California Expands Small Business Pay Transparency and Reporting Laws

If you’re a California employer or business owner, there’s a new bill regarding pay transparency and employee data reporting that you need to know about.

On September 27, 2022, California Governor Gavin Newsom signed into law SB 1162, a bill that expands the state’s existing pay transparency and employee data reporting laws. SB 1162 goes into effect on January 1, 2023. 

Keep reading for more information, including details on the bill and tips on how your business can prepare for the changes. 

Pay transparency updates

The first part of the bill expands California’s pay transparency laws to give job seekers more information when searching for and applying to jobs. The state’s existing law prohibits employers from asking job applicants about their salary history when hiring, and also requires employers to share the pay scale for a position if an applicant asks. 

However, the new law will expand upon these existing regulations in a few ways. 

All California employers:

• Upon request, employers must provide a current employee with the pay scale for the position they’re currently employed in. Pay scale is defined as a salary or hourly wage range. 
• Employers must maintain records of a job title and wage rate history for each employee for a specified timeframe, which is open to inspection by the Labor Commissioner. If the employer fails to keep these records, the law will lean in favor of an employee’s claim. 

California employers with 15 or more employees:

• Employers must include the pay scale for a position in a job posting. 
• Employers who use a third-party service to announce, post, publish, or distribute job postings must share the pay scale with the third party—and require them to include the pay scale in the job posting. 

Violation consequences

The Labor Commissioner can investigate complaints alleging violations of the pay transparency requirements; if they determine that you’ve violated the laws, they can order you to pay a civil penalty anywhere from $100 to $10,000 per violation. 

You can, however, escape the penalty on the first violation if you update your job postings with the pay scale. The person affected by a violation of the rules also has the right to bring a civil action forth for injunctive relief. 

Why is pay transparency important, and what does it mean for your business? 

Pay transparency is a net positive for business owners, employees, and job candidates. On a macro level, pay transparency can help reduce gender and racial pay gaps by forcing businesses to re-evaluate, clarify, or improve their compensation packages—and by giving job seekers more information, options, and negotiating power in the hiring process. 

On a micro level, when you’re forthcoming about your business’s compensation structure in job postings, not only can you weed out uninterested candidates more easily—you can also better attract prospective employees who are excited about your pay scale. 

Under the new law, you may feel pressured to raise your wages or salary scale to match your competitors’. Although changing your compensation package requires time, money, and resources, the upfront work can pay dividends long term. Increasing your wages can ultimately lead to more qualified job applicants, happier employees, and higher employee retention rates within your business. 

Employee data reporting updates 

The second part of the bill expands California’s employee data reporting requirements in a larger effort to prevent discriminatory hiring practices. 

The state’s existing laws require California private employers with 100 or more employees—and who have to file the annual federal Employer Information Report (EEO-1)—to also submit a pay data report to the Civil Rights Department (CRD). The current law says the information must include the number of employees by race, ethnicity, and sex in specified job categories. 

The new law will bring forth a handful of key changes:

• All California private employers with 100 or more employees must submit a pay data report, regardless of whether or not they’re required to file an EEO-1. They must submit it on or before the second Wednesday of May 2023, and each year afterward. 
• The pay data reports must include the number of employees, the median and mean hourly rate, and the hours worked for each combination of race, ethnicity, and sex within each of the following job 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
  • Service workers
• Employers can no longer submit an EEO-1 in place of a pay data report. 
• Employers with multiple establishments can no longer submit one consolidated report; instead they must submit separate pay data reports for each establishment. 
• Employers with 100 or more employees hired through labor contractors must also submit a separate pay data report for the employees hired through the labor contractor. The report must also the ownership names of the labor contractors. A labor contractor is defined as “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.” 

Violation consequences

If you don’t comply with the data reporting guidelines, you could receive a civil penalty of $100 per employee for the first violation and $200 per employee for any subsequent violation. 

Why does employee data reporting matter, and how will it affect your business? 

Employee data reporting is required in California—and becoming stricter—as part of an effort to prevent discriminatory hiring practices and pay policies. Clearly outlining the data is the first step to pinpointing gender and race-based pay disparities, then correcting them. 

In the process of reporting, you may have to confront inequitable patterns in your business’s hiring history and pay, then make structural changes to better comply with pay equity and anti-discrimination laws. 

Ultimately, reducing discrimination within your business can help protect your existing employees, create a more inclusive working environment, and open you up to a more diverse talent pool—all of which keep your business running smoothly. 

Do other states have new pay transparency and reporting laws?

California is just one of several states to recently update its pay transparency and employee data reporting laws. The other areas include:

• New York City: Starting November 1, 2022, NYC employers with four or more employees have to list the good faith salary range (or hourly wage) on job, promotion, and transfer opportunities for any jobs that can be performed in New York (including remote positions). 
• Colorado: Colorado’s Equal Pay for Equal Work Act, which took effect on January 1, 2021, requires all employers who employ at least one person to include the pay scale on job postings that can be performed in Colorado (including remote positions). 
• Connecticut: Connecticut’s Public Act 21-30, which took effect on October 1, 2021, requires employers with one or more employees to disclose wage ranges for open positions to applicants and current employees. 

Maryland, Nevada, Washington, Rhode Island, and two cities in Ohio also have pay transparency laws, though they’re less rigid than the above states. The respective laws don’t require employers to include wage ranges in job postings, but they do require employers to share a wage range with job applicants (and occasionally employees) upon reasonable request during different stages of the hiring process. 

How to prepare your business for the California law updates

As a business owner in California, you may need to make changes to your hiring practices to stay compliant with SB 1162. Here are some steps to take to get your operation in order:

1. Examine your current compensation scale for competitiveness and equity. Research your competitors’ pay ranges, confirm your state’s minimum wage, check the current cost of living in your business’s location, and look into the national salary averages for the various roles you employ. You may also want to hire someone to audit your business’s pay policies; a professional can help uncover equity gaps and advise you on changes to make to close those gaps. 
2. Determine the minimum and maximum page ranges for each existing position. 
3. Update any existing job postings to include the pay scale. 
4. If you don’t already, start tracking your employee demographic information and pay data in an organized, accessible way. 
5. If your business spans multiple states or if you have remote employees, take the time to read up on other state laws regarding pay transparency and employee data reporting. 
6. Mark the deadline in your calendar for submitting the pay data report. 

Keep your business compliant

If you want to revamp your payroll and HR processes in light of the new laws, you need the right tools—and Gusto can help. Our full-service small business software has everything you need to manage payroll easily, streamline the hiring process, simplify time and attendance tracking, and organize employee benefits. Plus, you’ll get regular reports compiling your employee data and providing insights. 
Want to get started? Learn more or create an account today.