New California Pay Transparency Law Expands Requirement to Disclose Pay Ranges

Since 2018, California has required employers to provide the pay scale for a position when requested by an applicant that has completed an initial interview. Beginning January 1, 2023, employers that are hiring in California must become significantly more transparent about their pay ranges. Specifically, as a result of Senate Bill 1162’s amendments to Labor Code § 432.3:

• Employers with 15 or more employees must include the pay scale for the position in any job postings that can be filled by a California resident, whether posted by the employer or by a third party. 

• All employers (regardless of size) must provide the pay scale of the position in which a current employee is employed, upon request.

• All employers (regardless of size) must keep records of each California employee’s job titles and wage history for three years after their employment ends. Such information may be inspected by the Labor Commissioner to determine if there is a pattern of wage discrepancy. If an employer fails to keep such records, a rebuttable presumption created in favor of the employee’s unequal wage claim. 

The term “pay scale” is defined to mean the salary or hourly wage range that the employer reasonably expects to pay for the position. Failure to comply with these new requirements carries a civil penalty ranging from $100 to $10,000 per violation. For the first violation, there is an opportunity to cure the deficiency to avoid a penalty.

How should employers prepare for this change?

• Implement salary bands and levels before commencing recruitment for the position. In determining the pay scale for the role, consider factors such as geography, responsibilities, and the pay scale of existing employees performing substantially similar work.

• Review existing salary bands and levels to make sure they are accurate, adhered to, and do not have an adverse impact on any protected categories. Consider conducting a privileged pay-equity audit as part of this process so disparities can be addressed. Make sure that differences in pay for substantially similar work are justified by job-related reasons that are consistent with business necessity, as allowed by California’s Equal Pay Act.

• Prepare talking points for candidates and employees who may question why they are not awarded pay at the top of the salary range. This is also a good time to review with recruiters the various state and local laws prohibiting questions about salary histories and requiring pay-scale disclosures.

• Ensure managers and HR personnel are prepared to talk to employees who may ask for the salary scale for their current roles. Hiring managers should be reminded that candidates or employees asking about the salary range of a position should not be viewed negatively.

• Make sure third parties who post job postings on your behalf are prepared to comply with the new law. Consider asking such parties for indemnification provisions if they fail to post the range on your behalf.

• Review your document-retention policy to make sure you are keeping wage-rate histories for at least the required three years post-termination. This is also a good time to make sure your document-retention policies cover applicable statutes of limitation periods (e.g., up to four years for wage claims in California).

• Determine whether you will post salary ranges only where required or in all US job postings. Currently, Colorado has stringent salary-range requirements for job postings, as well as internal transfers and promotions. New York City, Washington State, and a number of municipalities have also implemented laws similar to California. Additionally, numerous other jurisdictions also require employers to provide ranges to applicants upon request. Decide whether you will post a national range with information about how the range will differ in certain states or cities — or whether you will post different ranges depending on geographic considerations.

In conjunction with this new statute, note that Senate Bill 1162 also contains additional requirements relating to pay reporting for employers with 100 or more employees, as a result of significant amendments to California Government Code § 12999.