California Pay Transparency Law: How to Comply and Promote Fair Pay

Summary

California has strict pay transparency laws that require employers to include pay ranges in job postings. Current employees also have the right to request pay scale information at any time.
While these laws promote fairness and build trust, they can also create challenges, particularly with recordkeeping and other administrative tasks.
HR and payroll software can simplify compliance and help businesses stay organized.

Pay transparency is a strategy to attract talent and retain current staff. In California, pay transparency is backed by a series of regulations, one of the most recent being Senate Bill 1162.

With the bill’s enactment, employers in California must be upfront about pay scales and clearly communicate them to candidates and current employees. While the bill intends to promote transparency, retention, and engagement, putting it into practice isn’t always straightforward, especially for employers who handle various job positions, locations, and levels of expertise.

So, what does the bill require, and how can hourly workforces implement these rules? Let’s take a closer look.

What is California Senate Bill 1162?

California SB 1162 is legislation that aims to promote transparency in pay scale disclosure. It requires employers to reveal pay ranges in job postings, submit pay data reports, and take steps to uphold pay transparency in the state. It went into effect on January 1, 2023.

Essentially, this bill encompasses transparency with job listings, current employees’ right to know, and recordkeeping and applies to California employers with 15 or more employees. Here are some fundamental points that the bill entails:

Employers must disclose the pay range for a position in any job listing. If you employ a third-party recruitment agency, they should also include pay information in their job descriptions and job posts.
Should current employees request it, employers must provide the pay scale of their position.
Employers must keep records of each employee’s job title and wage history for the duration of the employee’s employment and three years after the end of employment. This information must always be ready for inspection by the Labor Commissioner’s Office.
If an employee files a complaint and pay records are not available, it could be a point against the employer in court.
Failure to comply can result in investigations by the Labor Commissioner. If violations are proven, penalties can be imposed.
If someone is “harmed” based on this legislation, meaning they didn’t get any pay information as stated in the law, they can sue the company or seek legal remedies by taking them to court.

SB 1162 basically makes pay information more transparent and accessible, helps employees understand how much they can earn, and ensures that companies have the pay records and information to justify their pay decisions.

Other California Laws on Pay Transparency

California is known for having some of the most comprehensive employment laws, such as overtime pay and cell phone usage laws. The state takes the same thorough approach to pay transparency and disclosure requirements. Aside from SB 1162, here are other relevant state laws.

Pay Data Reporting

Under Senate Bill 973, private employers with 100 or more employees must submit an annual report on pay data to the California Civil Rights Department. SB 1162 expanded this and included rules on pay scale transparency and record keeping. The annual pay data report must cover pay information by race, ethnicity, and gender with specific job categories and is due every second Wednesday of May.

Salary History Ban

Aside from pay transparency and reporting, California Assembly Bill 168 also prohibits employers from asking about an applicant’s salary history or using their past pay information to make a salary offer. Employers, however, can ask applicants for their expected salary.

Wage Theft Protection Act

This act requires employers to provide a notice that contains specific information once they hire an employee. It should include:

Rate or rates of pay and if it’s paid by the hour, shift, day, week, salary, piece, or commission.
Overtime rate
Applicable allowances that count toward minimum wage, such as for meals or lodging
Regular payday
Employer details such as name and other names they do business under, physical and mailing address, telephone number
Contact details of employer’s worker’s compensation insurance carrier
Any other necessary information deemed by the Labor Commissioner

Should the said notice change, employees must be notified in writing within seven calendar days unless the changes are reflected on the next pay stub or another legal notice with the updated details is issued within seven days.

Whistleblower Protection and Anti-Retaliation Law

California offers another layer of protection for employees who report disparities in pay information. Under this law, an employer cannot retaliate against an employee who discloses information to law enforcement, an investigative body, or someone with authority to address the issue about a law violation, a regulation not being followed, or unsafe working conditions.

Employees are also protected if they refuse to participate in activities they believe would break the law. Even if an employee hasn’t reported anything but the employer suspects they did, that employee is still protected under whistleblower laws.

If an employer retaliates against a whistleblower, they may be required to reinstate the employee’s employment and work benefits, pay lost wages and civil penalties, and take other actions to comply with the law.

The Impact of Pay Transparency Laws on Hourly Teams

Pay transparency laws can pose both advantages and challenges for hourly workforces. Such legislation helps enhance the employee experience, promote retention, and build trust. However, it can also come with administrative challenges, especially with recordkeeping and managing pay scales for each role.

Benefits

Greater wage transparency

Employees value transparency, especially with pay ranges and information. Pay transparency laws promote fairness and avoid any wage disparities. Such regulations also open the floor for better wage discussions, which can lead to higher morale and increased job satisfaction.

Improved hiring and retentionIncluding pay ranges in job listings helps attract job seekers who are not only interested in the role but also comfortable with the offered compensation. This speeds up the hiring process by filtering out those with mismatched salary expectations. It also helps with retention because when employees know the pay range upfront, they’re less likely to feel blindsided or dissatisfied later on.

Challenges

Consistency with pay scales

Staying on top of pay ranges can quickly become complicated when wages vary by location or experience level.

For example, the cost of living across cities can impact salary ranges. Typically, pay rates are higher in cities like San Francisco due to the higher cost of living compared to smaller towns, making it challenging to balance out pay ranges across multiple locations.

Roles can also differ significantly, even if they share the same title. The same position might carry different responsibilities depending on the team or location. Additionally, ensuring pay equity between new hires and existing employees can be tricky.

With all of these factors in play, employers must carefully document pay ranges, justify their pay decisions, and comply with pay transparency regulations.

Wage increases and bigger budget allocations

Employers may have to allocate bigger wage budgets to maintain pay equity. Pay transparency laws may also prompt current employees to request wage adjustments if they find that their current pay is on the lower end of the scale.

Recordkeeping

Complying with pay transparency laws involves meticulous recordkeeping. This can be especially true for big workforces that need to keep detailed records of all job titles and wage histories of employees across multiple locations.

Employees’ preferences for specific shifts

For employers offering shift differential pay, transparency can influence employee preferences. Once pay differences are made clear, less popular shifts might become more desirable, leading to imbalances in shift coverage. Employers may need to rethink their differential pay strategies to ensure all shifts are adequately staffed.

How to Avoid Non-Compliance with Pay Transparency Laws

California’s pay transparency laws come with a lot of fine print, and it’s easy to unintentionally slip into non-compliance. To help you navigate these regulations, here are practical strategies to keep you on the right track:

Implement smart recruitment practices

Never forget to include pay ranges and other components of employee compensation on your job listings. This level of transparency not only keeps you compliant but also helps you attract job applicants who are comfortable with the pay offered, speeding up the hiring process.

Workforce.com’s applicant tracking system simplifies this by allowing you to use in-store QR codes to attract local talent. When candidates scan the code, they can instantly view the job opening and pay range. You can even add a follow-up question to confirm that they’re aware of the compensation package before proceeding with the application.

Optimize recordkeeping for audits

Managing multiple pay rates is complex, and manual processes can quickly lead to errors and compliance issues. Automating recordkeeping is vital to staying organized and compliant. With the right system, you can easily store, retrieve, and sort pay data. No need to scramble to gather information during audits or employee requests.

An automated solution keeps all pay info in one place, making it simple to pull up details anytime. If the Labor Commissioner knocks or an employee asks for their records, you’ll be ready.

Workforce.com makes it easy to keep employee records and pay data organized. Staff can access their information, and management can quickly pull reports for audits or compliance checks.

Keep employees informed of any pay-related information

Pay transparency isn’t just about disclosing wage ranges—it’s about keeping employees consistently informed. In addition to providing access to their wage details, make sure to issue regular pay stubs. Automating this process reduces administrative work and ensures compliance.

Pay stubs should clearly outline their wage rates, earnings, overtime, deductions, and withholdings. Workforce.com’s payroll software automatically generates detailed pay stubs each payday, giving employees easy access to their payment breakdowns and salary information.

Define pay criteria for pay variations

You need to keep a record of pay data and justify assigning pay ranges to a particular role. Establish a clear policy that defines your pay scale criteria, such as experience, location, shift differentials, and team assignments. Communicate these criteria to employees so they understand how pay ranges are determined.

Provide training and support to HR and managers

Pay discussions can be sensitive, and managers must know how to handle them appropriately. Provide training and guidance on how to effectively address pay scale inquiries and manage pay adjustment requests. Equip them with the information and talking points that will allow them to explain company decisions clearly.

Simplify compliance with Workforce.com

Complying with pay transparency involves handling data and keeping its integrity intact. Workforce.com is an end-to-end HR, payroll, and scheduling system designed for the needs of hourly teams, including labor compliance. It helps eliminate the administrative burden that can come with complying with intricate laws such as California’s pay transparency laws. It has one source of information, which means that the chances of errors or things falling through the cracks are minimized.

Discover how different businesses stay on top of labor laws while keeping their teams efficient with Workforce.com. Book a call today.

November 11, 2019

EEO-1 Reporting Update: How We Got Here and What You Need to Know

Nov. 11, 2019 is the last day for employers to submit reports detailing their employee compensation data to the Equal Employment Opportunity Commission.

Under the new reporting requirement, employers with at least 100 employees must report information to the EEOC regarding employee wages and hours worked by job category, race, ethnicity and gender. The EEOC is continuing to collect this data for 2017 and 2018 in advance of the Nov. 11 deadline, but the new requirement appears to be short-lived. On Sept. 12, 2019, the EEOC announced that after this year’s deadline, employers will no longer be required to submit compensation data, also known as “Component 2” data.

The EEOC first proposed this additional collection of pay data in 2016, and the reports were slated to be due Mar. 31, 2018. In announcing the new requirement, EEOC Chair Jenny R. Yang explained that the collection of pay data was meant to “assist employers in evaluating their pay practices to prevent pay discrimination and strengthen enforcement of our federal anti-discrimination laws.” The EEOC ultimately reversed course, explaining that the “unproven utility” of the pay data collection is “far outweighed by the burden imposed on employers that must comply with the reporting obligation.”

After Nov. 11, covered employers can return to the EEOC’s previous data collection practices, in which it has required employers to report demographic information (now called “Component 1” data) using the EEO-1 form. Since 1966, employers with more than 100 employees have been required to report the number of individuals employed by job category, race, ethnicity, and gender.

For federal agencies like the EEOC to collect information from the public, they need approval from the Office of Management and Budget, so the EEOC sought approval from the OMB to collect Component 2 data using a revised EEO-1 form.

In 2017, the OMB stayed the requirement to report Component 2 data. Thereafter, several advocacy organizations brought an action against the OMB to end the stay and reinstate the revised EEO-1 reporting requirements and collection of Component 2 data. On Mar. 4, 2019, the U.S. District Court for the District of Columbia ruled that the OMB failed to demonstrate good cause to uphold the stay and permitted the collection of Component 2 data using the revised EEO-1 form. While the Department of Justice filed an appeal on May 3, this did not stay the reporting requirement.

The initial deadline to collect Component 2 data was Sept. 30, 2019, but it has taken a substantial amount of effort for employers to provide the requested pay data information. Before the collection of Component 2 data was officially underway, the EEOC estimated that adding Component 2 data would increase the burden of EEO-1 reporting by 90 percent. Given the difficulty of completing this reporting, it comes as no surprise that the data collection and submission of the revised EEO-1 reports have not been seamless. As of Oct. 8, 2019, only 75.9 percent of covered employers had submitted the requested data by the initial deadline. This is far lower than the response rates for prior EEO-1 Component 1 data collections, which exceeded 90 percent.

It remains unclear how the newly collected Component 2 data will be used, especially since it only includes pay information for 2017 and 2018. The EEOC has stated that, as a general matter, EEO-1 data is used “for a variety of purposes including enforcement, self-assessment by employers, and research.” The EEOC has also published aggregated EEO-1 Component 1 data, in addition to periodic industry specific reports.

While any potential uses for the data are uncertain, the EEOC has implemented procedures “to ensure the protection of identifiable information of our survey respondents and maintain EEOC’s commitment to protect the data confidentiality.” This should allay concerns that an individual employer’s EEO-1 data could be made public.

As for lessons learned in the aftermath of this extensive data collection, employers could use the information gathered to conduct internal pay analyses. While employers will no longer be subject to this particular reporting requirement, prudent employers will still gather pay data by job category, race, ethnicity and gender to take proactive measures to avoid pay equity lawsuits.

December 19, 2018June 29, 2023

Use Pay Equity to Attract Top Talent

With unemployment at a near 50-year low and job switching on the rise, employers are struggling to attract and retain the skilled talent they need. From increasing wages, to offering better benefits and workplace perks, employers are pulling out all the stops to lure talent. With that in mind, reviewing pay practices for gender pay equity — an issue that is very important to today’s workers — could also offer a potential competitive advantage in attracting and retaining top talent.

We recently issued a new report at the ADP Research Institute, or ADPRI, titled “Rethinking Gender Pay Inequity in a More Transparent World,” to give more insight into what key factors contribute to the gender wage gap in the United States today. The study analyzed data over a six-year period, tracking 11,000 employees between 2010 and 2016, and looked at fluctuations in annual salary and incentive pay during that time. One key finding was that lower negotiated incentive pay — such as annual bonuses — at time of hire might become a limiting factor that prevents career advancement down the road. This new data tells us that the gender pay gap is actually wider than we thought because women are not receiving the same bonus-to-base ratio as their male counterparts.

Also read: 3 Steps for HR to Achieve Pay Equity

HR managers can use findings from this study as a benchmark to compare where their company stands in order to determine where changes may need to be made. Some of the report’s key findings include:

Women, on average, earn a 17 percent ($15,000) lower salary than men. However, when factoring in the gender pay gap for bonus pay (69 percent), the total earnings pay gap widens to 19 percent ($18,500).
Women ages 20 to 30 with a low starting salary had near equal base salary of men; however, the gap worsened for females after six years. Additionally, when a bonus is factored in, young women fared the worst with a 21 percent less bonus-to-base ratio compared to their male counterparts.
Women ages 40 to 50 started their careers with almost no base salary gap for all categorized income groups. The discrepancy was with incentive pay, especially with the lower income group. In the $40,000 to $60,000 income range, female workers received an average bonus of 8.5 percent, whereas men received 11.4 percent — a gap of 74 percent.
Women in the information industry make 7 percent more in bonus-to-base ratio than men, which reduced their overall gap in total earnings. In contrast, women in the finance and real estate industries are earning 21 percent less in their bonus-to-base ratio compared to men. These industries have the largest pay gap for women with and without incentive pay.
The average bonus amount for women was less than two-thirds the amount paid to men who had equivalent base pay, age and time with the company. This incentive pay disparity was observed across all age, salary and industry groups from the moment of hire and persisted throughout the six-year study window.

Consider Candidates Across All Age Groups

Finding skilled talent today is very challenging, which makes it critical for employers to look across all demographics to secure the talent they need.

pay equity attract talent — The gender pay gap is actually wider than we thought because women are not receiving the same bonus-to-base ratio as their male counterparts, according to new ADP data.

In fact, when categorizing workers by age and gender, the study revealed something very important about men, women and new-hire attrition. From time to time, pundits have suggested that women are paid less than men because they are more likely to leave work to serve as the primary caregivers to children. Across the entire data sample, however, there is minimal evidence that women were more likely than men across any age group to quit work. After six years, only 11 percent of both men and women who were hired into exempt positions were still with their same employers — an overall average attrition rate of 15 percent annually.

It is clear that quit rates by gender are not an explanation for why men are more likely to be hired into higher-paying roles. In fact, a better predictor of attrition was not gender, but age. For the younger age group, females are more likely to quit than males. This trend is reversed for the older age group — at 50-plus, women have a greater likelihood of staying with the same job at a rate which is 42 percent higher than their counterparts.

Also read: 5 Ways to Fix the Gender Pay Gap

Be Fair and Inclusive

Fair pay practices are not merely an important “corporate value,” or a tool for managing compliance risk. Rather, creating and communicating about fair pay practices is also a core strategy to develop a vibrant, high-performing, engaged workforce, which can potentially help to stave off the competition in this current labor market. To accomplish this, HR leaders can:

Take a close look at employee total compensation, including both base and incentive pay, to identify any gender pay gaps.
Utilize industry benchmarks as a point of comparison to determine how best to address any issues.
Examine recruiting practices and guidelines given to those in hiring positions to negotiate salary and incentives for new hires.
Properly train managers who are responsible for performance reviews and associated pay increases on equitable pay practices.
Update HR technology to better monitor and analyze total compensation and track against organizational goals for gender pay equity.
Broadly communicate to managers and associates company policies on equitable pay practices to ensure transparency.

In today’s tight labor market, employers are finding it increasingly difficult to attract and retain skilled talent. While wage increases and robust benefits can play a key role in staving off the competition, as the market continues to tighten additional tactics may be necessary.

Also watch: Equal Pay Day Highlights Gender Inequality at Work

Gender pay equity is an issue that many workers today care deeply about. By effectively evaluating pay practices and communicating broadly about organizational goals to shrink the gap, employers can foster deeper engagement with employees and help win in the war for talent.