SB 1162 Approved: Prepare for Greater Pay Transparency Requirements

Seyfarth Synopsis: SB 1162, approved by Governor Newsom on Tuesday, September 27, will require employers starting January 1, 2023, to disclose pay scales to current employees and on job postings, and to report even more pay data to the California Civil Rights Department (CRD, formerly DFEH), including median and mean hourly rates.

On September 27, 2022, Governor Newsom signed another groundbreaking pay transparency law, SB 1162, into law. Effective January 1, 2023, employers will be required to disclose more pay data and provide pay ranges on job postings and to requesting employees, to increase pay transparency for applicants and employees. The signing of SB 1162 makes California the largest state that requires the affirmative disclosure of pay scale information, and takes the state a step further in its pay transparency efforts, by requiring that employers add mean and median pay data as well as pay data of employees supplied by labor contractors in pay data reports.

More Robust Pay Data Reporting Begins with the May 10, 2023 Pay Data Report

Proponents of SB 1162 believe that California’s current pay data reporting law does not go far enough in its requirements for employers. The Governor and First Partner agreed, as they highlighted after meeting with the Legislative Women’s Caucus to promote the passage of SB 1162 and other gender-related bills.

SB 1162 makes the following changes to requirements regarding employer pay data reports under Government Code Section 12999:

• Within each job category, employers must report the median and mean hourly rate by each combination of race, ethnicity, and sex.
• Reports are now due annually on the second Wednesday of May. The first report is due on May 10, 2023, based upon calendar year 2022 pay data.
• Employers with multiple establishments are no longer required to submit a consolidated report. These employers must continue to submit a report for each establishment.
• Employers that have 100 or more employees hired through labor contractors have a new obligation to produce data on pay, hours worked, race/ethnicity, and gender information in a separate report.
  • Note: The law requires labor contractors to “supply all necessary pay data to the private employer,” but does not contain a separate mandate for the labor contractors to collect the “necessary pay data,” nor does it define the data required or address issues with regard to timing of these disclosures. The law also allows courts to apportion an “appropriate amount” of any penalties to any labor contractor who failed to provide required pay data to the employer.

Employers who fail to file pay data reports may be subject to a civil penalty up to $100 per employee for initial failures to file and $200 per employee for subsequent failures to file.

Pay Scale Disclosures

SB 1162 also makes significant changes to California’s pay scale disclosure law under Labor Code Section 432.3. California’s new pay scale disclosure requirements follow the trend we have witnessed nationwide as cities and states adopt their own pay scale disclosure mandates.

Current law in California requires employers to provide candidates for employment the pay scale for the position the candidate is seeking only upon request. As of January 1, 2023, employers must also comply with the below requirements:

• Employers with more than 15 employees must include a pay scale in all job postings (and to provide that information to third parties who post those jobs).
  • Note: No penalty will apply for a first violation of this requirement if the employer can show that all job postings for open positions have been updated to include the pay scale.
• All employers, regardless of size, must provide a pay scale for a current employee’s position at the employee’s request.

Labor Code Section 432.3 defines pay scale as the salary or hourly wage range that the employer reasonably expects to pay for the position.

Pay Data Record Retention Requirement

SB 1162 also introduces a record retention requirement. Employers must maintain records of job titles and wage rate histories for the duration of an employee’s employment and three years after termination of employment. The California Labor Commissioner will have authority to inspect these records.

Failure to comply with the pay scale disclosure or record retention requirements can result in penalties ranging from $100 to $10,000 per violation.

Watch Those Effective Dates

SB 1162’s pay scale disclosure and record retention requirements are effective beginning January 1, 2023.

The updated pay data reports, including mean and median hourly rates, are due starting May 10, 2023.

Employers are well-advised to start preparing for all of these new requirements now.

Workplace Solutions

Employers should make compliance plans for California’s new pay transparency provisions, including compiling and reviewing data to identify areas needing attention. The authors and your favorite Seyfarth attorneys are available to discuss your organization’s specific plan for compliance and any questions regarding implementation and application of the new pay reporting and pay scale disclosure requirements.