What You Need to Know About California’s New Pay Transparency Law

California has a new pay transparency law that requires employers to post the salary or hourly pay range for the role in job ads. It goes into effect Jan. 1, 2023.

California joins Colorado (in effect), New York City (effective Nov. 1) and Washington (effective Jan. 1) in requiring the pay range to be included in job postings.

The law also requires more detailed pay disclosures to the California Civil Rights Department (CRD), which means employers will need detailed data on pay and employee demographics by role.

Why Pay Transparency Law?

Pay transparency laws are designed to promote pay equity and to remedy past wage gaps. This is the idea behind laws that prohibit asking a candidate about their past salary. It helps prevent a new employer from basing an offer on the candidate's prior salary, especially if it was lower than market.

This law takes it several steps further. It requires employers to define salary ranges in advance of posting the position to eliminate considerations about who is in the role. It also requires employers to look at their employee demographics by general position in the company and compensation. This allows both the company and state agencies to assess the data for potential pay equity problems.

What's is it and do I have to deal with it?

The law requires employers with 15 or more employees to include the pay scale (hourly or salary range) for the role in all job postings. If the employer uses a third-party job board to post the position, the employer has to provide the pay range to the job board. And then, the job board has to make sure the posting has the pay range. In other words, pretty much everyone involved in posting jobs will need to make sure the pay range is there.

The law definitely applies to employers who have locations in California. But it also may apply more broadly.

Which state's wage and hour laws apply depends on where the employee works. It does not matter where the employer's offices are or where the company is headquartered, if an employee sits in California, then California wage and hour laws apply to that employee. State wage and hour laws apply to wherever the employee is located. This is because each state can govern the people who live there, and employment laws are designed to protect employees. (That also means the noncompete agreement you had them sign is invalid under California law.)

The confusing part is that this law applies to people you haven't hired. You haven't even met them yet. Someone in California could see your job posting and apply as easily as someone in Wyoming. The likelihood a California (or Colorado, or Washington, or NYC) resident applying for your job depends on whether it's remote or onsite and probably a thousand other subjective factors that are difficult to predict.

So, if you are posting a job that will be physically located in California, is remote, or you have California employees, you should include the pay range. If you are a large employer with multiple locations, it's a good idea to include the pay in all your job postings since three states and one major city already require it and there will be more.

The requirement for disclosing pay data to the state applies to employers with 100 or more employees. Again, it's not clear whether the 100-plus employees means 100 employees who work in California or just 100-plus employees anywhere. But since all employers with 100-plus employees have to file an EEO-1 form anyway, it makes sense to file in California too if you have any employees who work in California.

Last, you used to be able to meet the California pay disclosure requirements by providing the state with your EEO-1. That's not going to be enough anymore. The new law requests additional information about workers hired through labor contractors (e.g., staffing agencies). You also have to provide more detailed information on people (race, ethnicity, and gender) work (number of employees and demographics by job category,) and pay (W-2 earnings by pay band and show hours worked).

What if I don't?

If you fail to file the annual reports on your workforce, a judge can order the organization to pay penalties of $100 per employee. It's $200 per employee for any subsequent failure to file. It adds up fast.

If you don't include salary ranges in your job postings, the labor commissioner can order the organization to pay a penalty of between $100 and $10,000 depending on the circumstances. Here, "circumstances" generally means whether it's the first time you did it, the first time you got caught, and whether you knew and meant to ignore the law.

How should I get ready?

To prepare for including salary ranges in job postings, you will need to have a realistic salary range for all the roles in your organization. It's even better if it makes sense based on the skills, responsibilities, effort, and working conditions for the job.

The only way to really figure out whether your salary ranges make sense is to do a pay equity audit. Wait. Before you run away, the good news is that you need much of the same data to analyze pay equity as you will need for the wage and demographic reporting. There's really no avoiding it. And you already have most of the information in your payroll and employee records systems. Bigger organizations will also have job levels and may have determined with comparable job groupings. It may not be as hard as you think.

The other good news is that once you have collected the data you need, there are tools that can make pay equity audits, reporting, and compliance easy.

It's also important to remember that pay transparency and pay equity are about more than compliance. When you can see and understand pay gaps, you can assess and address them. Then you are attracting and retaining great people.

Isn't that what you really want anyway?