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California Pay Transparency Requirements Expand in 2023

February 1, 2023

San Francisco has recently become one of the most protected areas in the United States for employee rights. With the passage of a new pay equity bill, employees can expect compensation discrimination to suffer a blow. Learn more about the new law protecting employee rights and find out how an employment lawyer can help workers whose rights have been violated.

California Expanded Pay Transparency Requirements in 2023

As of January 1, 2023, California employers must follow several new legal requirements the state has enacted to promote California pay equity. These requirements are embedded in California's Pay Transparency for Pay Equity Act, also called Senate Bill 1162, and include the following:

  • Businesses with 15+ employees inside or outside of California must post the pay scale in their job postings. The bill defines the pay scale as the hourly wage or salary range the employer expects to pay. Third parties posting on behalf of these California employers must also post the compensation range.
  • Employers of all sizes must provide their employees with the pay scale for their current position upon request.
  • Employers of all sizes must keep records of employees' wage rate and job title throughout their employment and for three years after termination.
  • Pay data reporting is required for all employers with 100+ employees, regardless of whether the federal EEO-1 report is submitted.
  • Employers with 100+ employees hired through labor contractors in the past year must file a separate pay data report.
  • Pay data reports are due on May 10, 2023. It will be due on the second Wednesday of May in the following years.
  • Pay data reports must include the mean and median hourly rate for each combination of sex, race, and ethnicity in each job category.
  • Employers with more than one establishment must submit a separate pay data report for each establishment.

Intent

California lawmakers intend for these requirements to promote pay equity in San Francisco. These requirements should help close the wage gap for workers who are disadvantaged through no fault of their own. 

Employer Implications

Once employers gather their documentation around pay structures, these requirements should streamline compensation, talent development, and hiring processes and help businesses run more efficiently. In 2023, more states in the U.S. must adhere to salary transparency laws, including Washington, Rhode Island, and California. Approximately 25% of all United States workers live in areas with pay range transparency laws.

Although this approach may feel drastic to employers, it has been used successfully for years. In 2021, Colorado implemented the country's first law that required companies to proactively list salary ranges on job listings for work that employees could do within the state.

Employers Should Anticipate Changes

Employers should expect employees to begin asking questions about their pay ranges. Employers should also expect their employees to see future job listings and react to the pay scale provided, particularly if current employees are making less than advertised.

If the pay range the employer provides to current employees or posts in ads is too broad, employees may accuse the employer of giving false information. Employees may also question who earns the pay scale's extreme upper and lower ends and why. However, employers are likely to receive immediate feedback if the employers' pay range is reasonable, but some employees fall outside the range. 

Often, employees will discuss the new salary information with their colleagues. California state and federal law protect the discussion of wages. The protections forbid employers from preventing these conversations or punishing employees who discuss salary ranges. 

These pay range discussions may result in employees discovering systematic pay inequality. If this occurs, employers may experience issues with union organizing, turnover, morale, or lawsuits. 

Employers should expect to explain any perceived pay inequities, even if there are logical and legally valid reasons for the discrepancies. 

What Employers Should Do

An employer in San Francisco that has workers without documented pay ranges should start putting these pay ranges in order. There is a roughly five-month grace period to arrange the pay range systems. Some employers may need to hire outside help if the job is large or they lack comprehensive job descriptions and pay structures.

Employers need to ensure the following:

  • Pay ranges align with job descriptions.
  • Employees' details are updated to match their job titles with their duties.
  • An explanation exists of how an employee moves from the bottom to the top of each pay range.
  • They can explain how an employee moves from one pay range to another. 
  • They can explain why employees with the same title or job description receive different wages using legal reasons for California pay differentials.

If an employer cannot complete these tasks within the time limit, they should consider hiring outside help. Otherwise, they may open the door to legal liability.

Employee Rights in San Francisco

Workers in San Francisco have employee rights, which became significantly more robust in 2023. SB 1162 has been referred to as a "tsunami" law, making substantial changes to San Francisco's employment landscape. In some ways, SB 1162 goes further than any other pay equity bill to date. 

The law took effect on January 1, 2023, but employers have until May 10, 2023, to submit their pay data reports. Penalties for non-compliance can reach up to $10,000 per violation. Additionally, this does not just affect San Francisco companies. Any qualified company with a single employee in California must abide by SB 1162.

SB 1162 was introduced to help improve pay equity in San Francisco. If an employee feels they are underpaid in their position, they can ask their employer questions about their pay range. If this range fails to add up compared to the pay scales their employer is providing on job listings, they may be a victim of pay inequity.

Employees who are underpaid compared to colleagues with similar experience and background can file a legal claim based on their employee rights. An employment attorney in San Francisco can help employees assert their rights legally.

How an Employment Lawyer Can Help

Employees harmed by pay inequity can speak with a San Francisco employment rights attorney. A knowledgeable attorney is the best resource for judging a claim's strength. If the employee has a solid legal case against their employer, their employee rights lawyer can explain the available legal options for recourse.

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