California’s SB1162 is now effective from 1 January 2023 as the new Pay Transparency and pay scale disclosure law. The law makes it mandatory for all companies with a headcount of at least 15 workers to list down precise data related to pay scale to job-related advertisements. The law will require businesses to submit annual pay data records, including contractual workers, to the California Civil Rights Department (CRD) beginning May 10, 2023. From next year onward, the data would have to be submitted annually on second Wednesday every May. For a very long time, a majority of the job ads that were posted across various hiring channels conspicuously left the pay range out of their ads. Moreover, employers offered compensation to new workers based on the worker’s previous salary history. This stops now. California joins other US jurisdictions and municipalities such as New York, Washington DC and Colorado that have enacted similar legislation requiring pay ranges be mentioned clearly in job postings.

But, California Pay Disclosure Law goes a step forward from the rest by adding new requirements such as gender pay gaps and race-based pay disparities that influence hiring decisions in the current talent acquisition markets.

Here are the five things you should know about California’s new Pay Scale Disclosure Law.

#1 Nope, you can’t ask salary history to a candidate anymore!

Discussing numbers at any stage of the hiring process is now a “no-no.”In California, the new law prohibits an employer from interviewing an applicant based on salary history or any other relatable data that can be used to select or reject the applicant. However, the law does not prohibit an employer from asking an applicant about the applicant’s salary expectation for the position being applied for.

Important timeline for every employer

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#2 Define your Salary or Hourly Wage Range

Job postings would now contain critical information related to pay scale range. The new law requires that every employer must list pay scale range in the job ads, whether it is posted on their website or in ads published by third-party recruitment companies or job boards.

#3 Fulfill the Request of Current Employees

Upon request, an employer shall be obliged to provide pay scale range for the position that the current employee is currently employed in.

#4 Three Years Pay Data for Every Employee

Employers are now required to maintain job-related pay data for every employee during employment. This data can’t be removed from the company’s internal compensation database until three years since the employment ceased. The State’s Labor Commissioner is authorized to review the records and verify the pay scale range.

#5 The 10 Job categories

The pay data should contain information related to each employee’s race, ethnicity, and sex. The employer has to segregate this data in each of the following job categories:

(A) Executive or senior level officials and managers.

(B) First or mid-level officials and managers.

(C) Professionals.

(D) Technicians.

(E) Sales workers.

(F) Administrative support workers.

(G) Craft workers.

(H) Operatives.

(I) Laborers and helpers.

(J) Service workers.

The data should also contain the media and mean hourly rate or salary paid to each employee for the respective combination of race, ethnicity and sex, in addition to the total number of hours worked by each employee during the reporting year. Employers have to mention their North American Industry Classification System (NAICS) code while reporting this data as per California’s new Pay Scale Disclosure Law.

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As per law, all employers, including the state and local government employers and the Legislature are required to keep pay scale records. If found wanting, there shall be a rebuttable presumption in favor of the employee’s claim or complaint against any violation.

According to the SB 1162 document accessed here, “This bill would permit a court to impose a civil penalty not to exceed one hundred dollars ($100) per employee upon any employer who fails to file the required report and not to exceed two hundred dollars ($200) per employee upon any employer for a subsequent failure to file the required report. The bill would require those penalties to be deposited in the Civil Rights Enforcement and Litigation Fund.”

In the past, the Civil Rights department had taken stringent actions against employers who failed to provide employee data pertaining to their pay and wages. Michaels Stores, Riot Games, and JPMorgan Chase Bank N.A. (retail bank subsidiary of JPMorgan Chase & Co.) faced actions last year on various counts, including for not filing a certified pay data report for reporting year 2020.

In a nutshell:

To ensure transparency in the pay scale offered to new applicants, HR managers have to find new ways. HR managers have to get savvier with market data and identify what’s the best pay scale range for their current employees and desired applicants. By doing so, organizations that meet the requirements of the new law would likely create a more balanced salary brackets for the employees. It is still unclear if the law would cover for perks offered as financial rewards, bonuses and incentives in cash or kind. We will speak with an HR compensation specialist and legal expert to arrive at a conclusion in our subsequent posts.