Yesterday afternoon, California Governor Gavin Newsom signed SB 1162 into law. It is now one of the most aggressive pay equity laws in the country.

Effective January 1, 2023, a mere three months from now, organizations around the country will have sweeping new reporting requirements to comply with. To help you prepare for the forthcoming changes, we’ve summarized the key components of California SB 1162 below.

California SB 1162 amends SB 973

California’s new pay equity law amends the existing SB 973 in a number of ways. The first is that it requires employers with 100 or more employees to report employee mean and median pay data for combinations of gender and race/ethnicity. That is – the report must document what the mean and median pay is for employees, while also accounting for their gender and race/ethnicity.  

The first pay data reporting collection deadline is May 10, 2023. Organizations will need to submit their pay data reports by May 10 or thereabouts each year thereafter. 

Mean and median pay data reporting is a new requirement, never before seen, and it will likely help California’s Civil Rights Department (CRD), formerly the Department of Fair Employment and Housing, identify pay discrimination in the workplace. 

Lesser pay data reporting requirements, like the Equal Employment Opportunity Commission’s EEO1 Component 2 and the original SB 973 have already generated staggering findings regarding pay discrimination. SB 1162 will set the bar even higher.

In addition to mean and median pay reporting, SB 1162 removes the option for organizations to submit an EEO-1 report instead of the pay data report. 

Labor contractor reporting

As part of SB 1162, organizations that leverage at least 100 labor contractors, such as staffing agencies, must submit an additional, separate pay data report for these labor contractors. 

This additional reporting requirement is likely to address the growing pay gap across contract workers. According to Tech Equity Collaborative, contract workers are disproportionately Black, indigenous, brown, women, and nonbinary, and often paid less than their directly employed counterparts.

Pay transparency amendments

On top of the new pay data reporting requirements, SB 1162 also amends California’s pay transparency law. Originally, California’s transparency law only required employers to share pay ranges with a job applicant if it was requested, and only after an initial interview was held.

Now, under SB 1162, all employers with 15 or more employees must disclose salary ranges for both direct and third-party job listings. Employers with just one employee must disclose pay ranges to job applicants requesting it following an initial interview. As part of SB 1162, California’s pay transparency requirements now align with that of nine other U.S. states.

Affected organizations will need to publish their pay range disclosures in all job listings by January 1, 2023.

Document record keeping

Storing documents relating to employee wages, benefits, and job title is a generally good practice, but now under SB 1162, employers must keep track of job titles and wage rate histories for each position. 

The requirements also mandate that employers maintain records for the entire duration of each employee’s tenure with the company as well as at least three years after their termination. Employers should be prepared to have their records audited by the state’s Labor Commissioner. 

Failure to maintain these records creates a rebuttable presumption that the employer is not harboring equitable pay practices. 

As codified into law, employers will need to have established pay records for current employees beginning January 1, 2023.

SB 1162 non-compliance

California’s new pay equity law introduces a host of new non-compliance penalties, giving teeth to the state’s original SB 973 pay data reporting requirement. Employers that fail to file the mandated mean and mean pay data report could be penalized $100 per employee. For repeat violations, they could be subject to penalties of up to $200 per employee.

While seemingly low penalty amounts, these can really stack up. For example, an organization with 5,000 employees could see a total penalty of $500,000 for a first-time violation and $1,000,000 for a repeat.

SB 1162 penalties don’t stop there either. Employers that fail to publish pay ranges in job listings could be fined up to $10,000 for each violation.  

Of course, non-compliance penalties are the tip of the iceberg for pay equity violations. If employees become aware of inequitable pay practices, employers open themselves up to serious legal action, reputational damage, and class action lawsuits, as seen in companies like Google, Riot Games, and Esri.

SB 1162 is far-reaching

It’s true that SB 1162 is in fact a California law, however, the requirements are far-reaching. Employers with at least 100 employees that have at least one employee residing in or assigned to California, including remote workers, must comply with SB 1162.

Affected employers should note that California’s CRD will use the pay data reports collected as a means for more efficiently identifying gender and race/ethnicity pay discrimination in the workplace. As recently noted in the National Academy of Sciences, Engineering, and Medicine’s study evaluating EEOC’s Component 2 collection, pay data reporting can more accurately identify wage patterns, pinpoint areas where pay issues are more significant, and ultimately help end wage discrimination.

Getting ahead of the new law’s looming start date

With SB 1162’s start date a few short months away, employers need to prepare their data for the upcoming reporting period now. Best practices for minimizing legal risk include conducting a pay equity audit. 

The results of the pay equity analysis will help employers understand their workforce composition and pay equity risk, before reporting the pay data with the state agency. Trusaic’s PayParity pay equity auditing solution identifies pay disparities so employers can correct them before filing reports with California’s CRD.

In addition, our Equal Pay Estimator can help you establish equitable and competitive pay ranges for all new and existing positions so that when you need to post pay ranges for every job listing this coming January 1, 2023, you can feel confident. The Equal Pay Estimator also helps you demonstrate transparent and fair pay practices, while simultaneously mitigating risks and pay equity challenges like wage compression.

If you need assistance preparing pay data reports, establishing equitable pay ranges, and documenting your compensation policy, schedule a meeting with one of our pay equity experts below:

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Pay equity laws are coming into play all over the world. Download the Pay Equity Definitive Guide to understand what’s required of your business.