California to Require Annual Pay Data Reporting to DFEH

In an effort to close gender and racial pay gaps, California Governor Gavin Newsom recently signed Senate Bill (SB) 973 to require certain California employers to submit an annual pay data report to the Department of Fair Employment and Housing (DFEH) starting next year. The new law largely mirrors the EEO-1 “Component 2” pay data reporting requirement, which was imposed by the Obama administration and has been suspended by the Trump administration.

Under SB 973, private employers that have 100 or more employees and are required to file an annual Employer Information Report (EEO-1) must submit a pay data report to the DFEH covering the prior calendar year. The report must include: (1) the number of employees by race, ethnicity, and sex in each of ten job categories (the same job categories used in the EEO-1); (2) the number of employees by race, ethnicity, and sex whose annual earnings fall within each of the pay bands used by the United States Bureau of Labor Statistics; and (3) the total number of hours worked by each employee counted in each pay band. Employers with multiple establishments in California must submit a report for each establishment and a consolidated report that includes all employees. Employees include all individuals on payroll, whether full- or part-time, for whom the employer must withhold federal social security taxes and include in an EEO-1 Report.

Covered employers must submit the first report on or before March 31, 2021. Subsequent reports must be filed on or before March 31 each year thereafter.

The pay data must be in a format that allows the DFEH to search and sort the information using readily available software, and it is acceptable to submit a copy of the employer’s EEO-1 with the same or substantially similar required pay data. The DFEH may seek an order requiring an employer who does not submit the required data to comply with the law.

SB 973 also grants the DFEH broad new authority to receive, investigate, and prosecute complaints alleging discriminatory wage practices under the California’s Equal Pay Act (Labor Code 1197.5). The DFEH is authorized to share the reports with the California Division of Labor Standards Enforcement (DLSE) for the agencies to identify wage patterns and engage in “targeted enforcement” of California’s equal pay and anti-discrimination laws. The legislature intends that, except for this administrative enforcement or through civil discovery, pay data will be kept confidential and not available for disclosure. The DFEH may, however, publish an annual report that aggregates wage reports, provided that the aggregate reports are reasonably calculated to prevent the association of data with any individual business or person.

Next Steps for California Employers

The new law leaves a number of questions unanswered, such as whether the law applies to employers with more than 100 employees in the U.S. or only to those employers with more than 100 employees in California, and whether only California employees must be included in the pay report. The DFEH will likely issue guidance on these subjects, but in the meantime, employers who are required to file federal EEO-1 Reports should begin preparing for the first reporting deadline under SB 973, which is less than six months away. It will be important to designate a person or department responsible for the submission, confirm that there are adequate HR systems in place to collect and report the information, and to generally stay abreast of DFEH guidance on the matter. Employers should also consider proactively reviewing their pay practices and conducting a privileged audit to discover and address any disparities ahead of the report deadline.

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