Can We Talk About Money?

Over the last several years, California and other jurisdictions have passed various laws aimed at increasing pay transparency in the workplace. These laws are primarily intended to reduce pay disparities among demographic groups by giving employees greater access to pay data and empowering them to negotiate fair compensation, but may present challenges in ensuring compliance across jurisdictions and result in escalations from employees. Below is a guide to California’s pay transparency requirements, a look at what might be coming next, and suggested steps for California employers to remain in compliance and mitigate risk.

Salary Disclosures in Job Postings

California Labor Code Sec. 432.3 requires employers to disclose the applicable pay scale on the job posting for any position that might be filled in California (including remote roles). “Pay scale” is defined as the salary or hourly wage range that the employer reasonably expects to pay for the position. This information must be included in the job posting itself, not in a separate link or QR code. Currently, California law does not require employers to include bonuses, benefits, or perks such as paid time off in the job posting – though some jurisdictions outside of California do require this information. The Labor Commissioner is authorized to assess penalties ranging from $100 to $10,000 against an employer that fails to comply with the salary disclosure requirement.

Employers have taken varying approaches (or a combination of approaches) in response to this requirement: (1) listing a narrow range of compensation for each position; (2) providing a pay range plus details about the company’s compensation philosophy and factors used to establish an employee’s base pay within that range; (3) for roles that could be filled in multiple locations, listing different pay ranges for each geographical area; or (4) including an extremely broad range of compensation. While this last approach has not been expressly prohibited, it may be subject to challenge as not reflecting what the employer “reasonably” expects to pay.

Providing Pay Scale to Current Employees

Labor Code Sec. 432.3 also requires employers to provide current employees with the pay scale for their position upon request. As with the salary posting requirement, “pay scale” is defined as the salary or hourly wage range that the employer reasonably expects to pay. Although employers are not required to disclose the pay scale for other positions (such as an employee’s manager or peers), employees may be able to discern that information from the public job postings. The Labor Commissioner is authorized to assess penalties ranging from $100 to $10,000 against an employer who fails to comply with the pay scale disclosure requirement.

In light of this requirement, employers should be prepared for employees to request the pay scale for their position and then express concerns about where their compensation falls within the scale. Similarly, since existing law protects employees’ ability to discuss their compensation with colleagues, employers should also be prepared for employees to raise pay equity concerns based on information about how much their peers are earning. To prepare for these situations, employers should regularly review their pay scales and pay data to ensure that any identified disparities are justifiable based on performance, education, experience, or other legally permissible criteria. Similarly, managers and Human Resources personnel should be trained regarding best practices for responding to such inquiries and escalations.

Salary History Ban

For several years, California law has prohibited employers from asking applicants about their current salary or salary history (including compensation and benefits). While applicants may, voluntarily and without prompting, disclose their salary history information, employers may not consider or rely upon that information in determining an applicant’s salary. Employers are, however, permitted to ask applicants about their salary expectations.

Pay Data Reporting

Employers with at least 100 employees or labor contractors are required to report pay data to the California Civil Rights Department annually. The report must include the race, ethnicity, and sex of employees in 10 job categories; the race, ethnicity, and sex of employees in various pay bands; and, within each category, the median and mean hourly rate for each combination of race, ethnicity, and sex. The pay data reports should be based on a “snapshot” of W-2 earnings during a single pay period from October to December of the previous calendar year, with separate reports prepared for each establishment. Employers are permitted (but not required) to provide clarifying remarks with their submission. The submission must be provided in searchable and sortable format. While these employer reports are not currently publicly available through the Public Records Act, California legislators are considering changing this. There are civil penalties for employers who fail to provide these reports: $100 per employee per initial failure, and $200 per employee for subsequent failures.

Looking Ahead – What’s Next?

National employers or those with a remote workforce may find challenges complying with applicable laws in every jurisdiction in which they operate or recruit. While California is often ahead of other states in adopting progressive employment policies, a few other jurisdictions have adopted pay transparency requirements that may soon arrive in California. For example, some states (such as Colorado and Illinois) now require employers to disclose information about “career progression” or promotion requirements and opportunities. Other jurisdictions (such as New York) require employers to provide detailed job descriptions in their postings. Some states (such as Colorado, Illinois, Maryland, and Washington) require employers to disclose details about bonuses, equity, or other forms of compensation in their job postings. Lastly, while California’s Legislature is considering whether to make pay data reports publicly available through the Public Records Act, Illinois has already taken this step.

Best Practices for California Employers

To ensure compliance with pay transparency requirements and mitigate risk, California employers might consider the following best practices:

1. Develop pay scales for all positions and regularly audit those pay scales for equity issues or disparities;
2. Consult with employment counsel (and take careful steps to preserve attorney-client privilege to the extent possible) in connection with pay equity audits and regarding any decisions to adjust employees’ compensation based on those audits;
3. Review job postings and ensure compliance with pay disclosure requirements; and
4. Train Human Resources, management, and other personnel involved in hiring regarding compensation, interviewing, and hiring policies and best practices.