California is again at the forefront of national efforts to close the wage gap with the introduction of SB 1162.

First introduced by California Senator Monique Limón in February 2022, the bill would become one of the most aggressive pay equity laws in the nation if passed.

“Pay transparency is key to achieving pay equity,” Senator Limón said in a statement. “SB 1162 will help identify the gender and race-based pay disparities by requiring pay transparency at every stage of the employment process, from hiring, to promotion, and ongoing employment. We must increase pay transparency in order to close the gender and racial wage gap, which prevents women, particularly women of color, from achieving economic security.”

Below we’ve outlined what employers need to know about SB 1162 and how it has the potential to impact other states if passed.

What are the specifics of SB 1162?

The draft bill builds on California’s existing pay data reporting law SB 973 by enhancing pay transparency and expanding pay data reporting obligations. 

Following the completion of California’s pay data reporting snapshot for 2020, we calculated a gender wage gap in California of roughly $46 billion and $61 billion due to the race pay gap. 

To further help SB 973 close gender and race/ethnicity pay gaps, SB 1162 would require employers to disclose proactive wage range disclosures in all job listings, similar to Colorado’s and New York City’s pay transparency laws. It would also make internal promotional opportunities and relevant salary information available to current employees. It remains to be seen if the law will include non-California-based positions.

The bill also aims to bolster the state’s pay data reporting provisions, which currently require employers with 100 or more employees to submit pay data reports including the number of employees by race, ethnicity, and sex in specified job categories to the Department of Fair Employment and Housing (DEFH).

Under SB 1162, California’s pay transparency bill would amend the current SB 973 pay data reporting law and:

  • Require private employers with 100 or more employees hired through external staffing agencies to also submit a separate pay data report to DFEH for those employees.
  • Require the pay data report to include the median and mean hourly rate for the combinations of race, ethnicity, and sex within each job category.
  • Remove the provision of law that permits an employer to submit an EEO-1 in lieu of a pay data report.
  • Require employers with multiple establishments to submit a report covering each establishment.
  • Revise the timeframe in which private employers are required to submit this information to the second Wednesday of May beginning in 2023.
  • Impose penalties for failure to report (not to exceed $100 per employee for a first-time violation and not to exceed $200 for subsequent violations).
  • Require the state to publish private employers’ pay data reports publicly.
  • Impose additional responsibilities relating to job posting and wage rate history maintenance for each employee, for specified timeframes.
  • Require employers to disclose salary ranges for open positions in the job listing.

The amendment to include median and mean compensation information as part of the pay data reporting snapshot is a critical development in the fight for pay equity. It will certainly require employers to assess their current compensation systems and methods for achieving pay equity. If SB 1162 is signed into law, organizations would be wise to conduct a proactive pay equity audit so that they can better understand what they’re filing before filing. 

What is the status of SB 1162?

California’s SB 1162 will undergo further legislative review before it goes to California governor Gavin Newsom by August 31.

Precedent shows that California’s pay equity legislation sets the tone for the rest of the nation. Since the state began pushing for more pay transparency in recent years, a number of states and local jurisdictions have followed suit with their own requirements, demonstrating the pervasive influence of the Golden State.

Employers across the country should pay attention to these changes and be prepared to implement strategies and policies around pay transparency in their organizations. If your business is new to diversity, equity and inclusion, here are four ways you can incorporate pay equity into your compensation strategy.