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New California law requires employers to report pay data. What does it mean for businesses?

Gov. Gavin Newsom on Tuesday signed the state's pay transparency law that will require California businesses to disclose compensation and demographic data for their workers starting next year.

Under the new law, companies with 15 or more employees will be required to include pay ranges in job postings, and those with 100 or more employees or contractors will have to report median and mean hourly pay rates by job category and "each combination of race, ethnicity, and sex."

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The state already requires companies with 100 employees or more to annually report pay data for existing employees and disclose the pay scale to job applicants upon request.

Here's what will change under the new law that goes into effect in May:

—The law sets a new precedent as the only state to mandate employers with 100 or more workers to annually report "within each job category, for each combination of race, ethnicity, and sex, the median and mean hourly rate."

—Additionally, businesses with 100 or more employees through labor contractors will need to submit a pay data report for those workers

—California will join Colorado, Washington, New York City and other local governments in requiring businesses with 15 or more employees to disclose a pay range on job postings.

—Private businesses with 100 or more employees must submit a pay data report to the state covering the prior year, on or before May 10, 2023. The business must submit the annual report on or before the second Wednesday of May each year after that.

—Employers must maintain a record of each employee's job title and wage history during their employment and for three years after.

The bill, SB 1162, was introduced by Sen. Monique Limόn (D-Santa Barbara) in February. Newsom signed it with the support of the Legislative Women's Caucus and has touted it in his effort to support equality and close pay gaps for women.

Women earned 83 cents to every dollar earned by a man, according to 2020 U.S. Census data.

Groups such as the Equal Rights Advocates, a nonprofit focused on gender justice and women's rights have applauded the passage of the law as a step toward more equitable pay for women and especially women of color and contract workers hired through third-party staffing agencies.

The California Chamber of Commerce and the Society for Human Resources Management opposed the measure.

However, it is yet to be seen what value this data will provide and how the state will put it to use.

Phil Blair, head of Manpower of San Diego, a staffing firm, is uncertain that this law will solve the issue of inequity in the workplace.

He explained that lower wages and hourly jobs are a bit more straightforward on how compensation translates to each job. However, higher wage and salaried jobs have more nuance and subjective factors in how experience or other benefits equate to someone's final pay.

For instance, entry-level jobs can attract people with comparable skill sets to execute a job whereas an executive in the C-suite may have a majority of their compensation come from benefits like stock options. With this in mind, Blair questions how valuable the data will prove to be with these different factors making compensation vary.

One thing he is certain about is that the reporting of this data will require more work and paperwork for businesses. Blair wonders how exactly the state plans on using this data, which he said would be helpful information to make sure businesses like his can fill out the forms correctly.

"One hundred employees is not that big of a company — a restaurant could easily have 100 employees because it has two shifts or three shifts," he said. "It's a lot of work to keep these statistics."

It is not entirely clear in the legislation how this will apply to companies that have remote workers outside of California. The law defines an employee as "an individual on an employer's payroll, including a part-time individual, and for whom the employer is required to withhold federal Social Security taxes from that individual's wages."

Businesses that fail to file reports or disclose information could be subject to penalties and "the Labor Commissioner may order the employer to pay a civil penalty of no less than one hundred dollars ($100) and no more than ten thousand dollars ($10,000) per violation."

©2022 The San Diego Union-Tribune. Visit sandiegouniontribune.com. Distributed by Tribune Content Agency, LLC.

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This story was originally published September 28, 2022 1:07 PM.

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