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California At It Again: New Employer Obligations Take Effect January 1, 2023 California At It Again: New Employer Obligations Take Effect January 1, 2023

California At It Again: New Employer Obligations Take Effect January 1, 2023

California has become the most recent state to enact a pay transparency law. Following the likes of Colorado and Washington, Governor Gavin Newsom signed Senate Bill 1162 into law on September 27, 2022, which will amend existing sections of the Labor and Government Code, effective the first of the new year. 

There are essentially three new requirements for employers, which are aimed at ensuring current employees, prospective applicants, and even the public have information related to salary and hourly wages for a position. While some aspects of the law will affect all employers, certain amendments are only applicable to employers with a threshold number of employees. For example, all employers, regardless of size, will now be required to provide an employee the pay scale for the employee’s current position should the employee so request one. Further, upon reasonable request by an applicant, the employer must, likewise, provide the applicant the pay scale for the position to which they have applied. Employers will also be required to maintain an employee’s wage records for the duration of the employment and the three years thereafter. 

Employers with 15 or more employees must include the pay scale in job postings, regardless of whether they post directly or a third-party posts on their behalf. In addition, private employers with 100 or more employees will be required to submit a pay data report to the California Department of Fair Employment and Housing (the “Department”) in May of each year, starting in 2023. Separate rules apply to employers with 100 or more employees hired through labor contractors, requiring the submission of a separate pay data report that includes the ownership names of the labor contractors used to supply employees. Among other things, these reports are required to include the number of employees by race, ethnicity, and sex in specified job categories along with the median and mean hourly rate for each combination of race, ethnicity, and sex within each job category. While not required, employers can provide “clarifying remarks” about any information reported.

The consequences for non-compliance differ based on the violation. If a pay data report is not timely submitted, either the Department can seek an order requiring the employer to comply—with the employer being responsible for associated costs—or a court may impose civil penalties upon request from the Department. For the first failure to report, the penalty is limited to $100 per employee, but increases to a $200 cap for subsequent failures to report. For violations of the other new amendments, aggrieved employees may file a written complaint with the Labor Commissioner, bring a civil action for injunctive relief, or—as an ominously vague alternative—bring a civil action for “any other relief that the court deems appropriate.” If the Labor Commissioner finds that a violation occurred, the employer may be required to pay a civil penalty ranging from $100 to $10,000 per violation. If it is the employer’s first violation and the employer “can show that all job postings for open positions have been updated to include the pay scale as required by this section,” then no penalty will ensue. Nonetheless, if an employer fails to keep required records, there will be a rebuttable presumption in favor of the employee’s claim.

Some uncertainties still surround California’s newest employment law. Specifically, while the law broadly defines “employee” as “an individual on an employer’s payroll, including a part-time individual, and for whom the employer is required to withhold federal social security taxes,” the law does not address whether remote employees working outside of California—more and more common in today’s employment landscape—are included in the count, nor does the law specify whether the posting requirement will apply to remote jobs performed out of state. 

Moving forward, employers should assess what portions of the amendment apply to their operations and then create a plan to ensure compliance. As employers will now be required to provide certain pay scales to current employees, internal systems will need to be formulated so that inquisitive employees know who to contact and those responsible for relaying the information are trained on how to comply with the law while ensuring a positive work environment. Covered employers will need to be vigilant in ensuring all job postings, regardless of formality and selected forum, include the required pay scale. Lastly, even though the first report is not due until May of 2023, applicable employers will need to adjust their current reporting systems to account for the new requirements. Though it is certainly overwhelming to consider all these requirements at once (in addition to the requirements of other states’ laws), Ice Miller’s Workplace Solutions team is at the ready to assist and keep your business running smoothly.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.
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