California Leads the Country in Worker Protections; Pay Transparency is its Newest Movement

In recent years, a number of states including Nevada, Maryland, and Connecticut enacted pay transparency laws, requiring businesses to provide more insight to employees and job applicants regarding pay scales for specific roles. Though the specifics of each state’s law might vary, the foundational purpose of these laws is similar across the board.

As of January 1, 2023, California joined the group of 13 states and its robust pay transparency law came into effect. Governor Newsom signed the bill into law on September 27, 2022; since the window for businesses to prepare was fairly short, there may be some organizations that are still adjusting to the new law and implementing the right infrastructure to support its requirements. As this law becomes operational in the state of California, HR professionals in every industry must have a strong understanding of its origin, feel comfortable with the details of the law, and figure out how to support its framework within their organizations.

The Intended Purpose of Pay Transparency

Pay transparency laws are meant to support workers; providing current employees and job seekers with a clear picture of salary expectations for each role can reduce gender and race wage gaps that businesses have struggled to get rid of. Historically, even talking about one’s own salary was taboo, and some workplaces still forbid it entirely. Now, as new generations of employees take the reins, there seems to be a rising acceptance of being open about one’s salary details. 

In a nationwide study conducted by Visier, 79% of respondents said they wanted some form of pay transparency while 32% said they wanted total pay transparency. 89% of Gen Z respondents answered that they felt comfortable discussing their pay openly, but for Baby Boomers, that number plummeted to 53%. While the past may have limited pay transparency discussions, the future of the workforce seems to be keen on pay transparency laws and open dialogue.

California’s History with Pay Transparency

The new bill, SB 1162, is not California’s first movement toward pay transparency. In 2017, section 432.3 was added to the California Labor Code. It required employers to provide pay scales when reasonably requested, and it protected applicants from having to answer certain questions about their salary history. SB 1162 is meant to expand on this code and make its requirements more robust, offering more protection to workers throughout the state.

Legal Requirements in CA

Due to the level of detail in the bill, it’s critical that HR professionals and business leaders are familiar with it front to back. Violating this bill can result in penalties, so it’s best to get in front of the requirements now. Here’s what’s in it:

•  Pay Scale Disclosure (15+ Employees)

For employers with 15 or more employees, a pay scale must be included for every job posting. A pay scale can be posted as either an hourly wage range or an annual salary range and must be what the employer expects to pay in earnest for that position. This requirement includes internal job postings and external postings.

• Third-Party Requirements (15+ Employees)

If employers – again with 15 or more employees – partner with a third-party staffing firm or use a third party to post job postings, the third party is also required to include the pay scale in the posting. This closes any potential loopholes that employers might seek out to avoid pay transparency for open roles.

• Pay Scale Upon Request

All employers, no matter their size, must provide a pay scale to applicants if they request that information. This item includes current employees as well; employers are legally obligated to provide the pay scale for the position that the employee is currently in if requested.

• Historical Record Tracking

One of the biggest overhauls when it comes to staffing infrastructure and data tracking is because of this portion of the bill; it requires all employers in the state to keep historical records of job titles and wage rate history for all employees. These records must be kept throughout the time that the employee works at the organization and for three years after they leave.

• Data Reporting

In line with the data tracking requirement above, employers with over 100 employees must submit an annual pay data report on or before the second Wednesday of May each year. The information included in the report includes, but is not limited to, the number of employees by race, ethnicity, and sex within job categories. It must also have the median and mean hourly rate for those same verticals within each job category.

What This Means for Businesses

While reading the law, it’s fairly apparent how this can impact employees, but many employers are left wondering exactly what arenas this law will impact. The two largest areas impacted are recruiting and HR records. When recruiting, a new step will need to be implemented that highlights the salary range for a job and communicates it to any channel that will be posting or advertising that job.

In terms of data tracking, many employers in California do not currently have the data infrastructure to record and track all of the required information. Legacy systems may need to be updated, data likely needs to be cleaned, and a new leadership review process should be put into place. This is an area to watch because it could easily lead to legal violations if not implemented properly.

How to Support the Legal Framework within Your Organization

If you have loose ends to tie up when it comes to this law, the time to address those is NOW. Technically, it has been almost a month since it has been in effect, and businesses that are out of compliance could be reported by employees or potential applicants. Though it might seem like a massive undertaking to get the right infrastructure in place, it’ll take less time and resources than trying to deal with a violation of the law. Pay transparency is a hotly contested topic, but California has always been a national leader when it comes to worker’s rights, and this is no different.