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“Show Me The Money”: California's Pay Transparency Law

“Show Me The Money”: California's Pay Transparency Law

You probably would only buy a car or even a pair of trousers if you knew how much they cost. In the same way, many Americans will only look for work if they know how much it pays.

Pay transparency laws are gaining traction across the United States. Thanks to value-driven Generation Z, US states are opening up the conversation and putting laws around pay transparency. It began in Colorado, Connecticut, Maryland, Nevada, Rhode Island, Washington, New York City, Cincinnati, and Toledo; now California has joined the list of states requiring employers to reveal wage information to job applicants and, in some cases, current employees.

California Governor Gavin Newsom signed Senate Bill 1162  (SB 1162), California’s pay transparency law, on September 27, 2022, after intense floor hearings and 5 major amendments in the state assembly and senate. The law,  set to take effect on January 1, 2023, will require significant changes in how employers draft job postings and report pay data to the state. Moreover, beginning May 10, 2023, larger employers will also face expanded California-specific pay data reporting requirements to the California Civil Rights Department.

What does the new pay transparency law entail for employers in California? But before we dive further, here's a quick rundown of the ins and outs of the said law.

What does the California Pay Transparency Law do?

It’s no surprise that California is among the many states pushing for pay transparency. Companies in California were already required to provide pay scale information to job candidates upon request under California’s Equal Pay Act. The new pay transparency law imposes new pay scale disclosure requirements on covered companies. 

Beginning January 1, 2023, companies with 15 or more employees will be required to do so for all internal and external postings. The rule applies to around 200,000 businesses that employ approximately 19 million people, or the bulk of California's labor force.

Companies with 100 or more employees will also be required to provide detailed salary statistics to California's Fair Employment and Housing Commission annually. Pay data reports must be updated beginning May 10, 2023. Failure to comply could result in a penalty of $100 per employee.

What does the new pay transparency law mean for organizations?

The ink on California's new pay transparency law is barely dry, but organizations are already trying to figure out the implications. Although it remains to be seen how the new law will play out in practice, we've summarized two essential points about what it may mean for organizations. 

An opportunity to close pay gaps 

According to the 2022 Compensation and Culture Report from Beqom, around one-third (29%) of employees feel that their employer does not pay workers fairly, and 22% think pay gaps have increased over the past year. 

Supporters of the new law claim it will help close the gender and nationality wage gap. According to Jennifer Cormier, a partner at Ropes & Gray, a firm with expertise in employment law, employers should view this as “an opportunity to identify and correct potential disparities they had not previously focused on.” Pay transparency may give workers the information and proof they need to negotiate pay rates and challenge suspected pay discrimination. However, it will also assist companies in uncovering and remedying pay discrimination, which could otherwise harm the enterprise's operation and image.

An additional step for HR professionals

With visible wage ranges becoming standard practice, HR professionals must work harder to ensure that job descriptions highlight all bonuses, benefits, and a great corporate culture that sets them apart in the hiring market. To guarantee that job postings represent appropriate pay scales, HR managers must develop consistent processes.

 According to Zaller Law Group, in an article published by SHRM, "It will be critical for HR professionals to have a compliance mechanism in place to examine and approve all job advertisements to guarantee they are legally compliant. It will also be necessary to keep records of the advertisements published and these documents for the period specified in the law.”

 The above implies that the pay transparency law intends to assist companies in detecting and avoiding biased pay behaviors. HR experts must document each employee's salary history for the duration of their job and three years after employment ends. 

Pay transparency laws may soon come to a city near you

Pay transparency has sprung into the compensation landscape, showing no signs of slowing down. California may have taken the first step, and we expect other states not on the list to follow.  

 As an organization, you should evaluate salary data, job advertising, job descriptions, reporting requirements, and associated policies and procedures to prepare for the new pay transparency and disclosure standards. Employers should also consider educating management and human resources staff on how to comply with the new regulations and undertaking a pay equality audit to detect and correct any current pay inequities.

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