The New Pay Transparency Laws

California’s lawmakers have embraced the so-called “era of transparency.” The state’s recently enacted pay transparency law, which went into effect on Jan. 1, 2023, requires pay scale disclosures and enhanced pay data reporting—plus a decent amount of additional employer leg work. 

“The overall intent is to allow for the adjustment of inequities in the workplace—both intentional and stereotypical,” says Richard Rybicki, an employment and labor attorney at Rybicki & Associates in Napa. “The state hopes this regulation will facilitate enforcement of its newly aggressive equal pay laws.”

Pay Scale Disclosure Requirements 

Any California employer with 15 or more employees “must now disclose pay scale information on job postings and in response to inquiries by current employees,” says Baldwin Lee, employment and labor law attorney at Allen Matkins’ San Francisco office. This is true for California’s in-person as well as remote workforce. 

“If there is any possibility a position will be filled remotely or physically in California, the labor commissioner’s position is that the disclosure requirement applies,” says Rybicki. Even companies with 14 out-of-state workers and one California worker are on the hook, and all of a company’s facilities count for this determination. The requirement also applies to postings by third-party employers. 

Crucially, “California employers must provide the salary or hourly wage range the employer reasonably expects to pay for the position,” says Lee. “Piece rate and commission information must also be disclosed.” 

The requirements are very strict, he adds. “Simply providing a link to a pay scale or a QR code” does not equal compliance. The wage/salary scale must be explicit. Notably, however, the new law does not require the disclosure of benefits information.

While employees have always been allowed to discuss their wages, Rybicki says he has seen employers attempt to prevent workplace pay scale talk. Sometimes employers simply do not know what employees legally can and cannot discuss. This new regulation should make it more clear to employers.

Pay Data Reporting

California employers are generally familiar with the concept of pay data reporting. “In prior years, employers with 100-plus employees were only required to submit pay data reports to the state if they filed a federal EE0-1 report,” says Lee. Now, all employers with 100 or more employees must provide this information, and the new reporting requirements can be quite detailed. 

“The new law requires employers record race, ethnicity and gender information on all employees, broken down into 10 different job categories,” says Rybicki, “and [they] must include mean and medium pay rates for each possible job category permutation.” 

This data must be kept for the length of an employee’s employment, plus three more years. 

“These same reporting rules apply to companies who provide contract employees, like temp agencies,” says Lee. 

There has been a “remarkable increase in the time employers need to retain information,” Rybicki adds.

Proceed With Caution

The penalty for noncompliance with these pay scale disclosure requirements can be a hefty $10,000 fine, per violation. 

“That’s a big stick,” Rybicki says. “Employers should review their workforce and create detailed position descriptions” to avoid any pay equity or pay equality challenges. He advises employers to take a hard look at pay distinctions and determine if those differences are justifiable.

“One small bright side to the new pay data reporting requirements is the law pushed back the deadline for the submission of annual pay data reports,” Lee says. While these reports used to be due by March 31, they will now be due the second Wednesday in May. Lee hopes this extension will help companies adjust to the new requirements.

Both Lee and Rybicki advise employers—particularly small ones—to seek outside advice to ensure compliance. While larger companies may have an in-house HR department or legal counsel, Lee says, “smaller employers may want to consult with their attorney or a human resource professional. They should also monitor for continued guidance presented by the California Labor Commissioner.” 

Unintended Effects

Lee foresees potential unintended consequences of the new pay scale disclosure requirements. Armed with more pay-related data, employees will question their spot on the pay scale. Employers must be ready to tell employee A why employee B makes so much more money, including if there are factors such as differences in location.

California isn’t the first state to enact pay transparency laws, and it probably won’t be the last.