The start of 2023 saw California enacting a landmark pay transparency law requiring employers to disclose pay ranges in job listings. This adds California to a growing number of states imposing similar requirements that are geared toward closing the gender pay gap and improving pay equity as a whole.
This was not the only new ground broken when Governor Gavin Newsom signed Senate Bill (SB) 1162 in September 2022. The bill also expanded the pay data reporting processes and requirements for California employers, increasing the compliance burden placed on employers with 100 or more employees.
Overview of California Pay Transparency Law Reporting
So, what is California Pay Data Reporting? Starting in 2023 for the 2022 reporting year, employers will be required by SB 1162 to report new demographic and pay data. Under the new legislation, employers will have additional reporting obligations related to Labor Contractors. Any employer with 100 or more employees is required to submit annual pay data reports to the California Civil Rights Department (CRD). These reports must provide particular information, specifically “within each job category, for each combination of race, ethnicity, and sex, the median and mean hourly rate.”
CA Pay Transparency Reporting Requirements
Regardless of whether qualifying employers file federal Employer Information (EEO-1) reports under SB 1162, they will now be required to submit reports to the CRD. Beyond that, EEO-1 reports will no longer satisfy the California pay data reporting requirements for 2023.
Previously, reporting law required employers to prepare only one report, which included a break down of the employer’s data for different locations. SB 1162 now requires a separate report for each individual location. Furthermore, the new law extends the existing annual deadline from March 31 every year to the second Wednesday in May. For 2023 that deadline was May 10.
But what, exactly, are the reporting requirements?
Labor Contractor Reports
SB 1162 requires private employers who employed 100 or more employees through Labor Contractors in the previous calendar year to submit a separate pay data report that covers the labor contract employees. Employers are also required to disclose the names of all Labor Contractors they used to supply those employees.
Changes and Updates to CA Pay Data Reporting in 2023
The new law represents a significant change from existing reporting and now requires employers to provide a direct comparison of the pay rates between various racial, ethnic, and gender groups. The data created from these reports will clearly show any pay gaps between different employee groups.
Benefits of Pay Data Reporting and Transparency for Employers and Employees
In recent years, organizations have been forced to pay more attention to pay as a result of both public pressure and legislation. Additionally, as big companies like Whole Foods, SumAll, and Buffer adopt pay transparency policies, more data and relevant insights will become available. What is not clear is the extent to which such policies affect employees, as these policies have not yet been adopted by enough organizations to provide viable data.
However, it's clear there are pros and cons for businesses when it comes to transparency.
On the positive side, transparency reassures employees of their rights around pay transparency. Employees might previously have made assumptions about how much other staff members were earning compared to themselves and become demotivated as a result. Pay transparency allows employee to better understand their earning and growth potential.
At the same time, the fact that pay gaps can become highly visible will encourage companies to take action to close the gaps and ensure fairer, more equitable pay for all employees. Several states, including California, Colorado, and Delaware, recently passed laws that prevent employers from penalizing employees for disclosing their salaries or asking colleagues about their compensation.
Transparency puts the companies themselves in the driver’s seat, allowing them to get ahead of the narrative on any pay equity issues. Historically, companies that have been exposed as having gaps in pay as a result of gender and racial differences have come under heavy fire. Many large global organizations have been ensnared in controversy due to pay equity issues.
What Are the Downsides of Pay Transparency?
Just as there are benefits to the new data reporting laws, so too are there downsides. For example, when candidates have access to actual pay ranges, hiring companies may be hard pressed to bring on talented people at lower rates. Additionally, businesses might end up hiring fewer people to remain within their hiring budgets.
Pay transparency could potentially also make it easier for competitors to poach top talent; all they would need to do is offer a higher salary. While many feel transparency will improve employee performance by reducing uncertainty, it’s equally possible that being fully aware of colleagues’ salaries could cause tension. Awareness may well trigger social comparisons.
Assumptions about the reasons for pay differences could also be taken out of context. While pay differences may be performance-based, commission-based, or based on qualifications and years of experience, they may be perceived as being related to unfair factors such as gender, race, or religion. Perception vs. reality is often a challenge in compensation conversations.
Tips for Complying with California Pay Data Reporting Requirements
In preparation for complying with California's pay data reporting requirements, employers might consider these tips:
- Become familiar with the CA Pay Data Reporting Requirements.
- Determine if your organization used 100 or more labor contract employees during the prior year. If so, begin requesting data from each Labor Contractor supplier.
- If necessary, request an “enforcement deferral request,” which provides an extension for filing the Labor Contractor report. Read more on the CA Pay Data Reporting FAQ.
How Nelson Connects Can Help Your Organization with Pay Transparency
Nelson Connects has been empowering employers and job seekers alike for over 50 years. Contact us today to learn about our talent recruitment and hiring solutions and how we incorporate pay transparency into the hiring process.