California Expansion on Pay Transparency Requirement for 2023

ByContent Manager
Pay transparency requirements

Part of running a business involves being aware of the various changes to laws at the state and local levels, especially those related to human resources and compensation. One big change is the expansion of the pay transparency requirement in California.

Beginning January 1, 2023, employers in California with at least 15 employees will be subject to several requirements geared at promoting pay equity. What does that involve, and what are the broader implications of this change?

What is Pay Scale?

To understand the impact of these pay transparency requirements on your business, it is important to understand how the state defines pay scale. Essentially, the pay scale is the salary or hourly wage range that the employer reasonably expects to pay for the position. Third parties posting on behalf of employers, including outsourced human resources, will also need to post their positions within that range.

Employers will be required to provide an employee with the pay scale for their current position when requested. Regardless of the size of your business, employers will need to keep records of job titles and the wage rate history for each employee throughout their employment and at least three years after termination.

Pay data reports need to include the median and mean hourly rate for each combination of race, ethnicity, and sex in each job category. Any business or company with 100 employees or more will need to submit a pay data report, even if they must submit the federal EEO-1 report. If your business includes multiple establishments, you must submit a separate pay data report for each location or establishment.

What are the Broader Implications?

The requirement was intended to promote pay equity and assist in closing the wage gap for those disadvantaged in the job market through no fault of their own.

These pay transparency requirements are also likely to streamline hiring, compensation, and talent development processes, which can help your business to run even more efficiently. It is estimated that 25% of all private employers will be required to post pay ranges with their job ads.

What Should You Expect as an Employer?

Employees are likely to start asking about their pay ranges and reacting to the pay scales that are part of your job postings.

If the ranges you post in ads or provide to your current employees are too wide, it can breed distrust in them. They might also wonder about who is making that little or that much and why they are making what they are making. If you have reasonable ranges, but individuals are outside those ranges, that will lead to feedback.

It is important to know that coworkers will discuss this information. These conversations may result in employees discovering one-off or systematic pay inequality, so employers must be prepared to respond to those discoveries. As an employer, you should not attempt to stop or prevent these conversations or even punish employees for having them.

Even if your pay choices are perfectly logical, employees will not necessarily know or understand why they are being paid less, and you should be prepared to explain those discrepancies.

What Can You Do to Prepare?

First, start working on documenting your pay ranges. Consider using outsourced human resources to help you document your pay structure and create comprehensive job descriptions. Here are a few tips to keep in mind:

  • Pay ranges need to align with your job descriptions.
  • You need to update job titles or descriptions if they don’t match up.
  • Include an explanation of how an employee can move from the lower part of the range to the upper part of the pay scale for their position.
  • If pay ranges overlap, make sure you can explain that, along with how an employee moves from one pay range to another.
  • Be prepared to explain why employees with the same job title have different compensation levels.
  • Consider doing a pay equity audit to determine if your pay differences fall into the allowable reasons defined by the law.
  • If you find pay equity issues, start correcting them as soon as possible. Consider using an employment attorney to strategize how to limit potential liability issues.

The important thing to remember is that those pay transparency requirements protect both the employee and the employer. If your systems are not written down and available for employees, you might run into issues later. Also, make sure that any pay differences are clearly documented, along with the legitimate reasons for each employee’s wage rate.

If you are looking for assistance in documenting and preparing your business for this change in 2023, then we can help. Contact CA HR Services today to learn more about what we offer as part of our outsourced human resources.

CA HR Services specializes in working with small and medium-sized companies to help develop legal, efficient, and appropriate H.R. processes and procedures that meet state and federal labor law requirements.