Pay transparency occurs when an employer provides information about compensation during the hiring process and throughout the employee’s length of employment. Laws requiring employers to comply with pay transparency standards are now gaining traction throughout the United States, with eight states and six local areas enacting legislation since 2020.
California is the most recent state to enact Senate Bill (SB) 1162 effective January 1, 2023. SB 1162 has two primary impacts: one relating to pay reporting obligations and one relating to pay notification obligations. Below, we will discuss the requirements of SB 1162 and provide information on why pay transparency laws are becoming more popular throughout the United States.
What is a pay scale?
A pay scale is defined as the salary or hourly wage range that an employer reasonably expects to pay for the position. Specifically for the State of California, The Labor Commissioner has clarified that pay scales do not include bonuses, commissions, tips, or other benefits. However, if the position’s hourly or salary wage is based on a piece rate or commission, then the piece rate or commission range the employer reasonably expects to pay for the position must be included in the job posting.
When disclosing pay scales, an employer must include the pay scale in the job posting itself. No links to the pay scale are permitted, nor are QR codes allowed as a substitute for placing the wage information in the actual posting.
What do pay transparency laws require?
SB 1162 requires employers not to rely on the salary history information of an applicant for employment as a factor in determining whether to offer employment to an applicant or what salary to offer an applicant.
Additionally, employers should follow the requirements listed below:
- An employer shall not, orally or in writing, personally or through an agent, seek salary history information, including compensation and benefits, about an applicant for employment.
- An employer, upon reasonable request, shall provide the pay scale for a position to an applicant applying for employment.
- An employer, upon request, shall provide an employee with the pay scale for the position in which the employee is currently employed.
- An employer with 15 or more employees shall include the pay scale for a position in any job posting.
- An employer shall maintain records of a job title and wage rate history for each employee for the duration of the employment, plus three years after the end of the employment in order for the Labor Commissioner to determine if there is still a pattern of wage discrepancy. These records shall be open to inspection by the Labor Commissioner.
- An employer with 15 or more employees that engages a third party to announce, post, publish, or otherwise make known a job posting shall provide the pay scale to the third party. The third party shall include the pay scale in the job posting.
In addition to the requirements above, California’s pay data reporting laws were amended by SB 1162. The purpose of the California pay data reporting law is to provide further salary transparency and to better ensure pay equity across race, ethnicity, sex, and other protected characteristics.
SB 1162 amendments regarding pay reporting include:
- Expanding the scope of employers who must report pay to include those employers who employ 100 or more employees hired through labor contractors;
- Requiring the pay data reports to include the mean and median hourly wage rates for each combination of race, ethnicity, and sex within each job category;
- Deleting the existing provision that allows employers with multiple establishments to submit a consolidated report for each establishment;
- Deleting the existing provision authorizing an employer to submit an EEO-1 report in lieu of a pay data report; and
- Providing civil penalties in the amount of US $100 per employee for an employer who fails to file the required report, or US $200 per employee for any subsequent failure to file the required report.
Remote Positions
The California Labor Commissioner has clarified that the pay scale must be included in the job posting if the position may ever be filled in California, either in-person or remotely. For multistate or fully remote employers, this may change their approach to compliance with California’s pay transparency law.
What are the potential benefits of pay transparency?
Pay transparency reduces pay inequities, which in turn could prevent wage discrimination by gender, sexual orientation, age, religion and more, according to February 2023 research published in the Harvard Business Review. The intent is simple: If you know the range an employer is willing to pay for a job, then you know how much you can expect to earn. That knowledge could help existing employees and new hires during salary negotiations.
According to survey data compiled by the Society for Human Resource Management (SHRM), 73% of U.S. workers are more likely to trust organizations that provide pay ranges, and about the same number are less interested in applying to jobs without pay ranges listed.
While many workers value these pay ranges, SHRM’s Chief of Staff and Head of Public Affairs advises prospective and current employees to use them as just one facet of measuring the worth of an employer. “There are all of these components that go into a compensation package, and people are shortchanging themselves by just looking at a number,” Dickens says.
Which states have pay transparency laws?
- California – Senate Bill 112, effective January 1, 2023
- Colorado – Equal Pay for Equal Work Act, effective January 1, 2021
- Connecticut – House Bill Number 6380, effective October 1, 2021
- Maryland – Equal Pay for Equal Work Law, effective October 1, 2020
- Nevada – Senate Bill 293, effective October 1, 2021
- Rhode Island – Pay Equity Act, effective January 1, 2023
- Washington – Equal Pay and Opportunity Act, effective January 1, 2023
- New York – Senate Bill S9427A, effective September 17, 2023
Which cities and counties have pay transparency laws?
- Cincinnati, Ohio – Cincinnati Ordinance No. 83, effective March 13, 2020
- Toledo, Ohio – Pay Equity Act, effective June 25, 2020
- Jersey City, New Jersey – Chapter 148 Jersey City Code Chapter 148, effective April 13, 2022
- Ithaca, New York – City of Ithaca Pay Transparency Law, effective September 1, 2022
- New York City – Salary Transparency Law, effective November 1, 2022
- Westchester County, New York – Westchester County Human Rights Law Section 700.3
Undoubtedly, SB 1162 has made considerable changes to existing laws that employers must be aware of and remain careful about in practice. For companies that conduct business in any of the states and/ or cities above, it is important to keep abreast of pay transparency laws to remain in compliance. It is said that pay transparency requirements will continue to be adopted in other areas in the near future to discourage pay inequities.
Gedye, Grace. “Here’s What You Need to Know about California’s New Pay Transparency Law.” CalMatters, 21 Dec. 2022, calmatters.org/economy/2022/12/california-pay-transparency-law/.
“New SHRM Research Shows Pay Transparency Makes Organizations More Competitive, Leads to Increase in Qualified Applicants.” SHRM, 14 Mar. 2023, www.shrm.org/about-shrm/press-room/press-releases/pages/new-shrm-research-shows-pay-transparency-makes-organizations-more-competitive-leads-to-increase-in-qualified-applicants-.aspx#:~:text=74%25%20of%20U.S.%20workers%20say,than%20ones%20that%20do%20not.
“SB-1162 Employment: Salaries and Wages.(2021-2022).” Bill Text – SB-1162 Employment: Salaries and Wages., leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=202120220SB1162. Accessed 19 June 2023.
