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California’s New Pay Transparency Law

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  • California’s new pay transparency law requires employers with 15 or more employees to post a pay scale for open positions in their job postings.
  • Employers (of all sizes) are required to provide current employees with information about their salary ranges upon request.
  • Employers must keep track of each employee’s job title and wage rate history during employment and for three years after termination.
  • Employers have less than two months to comply with the new Pay Transparency Act and prepare for employee inquiries.

Compensation laws are changing. In California, payroll transparency laws apply directly to employers. As usual, California will be her second state (Colorado is her first) and will require employers to list a range of open positions in their job advertisements (Washington also states that he has one Posting of salary ranges is compulsory from the 1st of the month). California also requires current employees to provide their own salary ranges if employers ask. The Pay Transparency Act is likely to spur debate about wages in the workplace, which could result in a greater focus on the issue of pay equity.

We’ve compiled this information to help you stay on top of the latest legislative changes to help small businesses in California.

What will change and who will be affected?

Beginning January 1, 2023, California employers will be subject to several new requirements to promote pay equity. These initiatives aim to improve equality and promote transparency. Upcoming changes include:

  • Employers in California (anywhere in the country) with 15 or more employees must post pay scales for open positions in their job listings, even if posted on their behalf by a third party. A pay scale is a range of salaries or hourly wages that an employer expects to pay for the position.
  • Upon request, employers of all sizes are required to provide their employees with a pay scale for their current position.
  • Employers of all sizes are required to keep track of each employee’s job title and wage rate history during employment and for three years after termination.
  • Employers with 100 or more employees are required to report payroll data, regardless of whether they are required to file a Federal EEO-1 report.
  • Employers who hired 100 or more employees through labor contractors in the previous calendar year must submit a separate Payroll Data Report for those workers.
  • Salary data reports must include median and average hourly wages for each combination of race, ethnicity, and gender for each job category.
  • Employers with multiple locations must submit a separate Payroll Data Report for each.

Reasons for the Transparency of Wages Act

The new requirements are intended to promote pay equity and help close pay gaps for the disadvantaged in the job market through no fault of their own. While this approach may seem drastic to private employers, it has been used successfully in the public sector for many years.

In fact, after a first rough patch (which employers lacking documentation on pay scales can require considerable work), these pay transparency requirements will lead to hiring, compensation, and talent Your development process can be streamlined and your business can run more efficiently.

What Employers Can Expect

Employers should expect employees to start asking about salary ranges and respond to the salary ranges employers offer in job advertisements. If the range advertised or offered to a current employee when asked appears too broad, the employee may think they are getting false information from management. This creates distrust and can lead to employees reporting the company for violating the law.

If the range is reasonable, but current employees are outside of it, it can lead to immediate feedback that employers should be ready to receive.

As employees begin to discuss this new information with colleagues, employers should remember that wage discussions are protected by federal and California laws; don’t attempt to stop or prevent these conversations or punish the employee who conducts them. This information sharing may lead employees to discover temporary or systemic pay gaps, in which employers may have problems with morale, turnover, union organizing, or litigation.

Even if employers’ salary choices are perfectly logical across the board, employees do not necessarily know or understand why they are paid less than their peers whom they consider equal. There is no limit. Employers are not required to explain salary ranges or wage rates, but only the figures required by law, but being able to provide a coherent description of the company’s salary structure can help improve employee morale. And it helps a lot in maintaining trust.

What Employers Should Do Now

If you’re an employer and haven’t documented your salary range yet, start doing so. It takes two months to put the system in order. If you don’t already have a basic, legitimate salary structure and a fairly comprehensive job description, you might want to consider taking outside help.

If you prepare this yourself, here are some tips:

  • Salary ranges should be tailored to specific job descriptions.
  • If you have an employee whose job title or job description does not match their current job, update their job title or job description.
  • It should explain how employees move from the bottom of the salary range to the top.
  • You should also be able to explain how employees move from one salary range to another, and why if the ranges overlap.
  • Be prepared to explain why employees with the same title or job description receive different compensation, using only the pay differential reasons that are acceptable in California (this list does not include seniority, merit, etc.). factors, but not market factors). We recommend that you consider conducting a pay equity audit to be able to successfully answer this question.
  • If you are aware of pay equity issues or become aware of them in the coming months, start fixing them as soon as possible. We recommend that you consult with a California employment attorney to consider ways to limit your liability.

Many of the above suggestions may seem obvious, but if your system isn’t written down anywhere (and shared with people who ask questions), questions about your pay structure can be a cohesive one. You may have trouble answering in a consistent way. And having multiple managers answer these tough questions differently will only add to the potential drama and liability.

In addition, clearly documenting the justification for each employee’s wage rate will help you if you become involved in a pay equity lawsuit. That’s why we recommend using the rest of the year to document your pay structure, plan your response, and prepare for the new challenges of 2023.

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