LABOR COMMISSIONER FAQ’S ON PAY TRANSPARENCYCapitol Building Graphic

As we reported previously, California passed a new law (SB 1162) which requires covered employers to provide pay scale disclosures under the Equal Pay Act. These requirements became effective on January 1, 2023.

The new law was not entirely clear on a number of issues and in late December, the California Labor Commissioner’s office released a set of Frequently Asked Questions  (“FAQs”) to provide additional guidance, summarized below.

What Employers are Covered – How To Determine the “Headcount”

Under Labor Code 432.3, “an employer with 15 or more employees must include the pay scale for a position in any job posting.” The FAQ explains that “any individual performing any kind of compensable work for the employer who is not a bona fide independent contractor” would be considered and counted as an employee, including salaried executives, part-time workers, minors, and new hires.

The DLSE interprets this to apply to employers that have 15 or more employees nationwide, with at least one employee located in California.

The DLSE references their prior FAQs on Paid Sick Leave and Minimum Wage for guidance on determining the employee count – which can be important if the employer has a fluctuating work force. https://www.dir.ca.gov/dlse/SB3_FAQ.htm

Does This Apply to Remote Postings?

The FAQs specifically state the Labor Commissioner interprets SB 1162 to mean that the pay scale must be included in the job posting “if the position may ever be filled in California either in-person or remotely.” Based on this, covered employers must comply with the job posting requirements if the job is either physically located in California or could be performed remotely from California.

What Must Be Disclosed?

Pay Scale Definition: The FAQs confirm that a pay scale is limited to the “salary or hourly wage range the employer reasonably expects to pay for a position.”

A Set Rate Can be Posted: A set hourly rate or set piece rate may be included in place of a pay scale if an employer “intends to pay a set hourly amount or a set piece rate amount, and not a pay range.”

Bonuses, Benefits & Tips: Employers are not required to, but may voluntarily provide information on “compensation or tangible benefits provided in addition to a salary or hourly wage.” However, the Labor Commissioner reminds employers that “other forms of compensation may be considered for equal pay purposes.”

Mandatory Disclosure of Piece Rate and Commission Compensation

In FAQ 33, the DLSE states, “If the position’s hourly or salary wage is based on a piece rate or commission, then the piece rate or commission range the employer reasonably expects to pay for the position must be included in the job posting.”

However, if a commission is paid as “additional compensation” on top of hourly wages or salary rather than forming the “basis” for the hourly or salary wage, it is unclear whether this must be disclosed as well. However, based on the prior FAQ related to base pay, it would seem that “additional compensation” can be — but is not required to be — included in the job posting.

How Should Employers Make the Disclosure?

The pay scale must be included on the posting itself. Employers cannot link to the salary range in an electronic posting or include a QR code in a paper posting.

Record Retention Requirement

An employer must keep records of a job title and wage rate history for each employee for the duration of the employment plus three years after the end of the employment. These records must be open to inspection by the Labor Commissioner, which the Labor Commission may then use to determine whether there is a pattern of wage discrepancy.

Penalties for Non-Compliance

Penalties for non-compliance range from $100 and no more than $10,000 per violation. It is critically important for covered employers to ensure that their postings (including those using a third-party) are compliant.

CIVIL RIGHTS DEPARTMENT (CRD) ISSUES FAQ’S ON PAY DATA REPORTING

In addition to the FAQ’s posted by the Labor Commissioner, the California Civil Rights Department (CRD – formerly the DFEH) issue their own Ffornia Pay Data Reporting: Frequently Asked Questions – Updated for the 2022 Reporting Year (reports due May 10, 2023). https://calcivilrights.ca.gov/paydatareporting/faqs/).

The CRD FAQ’s clarifies that California law requires private employers of 100 or more employees and/or 100 or more workers hired through labor contractors to annually report pay, demographic, and other workforce data to the(CRD). Employers are directed to visit the California Pay Data Reporting page to access the online portal that employers must use to submit their annual reports to CRD, a user guide to the portal, templates that employers can use to create their reports, and other resources.

The CRD also provides that employers can email: paydata.reporting@dfeh.ca.gov if they have additional questions not answered in the FAQ’s.

This is an extensive document which details the substantial obligation imposed on covered businesses and labor contractors. Covered employers should review the information for guidance on how to comply.

The FAQ’s provide new definitions and summarizes the changes to the Pay Data Reporting System as a result of Senate Bill 1162.

Effective January 1, 2023, Senate Bill 1162 enhances the California pay data reporting system in several major respects, including:
  • Requires a private employer of at least 100 employees to file a Payroll Employee Report regardless of whether the employer files a federal EEO-1 report, removing a prior limitation that an employer is only obligated to file a Payroll Employee Report if the employer is required to submit a federal EEO-1 report.
  • Requires a private employer that has 100 or more employees hired through labor contractors within the prior calendar year to file a Labor Contractor Employee Report covering the employees hired through labor contractors in the prior calendar year. The employer must also disclose the ownership names of all labor contractors used to supply employees. Labor contractors are required to supply all necessary pay data to the employer.
  • Requires that Payroll Employee Reports and Labor Contractor Employee Reports include the mean and median hourly rate of employee groupings (that is, groupings of employees with the same establishment, job category, race/ethnicity, and sex).
  • Eliminated the option for an employer to submit a federal EEO-1 report to CRD in satisfaction of its state pay data reporting requirement.
  • Changes the annual deadline for submitting pay data reports to the second Wednesday of each May.
  • Authorizes CRD to obtain penalties against employers that fail to timely file their pay data reports, as well as against labor contractors that fail to provide data to client employers who must submit Labor Contractor Employee reports.
Key Terms for Purposes of the Pay Data Reporting System
As used in these FAQs, the following terms have the following meanings, unless a different meaning clearly appears from the context of a particular FAQ.

Client Employer – A private individual, entity, or other person as defined by Government Code section 12925 (including one or more entities acting in concert) that has workers hired through labor contractors

Employee – An individual on an employer’s payroll, including a part-time individual, for whom the employer is required to withhold federal social security taxes from that individual’s wages

Employer – A private individual, entity, or other person as defined byGovernment Code section 12925 (including one or more entities acting in concert) that is obligated to file a Payroll Employee Report and/or a Labor Contractor Employee Report

Establishment – An economic unit producing goods or services

Labor Contractor – An individual or entity that supplies, either with or without a contract, a client employer with workers to perform labor within the client employer’s usual course of business

Labor Contractor Employee – An individual on a labor contractor’s payroll, including a part-time individual, for whom labor contractor is required to withhold federal social security taxes from that individual’s wages, and who performs labor for a client employer within the client employer’s usual course of business

Labor Contractor Employee Report – The type of pay data report by which a client employer annually reports data on their labor contractor employees to CRD

Pay data – Generally, all of the data that must be reported to CRD in a pay data report, including but not limited to pay rates and demographic information about employees

Pay data report/report(s) – A Payroll Employee Report and/or Labor Contractor Employee Report

Payroll Employee – An individual on an employer’s payroll, including a part-time individual, for whom the employer is required to withhold federal social security taxes from that individual’s wages

Payroll Employee Report – The type of pay data report by which employers annually report to CRD data on their payroll employees

Portal – The online system through which employers register with CRD, submit information about their business and labor contractors (if any), create or submit their Payroll Employee Report and/or Labor Contractor Employee Report, and certify their report(s)

New Penalties for Failure to File: Employers who fail to file pay data reports are subject to penalties of $100 per “employee” for an initial failure to file and $200 per “employee” for subsequent failures to file.

Calculating Mean and Median Hourly Rates: Employers must calculate each employee’s individual hourly rate before calculating the mean and median hourly rates. The FAQs explain that the hourly rate is calculated by dividing the employee’s W-2 Box 5 wages by the number of hours the employee worked.

To calculate the mean hourly rate, add the individual hourly rates for each employee in the group, then divide that sum by the number of employees in the group.

To calculate the median hourly rate, order the hourly wages of each employee in the group from smallest to largest and select the middle number. If the number of individuals in the group is an even number, the median hourly rate is calculated by arranging the hourly wages of each employee in the group from smallest to largest and taking the mean of the two central numbers. If there are only two individuals in the same category, the median hourly rate is the mean of their two hourly rates.

For groupings with only one individual, that individual’s hourly rate will serve as the mean and median hourly rates.

What Should Employers Do Now?

  • Determine if the employer is a “covered” employer for purposes of the Pay Disclosure Requirements.
  • Determine if the employer is a “covered” employer for the Pay Data Reporting requirements.
  • Ensure that all job postings posted on or after January 1, 2023, contain the required pay scale information – do not simply provide links to the pay scale but include the pay scale directly in the job postings.
  • Carefully review postings before they are created as employers who fail to comply can be subject to penalties ranging from $100 and no more than $10,000 per violation.
  • Ensure the timely submission of the Pay Data to avoid penalties of $100 per employee for an initial failure to file ; $200 per employee for subsequent failures to file.
  • If you work with a third party entity for job postings, ensure they are in compliance with the pay disclosures in the postings.

This Newsletter is intended as a brief summary of employment law. While every effort has been made to ensure the accuracy of the information contained herein, it is not intended to serve as “legal advice,” or to establish an attorney-client relationship. If additional information is needed on any of the topics contained herein, please contact our office. All rights reserved. ©2023.

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