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California Takes Steps Toward Pay Equity

by Jennifer Shaw and Megan Donaghey | The Daily Recorder | January 3, 2023

By now, most Californians know that beginning in January 2023, certain employers must include a pay scale in their job postings. In addition, all employers must provide current employees with their pay scales upon request. Although applicants and employees likely welcome the enactment of Senate Bill 1162, or the “Pay Transparency Act,” employers face some new responsibilities.

The History of Pay Equity in California

Until recently, employee compensation could be treated as confidential information, and employers could request (but not require) employees not to discuss their wages with others.  This relative lack of pay transparency allowed some employers to pay employees differently for the same work.

In 2015, California passed the Fair Pay Act, which generally prohibits employers from paying employees differently based on sex, or from preventing employees from discussing their wages. In 2017, the law expanded to prohibit disparities based on race and ethnicity. In 2018, California further amended the law to prohibit employers from asking about or considering an applicant’s salary history in making a job offer. This change underscored an important reality—making future compensation decisions on an applicant’s current or prior earnings simply perpetuates past pay disparities.

The 2018 amendment also required employers upon request to provide applicants with the pay scales for open positions.  It did not require the same information be made available to current employees.

Senate Bill 1162

Senate Bill 1162, the newest amendment to the Fair Pay Act, aims to make employer pay practices more transparent. It requires employers with 15 or more employees to provide pay scale information in every job posting, including job postings announced, posted, or published through a third party.

According to the new law, “pay scale” means the salary or hourly wage range that the employer “reasonably expects” to pay for the position. So, in a job posting, the employer cannot simply choose an arbitrary pay scale for a position. Rather, the pay scale must be focused on what the employer believes the candidate will be paid.

The law also requires that all employers, regardless of size, provide pay scales to currently employees for the positions in which they are currently employed, upon request.

All employers also must maintain records of job title and wage rate history for each employee for the duration of employment plus three years. This information can be used to determine whether the pay scales posted in fact reflected what the employer reasonably expected to pay for the position, and whether there is a pattern of wage discrepancy within the organization. Failure to maintain such records creates a presumption in favor of an employee’s claims related to SB 1162, which can include those made under the California Private Attorneys General Act.

Practical Considerations

Employers must take various steps to comply with SB 1162 and related laws.

First, all employers should create pay scales for each position that accurately reflect the employer’s reasonable pay expectations for each role. As part of this process, employers should consider creating steps or classes within job roles that allow ranges for each step or class to be as narrow (and therefore accurate) as possible. Also, by breaking up broad pay scales into more discrete groups, employers will be better able to justify differences in pay.

In addition, employers with 15 or more employees should ensure that all job postings, including those posted through third parties, include pay scales for each position.

Because of the new law’s recordkeeping requirements, employers should create systems to track job title and wage rate history for each employee. This system should include on-going internal audits to ensure that the pay scales provided to applicants and employees are accurate.

Employers also should train their teams. They need to understand how to request information about their pay scales, and how to respond to requests by other employees.  It is important to respond to pay scale requests within a timely manner, although SB 1262 does not prescribe a certain time period.

SB 1162 also modifies the current pay data reporting requirements for employers with 100 or more employees. Although this article does not outline those requirements, large employers should seek legal counsel to comply with these annual reporting requirements.