At the start of 2023, California joined many other states in passing new legislation to significantly expand its requirements for pay scale transparency and pay data reporting. Senate Bill 1162, which was signed in September and took effect on January 1, shares several items in common with legislation passed by New York, Colorado, Washington, and other jurisdictions — namely, the requirement for employers to publicly include pay scale information in their job postings.
But as you’ll learn below, there are many additional rules and regulations that distinguish Senate Bill 1162 from legislation imposed across other states. Companies who hire and employ workers in California will need to know these laws inside and out in order to avoid both legal and reputational consequences.
Now, let’s take a deep dive into California’s new legislation. In today’s blog post we’ll explain the new requirements under Senate Bill 1162, how employers must adjust, and what the bill means for employees and job candidates.
What is California Senate Bill 1162?
In September of 2022, California governor Gavin Newsom signed Senate Bill 1162 into effect, approving a significant expansion to the state’s existing pay transparency requirements. The purpose of the bill — as was true in many other states where similar legislation was passed — is to promote fair and inclusive hiring practices and reduce gender and racial pay gaps.
For the sake of clarity, we can divide the requirements listed in Senate Bill 1162 into two distinct categories: Pay Transparency and Pay Data Reporting.
1. Pay Transparency
SB 1162 imposes several new requirements aimed at increasing transparency between an employer and its employees and between an employer and future job candidates. Previously, the state had certain restrictions in place, such as a law that prohibited companies from asking candidates about their salary history during the hiring process.
Now, employers with 15 or more employees must disclose a pay scale in each of their job postings. The bill defines pay scale as the “salary or hourly wage range” that the employer is offering for any given position.
Employers must also provide the same pay scale information to any third party they engage to “announce, post, publish, or otherwise make known a job posting” — referring largely to job boards like Indeed, Monster, ZipRecruiter, and so on.
Additionally, the bill states that, upon request, employers must provide employees with the pay scale for the position they currently hold. And, organizations must maintain records containing job titles and compensation information for each employee during the duration of their employment and for three years after their departure from the organization.
Non-Compliance Penalty:
Any employee or candidate can submit a complaint to the Division of Labor Standards Enforcement (DLSE) if they believe an employer has violated the law in relation to listing and providing pay scale information. The employer will then be subject to a civil penalty ranging from $100 to $10,000 per violation.
The DLSE will not penalize an employer for the first violation if they can prove they’ve updated all job listings to meet SB 1162 requirements.
2. Pay Data Reporting
To ensure compliance with the above regulations— and to provide data for government agencies to analyze and use to uncover any pay discrepancy trends— SB 1162 also bolsters the state’s pay data reporting requirements.
Employers with 100 or more employees must submit annual pay data reports to the California Civil Rights Department (CRD) on or before the second Wednesday of each May. These reports must include median and mean hourly rates for 10 specific job categories, along with corresponding rates based on employee race, ethnicity, and sex within those categories.
If an employer with 100 or more employees hires workers through labor contractors, they must submit a separate report to the CRD for these workers specifically.
While this aspect of the law isn’t entirely new— organizations have been submitting similar reports to the CRD since 2020— the required information, timing, and submission details have been significantly impacted by SB 1162. For this reason alone, we thought it worth noting.
Non-Compliance Penalty:
If an employer fails to submit all of the required information, the CRD may seek a court order that requires the employer to fulfill the requirements— and pay any of the associated costs.
The bill also gives the CRD the power to request the court to impose a civil penalty upon any non-compliant employer. These penalties can include fines up to $100 per employee upon the employer’s first failure to comply, and up to $200 per employee for a subsequent failure to comply.
Recommended reading: ASC 606 Compliance: Choosing a Commission Expensing Solution
Who Does California SB 1162 Apply To?
A decade ago, the above question would seem redundant — obviously a piece of California legislature applies to businesses in California who meet the characteristics listed in the bill. But, as companies in other states quickly learned after similar legislation was passed, remote work complicates things significantly.
That’s because SB 1162 applies not only to California-based businesses, but also any business that hires for a remote position where the candidate pool might include California-based remote workers.
As a result, companies who do hire remote workers from across the United States are left with a few options. They can create and maintain different job postings for different states. Or, they can choose a more efficient route and establish a template or uniform process that ensures all job postings comply with applicable legislation from all 50 US states regardless of where in the US a job will be listed.
What won’t be a viable solution is the one attempted by some companies back in 2021, when Colorado imposed their own pay transparency regulations. These companies tried to skirt around the law by listing remote jobs that could be done anywhere in the U.S. “except for Colorado” — ultimately earning these companies a fair bit of blowback and negative press from major news outlets (source).
Backlash aside, an approach like the loophole described above, will never be a feasible option for most organizations.Considering the state’s population, it’d be costly and reputationally damaging for companies to try to exclude CA-based remote workers from their hiring pools.
The Impact of California SB 1162: What Every Employer (and Employee) Needs to Know
Now that we’ve explained the requirements outlined in SB 1162, let’s look at what these changes mean for employers. When a state passes this sort of sweeping, multifaceted legislation, it’s important for employers to not only understand the rules but also ensure they have the right systems and processes in place to consistently comply with them.
Likewise, it’s important for employees to familiarize themselves with this bill and its new requirements, as they’ll need to know what information they’re able to request and receive from their employers in regards to their pay.
Employers must audit existing job postings and ensure that all listings include a pay range.
Companies with more than 100 employees will have to adjust their approach to job postings moving forward, making sure that posts listed on their site and submitted to third party job boards all contain pay ranges.
That step is easy enough — but the more time-intensive task will be the process of auditing all existing or past job postings and updating them to include pay ranges. Given the state of the hiring market, it’s not uncommon for companies to leave jobs listed for several months or even years, especially on job boards that might not reflect the same listings as a company’s website.
At this point, you might be wondering: “What is an acceptable pay range to list?” Unfortunately, there’s still a lack of clarity when it comes to this debate, and SB 1162 doesn’t include much specificity beyond stating that ranges need to be “reasonable”.
Many employers adopt the method of including extremely wide pay ranges (“This job pays between $80,000 and $160,000”) to cover their bases without providing much transparency; even the California government lists pay ranges with huge disparities between the high end and low end of an expected salary.
However, it’s important for employers to understand that listing such vague pay ranges will only hurt them in the long run. They might not land in legal trouble for failure to comply with a new law, but they’ll draw negative attention to their organization from authorities and potential candidates alike.
Recommended reading: 29 Critical Sales Compensation Benchmarks & Statistics
Employers will need to establish pay ranges for all current employees.
Beyond the requirements for job listings, the biggest change included in SB 1162 is the rule that states employers must maintain records related to employee pay ranges, and they must provide this information to employees upon request.
This is also the area where many companies’ records are likely to be most lacking. Companies who have been around a long time— and who employ workers with lengthy tenure— have hired employees under all sorts of parameters, some more by-the-book and well-documented than others. It’s likely that many employees never received a pay range for their role and their employer never bothered to establish a range, thinking there’d be no purpose since the role was already occupied.
For this reason, companies will need to audit their records, establish pay ranges for all employees, and ensure they have a system in place to track wage rate history for all employees. This process may involve a lot of legwork and even an investment in new software, but ultimately doing this will save organizations time and prevent non-compliance in the future.
Recommended reading: The Manager’s Guide to Communicating Compensation Changes to Employees.
Employers must be ready to report on a significantly expanded set of pay-related data points.
As we explained above in the “Pay Data Reporting” section, California now requires employers to submit far more comprehensive pay data reports to the CRD, including median and mean hourly rates for ten job categories— along with data concerning the race, ethnicity, and gender of employees within these categories. The bill lists the categories that must be reported on as follows:
- 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
Note: the complete bill goes into further detail about how this data, specifically in regard to race, ethnicity, and gender, should be gathered and organized within a company’s pay reports. We recommend you familiarize yourself with these details as well.
Companies who fall under California’s jurisdiction have been submitting similar reports for years— but considering the expanded reporting requirements of SB 1162, they might not be tracking all data required to remain compliant in 2023 and beyond. If that’s the case, employers will need to audit the data they’re currently tracking, determine what gaps they need to fill, and initiate a system to efficiently create compliant reports to submit to the CRD.
Businesses must prepare to have their pay scrutinized and be ready to address any exposed pay disparities.
Some companies have been ahead of the curve when it comes to pay transparency; they’ve established clear pay ranges, standardized their approach to pay increases and promotions, and analyzed their salary offerings to identify discrepancies that may indicate implicit biases or unfair treatment.
Those companies will adapt to this pay transparency trend relatively smoothly. Other organizations, however, have long ignored the concept of pay transparency— or actively taken measures to avoid it. Whether they’ve intentionally lowballed a new hire or unintentionally contributed to the larger problem of pay inequality, these companies are going to face a lot of newfound scrutiny in years to come.
Now, employees will have a greater understanding of their value; they’ll be able to compare their own pay range to the job market and see how their salary compares to the industry standard. Meanwhile, regulators will be studying a company’s pay history on a macro- and micro-level and will be quick to highlight any glaring disparities.
All of this points to the need for companies to analyze their own pay more intentionally. If an organization doesn’t have internal policies and standardized pay ranges to govern their pay strategy, they risk reputational and legal ramifications that may ultimately end up costing more in the long run than it would have cost to adjust and calibrate salaries in the short term.
Final Thoughts
While the above blog post provides a fairly comprehensive overview of California’s new pay transparency regulations, we strongly urge any companies who fall under its jurisdiction to read the bill in full: California Senate Bill 1162.
Even if these new regulations don’t apply to your company, it’s still important to understand and deeply consider what they represent: a broader shift towards pay transparency and a more active approach to combating pay inequality and racial, ethnic, and gender discrimination in the workforce.
We’ll undoubtedly see additional jurisdictions follow suit in the near-future. But regardless, the time is now for all employers to take a close look at their approach to paying employees and creating transparent job listings.Answering those questions might yield some uncomfortable answers — but will only contribute to more fair and equal work environments in the long run.
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