements for the two separate reports, described as: (1) Employee Pay Reports; and (2) Labor Contractor Employee Reports.

Here, we dive into some of the key issues addressed in the new FAQs, focusing primarily on the new requirements or substantive changes from previous reporting requirements. For additional information regarding the new reporting obligations, please see our prior alerts summarizing SB 1162’s changes and the final approval of SB 1162.

Updated Definitions

The FAQs include a section with key definitions. Some of the definitions are newly introduced in the FAQs, while other definitions were modified by the amendments to existing statutory law made by SB 1162. The definitions, taken together, don’t just interpret the statutory law, but substantively modify it, based on a plain reading of SB 1162. Whether this is beyond CRD’s authority is a key issue, but one left for another day.

For employers struggling with what to do now, a thorough understanding of the CRD’s FAQs is critical for understanding the CRD’s interpretation of the data reporting requirements. Some of the key terms are as follows:

• Client Employer (newly defined term in FAQs) – A private individual, entity, or other person as defined by Government Code section 12925 (including one or more entities acting in concert) that has workers hired through labor contractors
• Employee – (defined in Gov. C. 12999, as stated in SB 1162) An individual on an employer’s payroll, including a part-time individual, for whom the employer is required to withhold federal social security taxes from that individual’s wages
• Employer (FAQs contain a modified version of the definition in Gov. C. § 12926) – A private individual, entity, or other person as defined by Government Code section 12925 (including one or more entities acting in concert) that is obligated to file a Payroll Employee Report and/or a Labor Contractor Employee Report
• Labor Contractor (defined in Gov. C. 12999, as stated in text of SB 1162) – An individual or entity that supplies, either with or without a contract, a client employer with workers to perform labor within the client employer’s usual course of business (note that “usual course of business” remains undefined under SB 1162 and no clarifying information was provided)
• Labor Contractor Employee (newly defined term in FAQs) – An individual on a labor contractor’s payroll, including a part-time individual, for whom labor contractor is required to withhold federal social security taxes from that individual’s wages, and who performs labor for a client employer within the client employer’s usual course of business
• Labor Contractor Employee Report (newly defined term in FAQs) – The type of pay data report by which a client employer annually reports data on their labor contractor employees to CRD
• Pay Data (newly defined term in FAQs) – Generally, all of the data that must be reported to CRD in a pay data report, including but not limited to pay rates and demographic information about employees
• Payroll Employee (newly defined term in FAQs) – An individual on an employer’s payroll, including a part-time individual, for whom the employer is required to withhold federal social security taxes from that individual’s wages (Note: this is the same definition of “Employee”)
• Payroll Employee Report (newly defined term in FAQs) – The type of pay data report by which employers annually report to CRD data on their payroll employees

Reporting Deadlines Extended to May

Under the amended law, the annual filing deadline for pay data reports will now occur the second Wednesday in May. The first deadline is May 10, 2023.

Reports Submitted Through Portal

Reports are again required to be submitted through the reporting portal, available here. There are no other methods to submit pay data reports. For employers required to submit both a Payroll Employee Report and Labor Contractor Employee Report, each report must be submitted separately.

Information Required in Each Report

While the pay data that California employers will be required to submit in each of the two reports is similar, there are some nuanced differences between the Payroll Employee Report and the Labor Contractor Employee Report. Multiple-establishment employers must report all of their establishment-level data in a single report.

 

	Payroll Employee Report	Labor Contractor Employee Report
Reporting Year	Calendar Year 2022	Calendar Year 2022
Snapshot Period	Pay period between October 1 and December 31 of the Reporting Year. Only employees who were employed during the snapshot period are included in the report.	Pay period between October 1 and December 31 of the Reporting Year Client employer and labor contractor may collaborate to select Snapshot Period. May use same Snapshot Period across labor contractors, but not required to do so. Only those labor contractor employees who worked for the client employer during the snapshot period are included in the report.
Who Must File	Private employer with 100 or more employees (at least one in California).  Entities with fewer than 100 employees report only if part of an “integrated enterprise” and enterprise has more than 100 employees in total. The 100+ employee threshold is determined based on number of employees employed during the Snapshot period or employed on a “regular basis” (generally related to industries that do not have a typical 12-month work cycle).	Private employer with 100 or more labor contractor employees within the prior calendar year if there is also at least one labor contractor employee in California. Entities with fewer than 100 labor contractor employees only report if part of an “integrated enterprise” and enterprise has more than 100 labor contractor employees in total. The FAQs clarify that the 100+ employee threshold is determined based on number of labor contractor employees in the Snapshot period (across all of its labor contractors) or employed on a “regular basis” (generally related to industries that do not have a typical 12-month work cycle).
Who Is Included in Report	Employees assigned to California establishments or working within California and who were employed during the snapshot period.	Labor contractor “employees” assigned to California establishments or working from California. This includes remote workers who telework from a residence in CA. Only those labor contractor employees who worked for the client employer during the snapshot period are included in the report.
Information to Report by Establishment	Number of employees by race/ethnicity, sex; categorized by EEO-1 job category, pay band (based on Box 5 W-2 wages) and hours worked; mean and median hourly rate for each EEO-1 job category.	Number of “labor contractor employees” by race/ethnicity, sex; categorized by EEO-1 job category, pay band (based on Box 5 W-2 wages) and hours worked; mean and median hourly rate for each EEO-1 job category. ** According to FAQs, labor contractors are to provide W-2 year end data separately for each “client employer.”

Pay Bands

The pay bands for the 2022 reporting year remain the same as the pay bands for the 2021 reporting year.

In a surprising change, CRD’s FAQs state that Labor Contractors are to provide only the wages applicable to each “Client Employer.” In other words, if a “Labor Contractor Employee” worked for more than one employer over the course of the reporting year, that worker’s W-2 Box 5 wages should be allocated respectively to each Client Employer, based on the amount of work performed for that Client Employer for the purposes of reporting pay data.

Calculating Mean and Median Hourly Rates

Employers must calculate each employee’s individual hourly rate before calculating the mean and median hourly rates. The FAQs explain that the hourly rate is calculated by dividing the employee’s W-2 Box 5 wages by the number of hours the employee worked.

To calculate the mean hourly rate, add the individual hourly rates for each employee in the group, then divide that sum by the number of employees in the group.

To calculate the median hourly rate, order the hourly wages of each employee in the group from smallest to largest and select the middle number. If the number of individuals in the group is an even number, the median hourly rate is calculated by arranging the hourly wages of each employee in the group from smallest to largest and taking the mean of the two central numbers. If there are only two individuals in the same category, the median hourly rate is the mean of their two hourly rates.

For groupings with only one individual, that individual’s hourly rate will serve as the mean and median hourly rates.

All Labor Contractors Are Included on A Single Labor Contractor Report

A Client Employer has the requisite number of Labor Contractor Employees if it has 100 or more total Labor Contractor Employees hired across its labor contractors. To the extent Client Employers worked with multiple Labor Contractor providers, the data for all Labor Contractor Employees must be combined and submitted as a single Labor Contractor Report. Therefore, Client Employers will only submit one Labor Contractor Report that includes information from each labor contractor.

The CRD suggests Client Employers and Labor Contractors work together to determine what snapshot period will be used for reporting. In light of the significant administrative burdens placed on employers and labor contractors to capture, compile, and report on these onerous new obligations, this is a bit of welcome news given the flexibility afforded to reporting entities.

Deferred Enforcement for Race, Ethnicity, and Gender Data on Labor Contractor Reports

The CRD’s preferred method for data collection is employee self-identification for race/ethnicity and gender information. If an employee declines to provide the information, employers must nonetheless report on race and ethnicity, and may do so by: (1) review of current employment records, (2) other reliable records or information, or (3) observer perception.

In another slight reprieve for the 2022 Labor Contractor Employee Reports, CRD will permit employers to report unknown race, ethnicity, and gender for Labor Contractor Employees if unable to reasonably obtain that information before the May 10 filing deadline. Therefore, for the 2022 reporting year only, the CRD will not assess penalties for failing to include race, ethnicity, and gender data in Labor Contractor Reports.

New Penalties for Failure to File

SB 1162 introduced penalties for employers who fail to file pay data reports. The CRD may seek penalties of $100 per “employee” for an initial failure to file and $200 per “employee” for subsequent failures to file. SB 1162 simply directed “[a] A labor contractor shall supply all necessary pay data to the private employer” and stated that “the court may apportion an appropriate amount of penalties to any labor contractor that has failed to provide the pay data to the employer.”  These FAQs clarify that the “penalties are assessable against a labor contractor that has failed to provide required pay data to a client employer.”

Workplace Solutions

For more information or for assistance with preparing for reporting, please contact Annette Tyman (atyman@seyfarth.com), Shardé Skahan (sskahan@seyfarth.com), or your favorite Seyfarth attorney.