Decoding California’s New Pay Data Reporting Law
The pay data reporting requirement was first enacted in 2016 as a part of the California Equal Pay Act. Effective January 1, 2016, the legislation added Section 226.8 to the Labor Code and made it unlawful for employers to publish any advertisement indicating that any job was not subject to pay equity laws. In 2018, numerous amendments expanded this pay equity law. The legislature observed that "significant gender and race-based wage disparities exist in California despite longstanding statutes prohibiting discrimination in compensation based on those characteristics." In 2019, the California legislature further concluded that "Equal Pay Act and employment law have not sufficiently narrowed the difference in wages and salaries based on sex, race, or ethnicity significantly enough." The result was AB 1209, a new section of the Labor Code that specifically deals with employer pay data reporting requirements.
This Section imposes a new reporting requirement on California employers with 100 or more employees, who are also subject to federal laws requiring the submission of equal pay reports. All private employers in California with 100 or more employees are required to submit pay data reports to the California Civil Rights Department.
The purpose of the Pay Data Reporting Law is to advance wage transparency by requiring employers to annually submit pay data reports to the California Civil Rights Department.
Most notably, the Pay Data Reporting Law has expanded the requirements under the already existing Equal Pay Act. Now, employers will have to go further than simply reporting bi-annual reporting of compensation in compliance with the Fair Employment and Housing Act . Employers must now collect and submit "employee-level wage and hours worked data" to the CRD.
The CRD’s new requirement demands that employers identify each employee within each job category using the definitions under the federal EEO-1 standard; and for each employee in each job category, the employer must report (1) the total number of hours worked by the employee in the reporting year (2) the totals of each employee’s W-2 earnings during the reporting year; (3) number of employees in each job category (4) race/ethnicity and sex of each employee in each job category. The CRD has the discretion to select any "workforce snapshot period" over the reporting year in which the employer must compute the total "hours worked" by employees.
Importantly, the Pay Data Reporting Law expanded the protected categories beyond simply "protected categories" under the federal EEO classifications. The new classifications include: (1) Asians (2) Black or African Americans (3) Hispanics or Latinos (4) Native American or Alaskan Natives (5) Native Hawaiian or other Pacific Islanders (6) Whites (7) Individuals with disabilities (8) Non-Binary (9) Gender non-conforming (10) Sex not reported (11) Undisclosed. The legislators were quick to notify the CRD that should they determine there was a "comparable work situation, or work of equal value, based on the skills, effort, responsibilities, working conditions, geographic location, or similar criteria" and impose on employers certain presumptions regarding "the extend of any opposite, employee required to prove equal pay for equal work."
Who Falls Under the Purview of Pay Data Reporting Mandates?
California law requires multiple pay data reporting requirements based on "employers." The new pay data requirements are applicable only to California private employers that have 100 or more employees. Importantly, for private multi-establishment employers, all employees are counted together as one employer for purposes of determining whether the 100-employee threshold is met. For example, if a private multi-establishment employer employs 80 employees at 5 locations in California (and none outside of California) and 21 outside of California, the employer must report California employee data, but not their non-California employees. Similarly, a company employing 50 employees combined in California and Oregon would not be considered large enough based on California employees alone and would not need to report. Importantly, revenues or other national employment statistics have no bearing on determining which of the extensive new rules apply to an employer. There is no "small employer" exception to 200,000 employee cap established under the federal (EEO-1) statute. However, the California FEHC has taken a different tack. Except for certain construction industry employers, both general and construction contractors of federal government are excluded from the 100-employee reporting requirement, but if its subsidiary business in California employs 100 or more than 100 employees anywhere in the country, the 100-employee requirement still is triggered, as it is "anywhere in the country" that is now to be used, not "in California" (not state wide) as in prior years.
Crucial Pay Data Reporting Obligations
Employers covered by California’s pay data reporting requirements must compile a report for each of their "establishments" by March 31, 2022. The report is due to the Department of Fair Employment and Housing (DFEH) by March 31 of each year. It has been required that employers generate and file each year since 2019. However, last year California lawmakers passed a bill requiring DFEH to solicit comments from the public before releasing the required pay data reporting template, which delayed DFEH’s statutory requirement to collect pay data beyond the mandated due date in the law. Although DFEH was required to obtain some degree of public input, it did not alter the scope or content of the pay data submission. Therefore, employers will still need to file the same information detailed below.
California employers with more than 100 employees are required to provide a variety of information in the following categories:
Establishment: The principal place of business and a list of all of the establishments that are included in the Employer Information Report E-1 (EEO-1 Component 1). An establishment is defined by statute as a "single geographical location where business is conducted or where services or industrial operations are performed."
Job Category: Employers must breakdown employees into 10 specific job categories. Employers are not to enter employees by a "laborer" category, but instead must place them in a detailed category that includes: "Officials & Managers," "Professionals," "Technicians," "Sales Workers," "Administrative Support Workers," "Craft Workers," "Operatives," "Laborers and Helpers," "Service Workers," or "Others."
Wage Band: Employers must break down employees into pay bands based on the median hourly rate by the distribution of their current annual wages. The bands are separated by salary ranges beginning at $19 per hour and going up to $90 per hour, in $10 per hour increments.
The pay data also must identify the number of employees by race, gender, and ethnicity. For purposes of the report, what constitutes an "establishment," the required job categories, the bands and the categorization of race and ethnicity are explained in detail below.
All employers must report employees regardless of sex or gender. If an employee does not wish to report a category, the employer will count the employee in the "2 or More Races" gender/ethnicity category.
If the employer is not the actual reporting entity, the reporting entity must still provide the employer’s name and address as part of the annual survey. Only one submission per year is required for an "establishment."
California currently releases aggregate data to the public from the EE0-1 Component 1 data. Namely, DFEH has stated that it will release information regarding the number of employees by job category and pay band group only. It will not release the information related to the self-identified race, ethnicity, or gender of employees by job category and wage band group. The release of the data sets will be strictly aggregated and general such that it is anticipated that no entity with fewer than 100 employees would be disclosed through the released information.
How to File Pay Data Reports in California
California employers must submit two reports including pay data on or before March 31, 2021:
(1) Pay data pursuant to Government Code section 12999 for the reporting years of 2018 and 2019; and
(2) Annual pay data report for calendar year 2020 pursuant to SB 973.
The California Department of Fair Employment and Housing (DFEH) is in the process of obtaining a digital platform to collect the pay data that employers are required to submit. According to DFEH, pay data information will need to be provided in various formats including: .xlsx (Excel spreadsheet); .csv (comma separated values) or .txt (notepad). Information to include in the pay data report includes: (1) gender; (2) race / ethnicity (self-identified); (3) job category; (4) leave type; (5) hours worked on a payroll with the beginning and ending dates to be all inclusive (e.g., Jan 1, 2019, through December 31, 2019); and (6) total paid annual earnings in U.S. dollars (i.e., reportable compensation). For the 2018-2019 pay data report, employers must also identify how they calculated the number of employees for that specific sociodemographic group pursuant to the EEO-1 Specifications. For national employers, the reporting will be state-specific as it may relate to facilities within California (i.e. no need to include (or exclude) employees located outside the State of California but may be required to report if total number of employees in California are 100 or more for each reporting year).
DFEH anticipates the "State of California’s pay data reporting will become available after the end of the mandatory EEO-1 Component 1 filing date for 2019 in mid-December 2020."
Frequent Compliance Difficulties
Many of these requirements seem clear-cut and straightforward on their face. However, there are a number of potential challenges in trying to comply. In particular, employers face the following issues in attempting to gather and assess their pay data:
Pay Transparency
Pay transparency laws are popping up in more and more jurisdictions, with many requiring employers to provide pay ranges upon request (California law is not currently a part of this trend) . Employers who have already had to comply with pay transparency laws in other states may be familiar with the difficulties of creating job categories and classes, deciding how to interpret and apply pay range laws, and so forth.
Therefore, rather than look to other jurisdictions that have enacted or enforced pay transparency laws as a threshold for what is required under California’s law, we recommend that employers examine their own company practices and data when focusing on the pay data reporting requirements. Consider the following:
Non-Compliance Consequences
Non-compliance with the pay data reporting requirements can have implications for employers. First, employers must understand that there are two pay data reports: the EEO-1 Component 1 report and the California Component 2 report. Additionally, since there are two forms of compliance with the pay data reporting requirements, there are two types of liabilities employers must consider.
The first liability focuses on compliance with the federal EEO-1 Component 1 reporting requirements. Employers who have not updated their EEO-1 Component 1 reports to reflect their New Year’s Day 2018 employee data and filed them with the EEOC by September 30, 2019, are not in compliance with the pay data reporting requirement for federal law. This failure to file is subject to both fines by the EEOC and private civil lawsuits.
The second liability focuses on compliance with the California Component 2 pay data reporting requirements. Employment violations such as retaliation, a Division of Labor Standards Enforcement audit in connection with a wage claim arising under state law or lawsuit brought by the Attorney General or other county district attorneys with jurisdiction to enforce equal pay laws may bring an employer’s non-filing of the California Component 2 pay data report to the attention of the DLSE and could subject the employer to penalties for non-filing.
Best Practices for Seamless Reporting
Employers should take advantage of this opportunity to streamline the gathering of this information by using the data already collected and held internally for other reporting and compliance obligations. For example, Employers with 100 or more employees must already submit EEO-1 filings. For Employers with more than 50 employees, the first EEO-1 filing for W2 filers was due October 30, 2017. This year, the federal EEO-1 filing requirements have expanded to include all employers with more than 100 employees and requires Employers to report both hours worked for the previous full calendar year and annual W2 earnings . Although the EEO-1 requirements are not directly aligned with the California Pay Data Reporting requirements, there is significant overlap. Employers should leverage the data already collected and held for EEO-1 reporting to complete California pay data reporting obligations.
Employers should also leverage existing reporting requirements through the use of software and tools. While it does take time to implement software, the long-term payoff is that many of the pay data reporting obligations will be handled going forward without additional effort. In addition, Employers can designate a specific individual to tie together, examine and report the data. Employing a strategic approach to the collection of pay data will minimize burden on the Company.