SB 1162

What You Need to
Know About
California's SB 1162
Pay Equity Law

SB 1162

What You Need to Know About California's SB 1162 Pay Equity Law

Compliance with SB 1162 is mandatory for many employers, California-based or not

The number of pay-equity and pay transparency laws is growing worldwide and at an increasing clip. Within the U.S., the latest state to pass such laws is California. On September 27, 2022 California Governor Gavin Newsom signed SB 1162 into law. And SB 1162 officially came into effect on January 1, 2023.

What follows is an overview of the new law; some real-world examples of it in action; and how employers can use pay equity auditing software to satisfy the new requirements and better position themselves for future pay equity laws.

Learn more about California SB 1162

California SB 1162 leads in pay equity

SB 1162 affects private employers across the U.S., including non-profits. The law amends the existing California pay data reporting law SB 973. That law, signed in 2020, required private employers with at least 100 employees to submit a pay data report categorized by gender, race/ethnicity, and by job category, such as sales workers. Under SB 973, employers that were already filing a similar report with the Equal Employment Opportunity Commission (EEOC) could file just one report to satisfy the EEOC and SB 973 requirements.

SB 1162 adds to these requirements substantially, specifically requiring:

  1. That employees hired through labor contractors be included in the reporting requirements; and
  2. That employers report their mean and median hourly wage data for each combination of gender and race/ethnicity

There are some additional provisions that SB 1162 adds to SB 973, which we will spell out throughout this white paper.

The requirements of SB 1162 cover not just the reporting of compensation data, but also add new pay transparency requirements. Employers with 15 or more employees, must disclose pay ranges in all job listings.

Recent, updated guidance clarifies exactly what is meant by "pay scales," but still leaves some uncertainty. Pay scale is defined as the salary or hourly wage range that an employer "reasonably expects to pay" for a given job position. Unfortunately, the law does not clarify what constitutes a "reasonable" expectation with respect to that pay. It's possible that more clarity won't become available until enforcement actions play out in practice.

Until recently, it was an open question how exactly the 15-employee threshold was calculated. Recent Labor Commissioner guidance has filled in some of those gaps. The 15-employee threshold is met when:

  • An employer employs 15 employees at any point within a given pay period
  • And at least one of those employees is located in California

For employers with multiple facilities, all employees are counted across all facilities even if some of those employees and those working at those facilities are located outside of California.

This additional, affirmative salary range posting in job-listing requirements adds to the existing requirement that employers with at least one employee must disclose the pay scale to an applicant if that applicant completes the first interview and requests the pay scale for the relevant job.

Employers working with staffing agencies will also need to share pay ranges if they list jobs with those vendors.

Additional reporting requirements

To comply with California's new pay equity law, employers must track job titles and wage rates for each job position. They must maintain records for the duration of an employee's tenure, plus three years following termination. An employee who spent three years with the employer, for example, would need to have records maintained for no less than six years.

Employers need to submit the mean and median hourly pay rate for employees by gender and race/ethnicity in each of the following job categories:

  • Executive or senior level officials and managers
  • First or mid-level officials and managers
  • Professionals
  • Technicians
  • Sales workers
  • Administrative support workers
  • Craft workers
  • Operatives
  • Laborers and helpers
  • Service workers

The law states that the submission must be a snapshot period of a "single pay period of the employer's choice between October 1 and December 31 of the reporting year."

The reporting requirements include other mandates, such as reporting of the number of employees by gender, race/ethnicity, and whose earnings for the year fall within each of the pay bands used by the U.S. Bureau of Labor Statistics in the Occupational Employment Statistics survey. Employers must also report the total number of hours worked by each employee in each pay band during the reporting year.

Under California's pre-SB 1162 law, the pay data reporting requirements applied only to private employers with 100 or more employees. The 100 employee threshold is met if the employer either employs 100 or more employees in the snapshot period chosen by the employer or if the employer regularly employed 100 or more employees during the reporting year.

Consistent with the EEOC's EEO-1 filing requirements, an employer with fewer than 100 employees is required to file if owned or affiliated with another company, or there is centralized ownership, control or management (such as central control of personnel policies and labor relations) of more than one company so that the group legally constitutes a single enterprise, and the entire enterprise employs a total of 100 or more employees.

Importantly, the SB 1182 law requires that an employer that has 100 or more labor contractors (such as through a staffing agency) must also submit a separate pay data report for those labor contractors. Employers must disclose the name of every staffing agency they use to supply these contractors and "labor contractors shall supply all necessary pay data to the private employer," according to the text of SB 1162.

The law amends the existing SB 973 law to remove the previously mentioned option for employers to submit an EEO-1 report instead of this pay data report. SB 1162 eliminates consolidated reports for employers with multiple establishments and as such, requires employers to file a separate report for each location.

The deadlines for compliance began January 1, 2023, and pay scale disclosures must now be appended to job listings and pay records established for employees.

January 1, 2023

Pay range disclosures appended to all job listings, as well as established pay records for current employees

MAY 10,2023

Deadline for submitting 2022 annual mean and median pay data reports to California Department of Civil Rights

January 1, 2024

Deadline for submitting 2023 annual mean and median pay data reports to California Department of Civil Rights

Process for Reporting

After employers have collected the required data, they must put it into the correct format for submission to the California Civil Rights Department (CRD). The first step is determining the correct report type. There are two options: Payroll Employee Report and Labor Contractor Employee Report.

The first decision that needs to be made is which of the two reports should be filed by the employer. Each report type has a unique Excel template to use when building the report.

Fortunately, Appendix A of the newly released California Pay Data Reporting Portal - User Guide provides a detailed guide to building each of these reports in the required Excel format, based on which of the two reports is applicable.

Furthermore, employers must use the CRD's pay data portal to submit their reports. Emailed or hard-copy reports will not be accepted. The portal is available at https://pdr.calcivilrights.ca.gov.

To file a pay data report, an employer must first register in the portal and provide information about their business, including any parent or affiliate organizations, if applicable, as well as other required information.

Once registered, the employer creates and submits the required report: either the Payroll Employee Report and/or the Labor Contractor Employee Report, based on that employer's reporting obligations. Some employers are required to submit both reports. If so, each report is submitted separately.

Employers should note that upon submitting their pay data reports with the CRD, the agency immediately provides a visual representation of the information broken down by gender, race/ethncity, and other information. This demonstrates an increased efficiency in analyzing and reviewing employers' pay information. We can only assume that this development means greater scrutiny of organizations' pay information and workforce composition.

Non-compliance penalties

SB 973 didn't specify the amount of penalties. But, SB 1162 does

Non-compliance penalties range from a $100 penalty per employee for failing to file a pay data report to a $200 penalty per employee for repeat violations. The non-compliance penalty is up to $10,000 for failing to post pay scale in job listing, per violation. Additional legal action can arise from employees pursuing their own legal action. About a year ago, in fact, Riot Games agreed to pay $100 million to settle claims by female workers that involved, among other issues, pay inequity.

With those significant penalties, you can see how non-compliant employers face up to a seven-figure bill in aggregate. These penalties signify SB 1162 as potentially the most aggressive pay equity law in the U.S.

The limits of confidentiality

One component that involved the CRD publishing employer pay data was removed as the bill moved through the legislative process.

Although an employer is submitting this data to a government agency confidentially, SB 1162 does not necessarily shield that data from discovery through a subpoena or otherwise in litigation.

It's also possible that future amendments to the law will require data to be made public as was originally intended by SB 1162.

Employers may even choose to make some of the data public. For example, an employer may want to release a version of the data in a more generalized form to employees, or perhaps to the general public, for the benefit of investors, prospective employees, and simply the employer's reputation.

Doing so can offer a significant competitive advantage - an employer brand-boosting opportunity, if you will. An employer could show that its efforts to create an inclusive workplace include fair pay. According to a 2022 study by GoodHire, "81 percent of employees would consider leaving their job due to an employer's lack of commitment regarding diversity, equity, and inclusion."

Real-world examples of the SB 1162 requirements in action

SB1162 is still in its infancy, but let's take a look at some of the questions we have received about how SB 1162 might play out in actual employment situations.

Just the beginning

Other states have either enacted or are considering enacting pay-equity laws. These include pay transparency laws in Illinois, Connecticut, Colorado, Maryland, Nevada, Rhode Island, and Washington,with pending legislation in New York and Massachusetts. There are also cities have already passed such pay transparency laws, including Cincinnati and Toledo, Ohio, and New York City, New York.

If there's one thing organizations in all these states have in common, it's that they're not ready to comply with these new laws. A Harvard Business Review study sponsored by UKG found that "only 26 percent of organizations have a well-established pay equity plan in place. Another 49 percent do not have any program whatsoever." And 24% of employees don't know if their organization has a pay equity plan.

Illinois has one of the more aggressive laws from a pay equity perspective. Organizations with at least 100 employees must file an "Equal Pay Registration Certificate" certifying that they are in compliance with equal pay and anti-discrimination laws and that wage and benefit disparities are corrected when identified. They also have to file a detailed description of how they determine wages, employee demographic and pay information (including race, ethnicity, and gender) and "any other information the Illinois Department of Labor deems necessary to determine if pay equity exists among employees."

Many states and cities are also considering salary history bans - preventing organizations from asking what someone got paid in their last job. At least 21 states and the District of Columbia have passed salary history bans, barring organizations from inquiring into candidates' previous earnings for determining new pay.

In New York City, organizations have to include a pay scale in all job ads for positions that will or could be performed in the city beginning on November 1, 2022.

On top of those state and local laws, future federal regulations aren't out of the question. In fact, EEOC Commissioner Keith Sonderline recently cautioned employers on the likely return of EEO-1 Component 2 pay data reporting. These requirements, which only existed briefly during the 2017 and 2018 years, would require similar pay data reporting requirements to that of California's SB 1162. It is unclear whether the institution of such EEOC pay day reporting would supplant SB's 1162 requirement.

The European Union, Canada, and Australia are also areas to keep your eyes on, even if you're in the U.S., as their rules could serve as models for future regulations.

For a complete understanding of the growing pay equity laws taking effect around the world, check out the Pay Equity Definitive Guide.

Why PayParity® Software

As spelled out above, SB 1162 introduces sweeping new pay equity requirements for employers, California-based and beyond.

The state government's goal is four-fold, to:

  • Identify pay discrimination
  • Analyze pay data and identify wage patterns
  • Help prioritize resources for enforcement
  • More effectively prosecute employers with pay inequity practices

With the California CRD focused on these four goals and SB 1162 in effect as of January 1, 2023, many, employers may have some catching up to do. Hundreds of thousands of employers are now obligated to have plans in place to determine how they'll comply with this new law. Employers with multiple worksites or that use a lot of labor contractors particularly should not wait.

To start, employers should:

  • Establish a metrics and measurement system for tracking progress toward pay equity
  • Assess and analyze compensation practices to ensure fair pay ranges before posting salary information in public job listings
  • Use pay equity software to monitor pay equity continuously

Not doing these three things opens you up as a target of the CRD.

The best way to comply with SB 1162 is to ensure your pay is set equitably, and not haphazardly, is to perform a pay equity audit.

The information required to be given to the government, according to the text of the law, "shall be made available in a format that allows the department to search and sort the information using readily available software." Trusaic's PayParity software conducts pay equity audits continuously and helps organizations understand their compensation practices before sharing them.

Rather than waiting for a subpoena or discovery request, the time to start implementing a pay-equity audit is now. An audit gives an employer the opportunity to fix problems before they are required to be reported. There are also safe harbors if you do a pay audit and demonstrate progress towards resolving any identified pay disparities. By revealing what the pay data shows, organizations will have the ability to remediate pay discrimination and create more equitable pay practices, ultimately preventing wage discrimination from the get-go.

An important note: Conducting an audit and even finding a discrepancy based on gender or other demographic factors doesn't mean an organization is engaging in discriminatory practices. If, to take just one example, a woman is paid more than a man in a similar role, it may be that she has additional credentials or experience that warrants the differential. Perhaps her role needs to be renamed because of her greater responsibilities. These legitimate business reasons legally explain the difference in compensation between two employees performing similar work.

As mentioned earlier, an audit may also give an employer an opportunity to make some form of its pay data public if it chooses.

After conducting a pay equity audit through PayParity, employers can insert that data into the format required by the CRD.

PayParity Software has a multifold purpose behind just a one-time avoidance of potential legal trouble. Using it means an employer can:

  • Analyze all forms of compensation
  • Monitor pay equity continuously for change and/or progress
  • Establish equitable pay bands and salary ranges for job listings
  • Pinpoint pay disparities at the intersection of gender and race/ethnicity (consider multiple variables simultaneously)
  • Prevent wage compression (e.g. senior manager making only slightly more than someone more junior due to hot labor market)
  • Communicate progress confidently
  • Maintain attorney-client privilege
  • Comply with SB 1162 and other state laws

Regarding attorney-client privilege, as an employer proceeds with pay-equity compliance, Trusaic can work with the employer's counsel to prevent mandatory disclosure of sensitive information. Unlike consulting firms which may only be covered by a standard non-disclosure agreement, attorney-client privilege minimizes mandatory disclosure risk.

The comprehensive Trusaic PayParity software platform provides what an organization needs to create diversity, equity, and inclusion disclosure reporting that aligns with the Sustainability Accounting Standards Board, Integrated Reporting, and Global Reporting Initiative frameworks.

Overview-v2

Salary Range FinderTM

An add-on feature, Salary Range Finder, helps organizations understand their pay ranges for particular jobs and subsequently extend equitable and competitive salary offers.

Essentially, the Salary Range Finder helps prevent pay inequities from occurring in the first place.

EPE-Software-Engineer

The Salary Range Finder analyzes employee details against labor market rates and internal ranges, in real-time. When an employee is hired, the Salary Range Finder helps ensure that a fair compensation offer is made to help your organization improve its pay equity.

It requires no additional configuration, and pulls the information directly from an organization's pay-equity analysis. Powered by industry-leading labor market data from Lightcast and your internal pay analytics, the real-time results help ensure that all pay decisions are equitable and reduce the need to perform expensive and unplanned pay remediations in the future.

Salary Range Finder integrates seamlessly with HRMs and annual compensation cycle systems.

Where to begin

To begin your compliance journey with SB 1162 ahead of the January 1, 2023, start date, schedule a meeting with one of our pay equity experts to learn more about how PayParity can help.

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