California Pay-Disclosure Practices Draw Scrutiny from Regulators

​In January, strict new pay transparency requirements took effect in California. Now regulators are closely monitoring employers' practices as they process thousands of complaints alleging violations of the state's disclosure rules.

SB 1162 requires many employers to include a pay range in job ads, whether posted directly by the company or by a third-party staffing agency. The job posting must include the salary or hourly range that the business reasonably expects to pay, according to the legislation.

The requirement applies to companies with 15 or more employees. The pay range must be disclosed if the job ever may be filled in California, either at the workplace or remotely.

To avoid legal trouble, employers need clear procedures for developing pay scales, and they must comply with record-keeping requirements. It's also helpful to conduct a pay equity audit, which can show if there are disparities among protected classes.

Enforcement Issues

Companies can face hefty civil penalties, ranging from $100 to $10,000 for each violation. However, there will be leniency for first-time infractions: no penalty will be imposed for initial violations if the company updates its job ads to include the required pay information.

In addition, there are legal rights for people who allege noncompliance. They may file a written complaint with the labor commissioner, and they may bring a civil action against the employer.

The job-posting requirements are included in Labor Code Section 432.3. During the first four months of this year, nearly 2,700 complaints alleging violations of this section have been filed with the labor commissioner's office. The office is still processing the complaints, and it can't comment about specific details of open investigations, an agency spokesperson said.

Meanwhile, regulators are on the lookout for companies that try to evade the rules.

"Any attempts to avoid the law by [posting] extremely large [pay] ranges will be subject to scrutiny," the spokesperson said.

Education is also part of the mission. In February, the labor commissioner sent a letter to all employers registered with the Licensing and Registration Unit, informing them about the new requirements. The letters are part of an outreach campaign to educate companies about pay transparency.

Greater Transparency

SB 1162 builds upon previous California laws on pay equity. These laws include the 1949 Equal Pay Act, intended to combat disparities based on gender, and the 2016 Fair Pay Act, which offered even greater protections against discrimination.

The new legislation is part of a nationwide trend of pay disclosure requirements. Similar laws have been approved in Colorado, New York, Washington and certain local jurisdictions. Meanwhile, pay disclosure bills have been introduced in various other states.

The hope is that increased transparency will help level the playing field, according to Michele Ballard Miller, an attorney at Cozen O'Connor in San Francisco.

"This idea of pay transparency is gaining momentum across the country," she said.

Best Practices

Employers should examine all jobs in the company and determine pay ranges for those positions. The task is to figure out a reasonable pay scale for each job. Although employers have some flexibility when doing this, the pay range should be based on objective data, said Benjamin Ebbink, a Sacramento attorney at Fisher Phillips.

"There needs to be real, concerted thought and some careful planning as to what information is going to be put out there," said attorney Samuel Stone of Holland & Knight in Los Angeles.

It's also useful to research what similarly situated companies are paying employees, according to Miller. "You need to do your homework to be able to support the ranges you put on the job postings," she said.

Review your templates and procedures for posting job ads. Then make sure your processes comply with the rules. The exact format for job ads might vary.

Businesses operating in multiple states need to decide which system makes sense for them, Ebbink noted. These employers could adopt a standardized format that complies with the most-restrictive laws. Alternatively, they might have multiple formats tailored to local requirements.

Inform your hiring managers and recruiters about the legal requirements and enforcement issues around pay transparency. For each California worker, employers must keep records of job title and wage history. The records must be kept for the entire time the person is employed and for three years afterwards. Regulators can review the information to see if there's a pattern of wage discrepancies. It's advisable to keep this information in a separate document or log, Ebbink said.

To conduct a pay equity audit, identify all employees with comparable jobs and determine if there are disparities among protected groups. If there are, figure out why. Make sure there are legitimate, nondiscriminatory reasons to justify any pay differences. Valid reasons could include education level or work experience, according to Ebbink. If any problems are uncovered, "it's a good opportunity to get your house in order," he added.

Toni Vranjes is a freelance business writer in San Pedro, Calif.