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Complying With the California Pay Transparency Law

Part of a series  |  Pay Transparency Series

Paul McCormack

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Amendments to California's law on pay transparency and pay data reporting took effect on January 1, 2023. Here are three tasks to check off to help manage your compliance with the new requirements.

On January 1, 2023, amendments to a law designed to promote pay transparency in the Golden State took effect. In addition to expanding the requirements for certain employers to provide a pay scale in job postings, the law now mandates that employers adopt additional reporting requirements to capture specific employee and pay information.

Let's explore California's Pay Transparency Act.

Requirements for California pay transparency law

The goal is to encourage equitable pay. Here's an overview of the key requirements of California's pay transparency law:

Pay transparency

All employers with 15 or more employees must:

• Include the pay scale for a position in any job posting
• Provide the pay scale for a position to any third party engaged to announce, post or publish a job posting
• Maintain records of a job title and wage rate history for each employee for the duration of employment plus three years, and make them available for the state labor commissioner's inspection

In addition, an employer must also provide a job applicant with the position's pay scale upon request. The same rights extend to an existing employee, who can request their current position's pay scale. Violating any of these disclosure requirements can result in a civil penalty of no less than $100 and no more than $10,000 per violation.

Pay data reporting

Private employers with 100 or more employees and/or 100 or more workers hired through labor contractors must:

• Submit a pay data report to the California Civil Rights Department on or before the second Wednesday of May each year that covers the prior calendar year
• Submit a separate pay data report to the California Civil Rights Department for workers hired through labor contractors within the prior calendar year, including the ownership names of all labor contractors used (labor contractors shall supply all necessary pay data to the employer)

The pay data report must include the number of employees by race, ethnicity and sex in each of the job categories identified in the act. It must also provide the number of employees by race, ethnicity and sex whose annual earnings fall within each of the pay bands used by the U.S. Bureau of Labor Statistics in the Occupational Employment Statistics survey. Within each job category, employers must provide the median and mean hourly rate for each combination of race, ethnicity and sex.

Ban on salary history inquiries

In 2018, California enacted a law prohibiting employers from asking job applicants about their salary histories. The employer can't rely on an applicant's salary history to determine whether to extend an offer and establish their compensation.

3 ways to prepare your policies and practices for compliance

Compliance with the California pay transparency law requires access to timely and accurate data and a willingness to evaluate your pay and hiring practices. These are some areas to review.

1. Evaluate the accuracy of your employee-related data

Capturing and storing compensation and personal data, such as the race, ethnicity and sex of each employee, is critical to compliance. Testing your records' accuracy can verify the integrity of the process used to gather and classify employee-related data. And since the act also covers labor contractors for organizations with 100 or more employees, every firm you engage should be able to produce data to comply with the law's requirements as well.

2. Review your hiring practices

Under California law, employers are prohibited from relying on salary history to screen candidates or determine their salary should they receive an employment offer. Confirm your HR policies and procedures do not gather and analyze a candidate's salary history. This guidance also applies to third-party recruiters your organization engages to fill vacancies.

3. Establish and communicate compensation ranges

Covered employers should be prepared to share compensation range information both outside and inside the organization. The California Labor Commissioner has explained that a job posting must include the salary or hourly wage the employer reasonably expects to pay for a position. The broader the range, the less likely it will be useful to the candidate. However, a range that's tightly targeted may provide actionable information to help promote pay equity in the workplace.

Advice going forward in a new era of pay transparency

Get ahead of the changes for all positions

As the number of pay transparency laws grows, you may want to assess compensation ranges and job descriptions for every position even if you don't have immediate plans for the role to open up. While your business may not currently be subject to a pay transparency law, it might soon be.

Be prepared to answer questions about methodology

Employers should establish and maintain compensation for every role using a credible and defensible methodology. It can be useful to have a public-facing version of this ready to share, especially if you have any third-party research for support. When a prospective employee, existing staff member or compliance regulator questions how you established the compensation for the position, having a prepared, detailed response can go a long way to satisfy their concerns.

Anticipate current employees' pay inequity claims

When you provide compensation information under California law or any pay transparency regulation, existing employees may question whether they're being fairly compensated, which may lead to pay inequity claims. Be ready for this. Identify current employees who are in similar roles and whose compensation is below what you plan to advertise. Consider meeting with the employee to discuss why the difference in pay exists and how you plan to address it.

Monitor and check on your practices regularly

As you establish processes to comply with California's pay transparency law, it might be helpful to know if your pay practices reflect compensation that's commensurate with the role. It can be useful to track how long it takes to fill positions, as this can help show whether the compensation is attracting applicants. You may also want to track employees' and applicants' feedback regarding your pay and job descriptions to gain insight into whether they're viewed as fair, accurate and competitive.

Let ADP help you stay on top of new developments and best practices in pay transparency. Visit our pay transparency hub to access checklists, resources and state-by-state laws and to check out our people analytics solutions.