United States: California expands pay transparency requirements

Employer Action Code: Act

Building on 2021 legislation that created pay reporting requirements aimed at reducing pay gaps based on sex, race and ethnicity, California has approved new legislation — the Pay Transparency Act — with additional disclosure, recording and reporting requirements, including disclosure of pay scales to employees and in job postings.

Key details

The act, effective January 1, 2023, provides for the following:

• All employees will have the right to request the pay scale for their position. Under the current California labor code, only external job applicants can, after completing the first interview, make a “reasonable” request for the salary scale of the position for which they are interviewing.
• Each employee’s pay history and position description will have to be recorded by his or her employer and stored until three years after the end of employment.
• Employers with 15 or more workers will be required to include pay scales in advertised job postings, both internal and external, whether hiring employees directly or through a third party.
• Existing reporting obligations to the California Civil Rights Department for employers with 100 or more workers will be expanded to include median and average hourly pay rates in the prior calendar year for each of 10 specified job categories, broken down by race, ethnicity and sex. Current law only requires reporting of the number of employees by race, ethnicity and sex within each job category’s pay scale. The reports must be submitted annually to the department. Companies employing 100 or more contractors will need to file a separate report for those employees.

Employer implications

In light of the size and influence of California’s economy, the act is bound to make a significant impression on policy makers and businesses across the US. The states of Colorado and Washington as well as New York City have recently enacted similar pay disclosure laws, but with an economy comparable in size to that of Germany, California’s new requirements will likely have a farther reach. Employers should prepare for the new pay disclosure, recording and reporting requirements imposed by the act.

Contacts

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Lindsay Wiggins

North America Pay Equity Co-Lead

email Email phone +1 213 337 5844

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Mariann Madden

North America Pay Equity Co-Lead

email Email

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