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California Clarifies (Some, but Not All) Uncertainties Around New Payscale Transparency and Data Reporting Requirements

As we posted about previously, in September 2022, California passed significant expansions of its pay transparency and pay data reporting laws, but many key questions about the law’s scope and application remained unclear.

Payscale Posting Clarifications

On the pay scale reporting front, the California Labor Commissioner recently issued Frequently Asked Questions (“FAQs”) addressing employer questions about who is covered, information required to be disclosed, and coverage of postings for remote work. The FAQs clarify which employers will be subject to the pay disclosure requirements and the content of those disclosures.

The law covers employers with 15 or more employees, who must include the pay scale for a position in any job posting. The FAQs explain how the Commissioner counts employees using the same methodology applied for Supplemental Paid Sick Leave, meaning the payscale disclosure requirement applies if an employer has at least one employee located in California, as long as it employs 15 or more people anywhere, “directly or indirectly, or through an agent or any other person.” If a position with a covered employer can be performed in California, either remotely or in person, then the pay scale must be included in job postings.

The FAQs explain that a pay scale is the “salary or hourly wage range the employer reasonably expects to pay” for the position. A set hourly rate or set piece rate may be disclosed in place of a pay scale if the employer “intends to pay a set hourly amount or a set piece rate amount, and not a pay range.” Bonuses, tips, and other benefits need not be included in the pay scale. Employers may voluntarily provide information on “compensation or tangible benefits provided in addition to a salary or hourly wage.” And the Labor Commissioner reminds employers that “other forms of compensation may be considered for equal pay purposes,” even though not required for disclosure.

Employers are not permitted to link to the salary range in an electronic posting or include a QR code in a paper post. The pay scale must be printed on the posting itself.

With the new pay scale disclosure requirements come new recordkeeping requirements. Employers must keep a record of the job title and wage rate history for each employee for the duration of the employment, plus three years after its end. These records are to be available for inspection by the Labor Commissioner, for consideration of whether there is a pattern of wage discrepancies.

Pay Data Reporting Clarifications

California’s Civil Rights Department (CRD) has also released FAQs, these regarding the recently amended California Pay Data Reporting law. The FAQs add new definitions, clarify pay data reporting requirements to the CRD, and address questions regarding the scope and elements of new Labor Contractor pay data reporting requirements.

The amendments, as interpreted by the FAQs, require employers to submit, in addition to their employee pay report (now called a “Payroll Employee Report”), a second pay data report covering “Labor Contractor Employees” hired through “Labor Contractors.” The FAQs provide information and clarify definitions regarding the requirements for these separate reports. Some of these definitions arguably expand beyond the plain meaning of the amended law. But questions around whether the definitions overreach the scope of CRD’s interpretive authority should not delay employers from starting to prepare their responses, and in particular, should start collecting data from their Labor Contractors. Under the amended law, the annual filing deadline is the second Wednesday in May, meaning the first reporting deadline is May 10, 2023.

Key terms clarified in the FAQs include:

  • Client Employer (new definition in FAQs) – A private individual, entity, or other person as defined by Government Code section 12925, that has workers hired through labor contractors.
  • Employee – An individual on an employer’s payroll, including part-time, for whom the employer is required to withhold federal social security taxes from wages.
  • Employer (the FAQs seem to modify the definition found in Gov. Code § 12926) – A private individual, entity, or other person as defined by Gov. C. 12925 that is obligated to file a Payroll Employee Report and/or a Labor Contractor Employee Report.
  • Labor Contractor Individual or entity that supplies, either with or without a contract, a client employer with workers to perform labor within the client employer’s usual course of business (the term “usual course of business” remains undefined).
  • Labor Contractor Employee (new definition in FAQs) – An individual on a labor contractor’s payroll, including part-time, for whom the labor contractor is required to withhold federal social security taxes from wages, and who performs labor for a Client Employer within the Client Employer’s usual course of business.
  • Labor Contractor Employee Report (new definition in FAQs) – The type of pay data report by which a Client Employer annually reports data on their Labor Contractor Employees to CRD.

If a Client Employer has the requisite number of Labor Contractor Employees (i.e., if it has 100 or more total Labor Contractor Employees hired across all its labor contractors), it must file a Labor Contractor Employee report. The FAQs clarify that, to the extent a Client Employer worked with multiple Labor Contractor providers, data for all Labor Contractor Employees must be combined and submitted as a single Labor Contractor Report. In other words, Client Employers will only submit one Labor Contractor Report that includes information aggregated from all labor contractors. The CRD suggests Client Employers and their Labor Contractors work together to determine the snapshot period that will be used for Labor Contractor reporting.

For reporting race/ethnicity and gender information in Payroll Employee Reports, the CRD prefers collection of information through employee self-identification. If an employee declines to self-identify, employers must still report race and ethnicity information based on (1) review of current employment records, (2) other reliable records or information, or (3) observer perception.

For Labor Contractor Employee reports, CRD will permit employers to report unknown race, ethnicity, and gender for those employees if they are unable to reasonably obtain that information from the Labor Contractor or otherwise before the May 10, 2022 filing deadline. But this relief is for the 2022 reporting year only.

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