Compliance with California SB 1162

By CORINNE D. SPENCER AND JONATHAN J. BROWN

California has taken a significant step towards promoting fairness and equality in the workplace by implementing new pay transparency and pay data reporting laws. Senate Bill 1162, which came into effect on January 1, 2023, requires employers to disclose pay scale information to job applicants, and mandates larger businesses to submit annual pay data reports to the California Civil Rights Department. The legislation is a progressive move towards eliminating wage disparity and unequal pay, and businesses must ensure compliance while maintaining efficiency and profitability.

SB 1162 has two requirements, pay data reporting and pay scale disclosure. Employers with 100 or more employees must submit annual reports that contain the median and mean hourly pay rate, broken down by job category, sex, race, and ethnicity for their employees, including those hired through labor contractors. Failure to comply with this reporting obligation may result in the Civil Rights Department seeking compliance orders and civil penalties up to $200 per employee for subsequent violations.

The pay scale disclosure component of the law requires employers with 15 or more employees to publish salary or hourly wage ranges they reasonably expect to pay for the position in all job postings. The legislation also requires employers to provide pay scale information to current employees upon request. Non-compliance with this obligation may result in the Labor Commissioner investigating complaints and ordering employers to pay civil penalties up to $10,000 per violation.

Employers need to allocate time and resources towards compliance with SB 1162’s pay data reporting requirements. The first filing deadline was May 10, 2023. Businesses should ensure that processes are in place to collect and store the data by implementing protocols, utilizing software, or outsourcing work.

Employers must provide access to pay scale information to current employees.

Although businesses may be concerned about the potential repercussions of the pay data revealed, they should use the annual reporting obligation as an opportunity to audit their pay data, evaluate their pay practices, and ensure fair and equitable payment for their employees. Employers should correct potential pay disparities once they are identified.

Under SB 1162, employers must publish clear and transparent pay scales in all job postings and must also provide access to pay scale information to current employees. Although businesses may wonder how to define “pay scale,” Labor Code section 432.3’s reasonableness standard appears to give employers some latitude. However, businesses must avoid providing overly broad ranges that may signal a lack of respect for workers and an effort to skirt the intentions of the law.

By making pay scale information available to job seekers, SB 1162 creates competition for high-paying jobs, prompting employers to ensure their pay scales are competitive to attract top candidates. Companies can differentiate themselves by evaluating benefits and perks that they can advertise to potential employees. Some businesses may opt to stop advertising jobs and instead utilize other means of filling positions, such as word-of-mouth and internal promotions. Although SB 1162 gives job seekers more bargaining power to negotiate equal pay, employers can also use this knowledge in individual negotiations and may choose not to negotiate at all.

Businesses may be concerned about how the new legislation will impact their workforce’s performance. As employees learn more about what their coworkers earn and what other companies pay for similar work, higher earners may increase productivity as they aim to justify their wages. Conversely, lower earners may feel undervalued and find themselves demotivated. Savvy businesses must stay attuned to productivity and explore areas where they can improve efficiency and profitability. By reviewing internal and external pay scale data, businesses may identify areas to streamline operations, reduce costs, improve employee retention, and reduce turnover costs.

While compliance with Senate Bill 1162 is a daunting legal obligation for employers, it is an excellent opportunity to promote fairness, transparency, and equity in the workplace. Businesses can look to increase competitiveness, profitability, and productivity by establishing clear and transparent pay scales, conducting pay equity audits, and improving hiring practices, while staying in compliance with the law.

Corinne Spencer is a Senior Employment Counsel and Chair of the Labor and Employment Practice Group at Pearlman, Brown & Wax, LLP. She focuses on counseling clients in employment-related matters including litigation, risk assessment, policy preparation, and training. cds@4pbw.com

Jonathan J. Brown is a Senior Associate in Pearlman, Brown & Wax, LLP, where he represents employers in all aspects of employment law. He also represents employers and insurance carriers in workers’ compensation claims in California. jjb@4pbw.com