On Sept. 30, California Gov. Gavin Newsom signed Senate Bill 973, Sen. Hannah-Beth Jackson’s bill relating to annual reporting of employee pay data. SB 973 requires private employers with 100 or more employees to report employee pay data to the Department of Fair Employment and Housing (DFEH) by March 31, 2021, and annually thereafter, for specified job categories by gender, race and ethnicity. California will be the first state to require employers to submit such employee data.
Legislation Intended to Close the Pay Gap for Women and People of Color
Sen. Jackson is known for advocating justice for women; she authored the landmark “California Fair Pay Act” (Senate Bill 358), and considers SB 973 an “important step towards closing the pay gap” and achieving “equal pay for women and people of color.” While legitimate and lawful reasons may exist for paying some employees more than others, the bill notes that discrimination continues to exist, with often “hidden from sight” pay discrepancies resulting from unconscious biases or historic inequities. A simple premise underpins SB 973: “You can’t fix what you can’t see.”
According to Jackson, “Despite all the progress our state has made on equal pay, the pay gap remains a serious problem that costs an estimated $79 billion in lost wages a year in California[,]” and “is especially concerning for women of color with African American women earning 61 cents and Latinas just 42 cents for every dollar earned by white, non-Hispanic men.” Jackson modeled the bill after the EEO-1 component 2 reporting requirements, and it follows a setback at the federal level in 2017 when the Trump administration suspended a federal rule that would have similarly required large employers to report pay data by gender, race and ethnicity.
Opponents of the new law raised concerns about the compliance burden, the potential that W-2 earnings may reflect a disparity, when none exists, and the myriad factors (other than gender, race, or ethnicity) that could lead to pay disparity and “have nothing to do with pay discrimination.” For example, the U.S. Chamber of Commerce urged Gov. Newsom to veto the legislation, calling the data employers would collect “worthless with respect to identifying incidents of pay discrimination,” in part because the data collection process cannot capture “the many nuances of legitimate distinctions that comprise compensation.”
Pay Data Report
The new law takes effect Jan. 1, 2021, meaning, by March 31, 2021, private California employers with 100 or more employees that are required to file an annual Employer Information Report (EEO-1) under federal law must submit a “pay data report” to the DFEH for the prior calendar year (reporting year).
The report must include specified information, including the number of employees by race, ethnicity and sex for 10 job categories established by creating a “snapshot” that counts all individuals in each job category by race, ethnicity and sex, employed during a single pay period of the employer’s choice between Oct. 1 and Dec. 31 of the “reporting year.”
The job categories include:
- Executive or senior level officials and managers
- First or mid-level officials and managers
- Sales workers
- Administrative support workers
- Craft workers
- Laborers and helpers
- Service workers
Employers must also report the number of employees by race, ethnicity and sex, whose annual earnings fall within each of the pay bands the U.S. Bureau of Labor Statistics uses in the Occupational Employment Statistics survey, established by calculating the total earnings shown on the IRS Form W-2 for each employee in the “snapshot” for the entire Reporting Year; the total number of hours worked by each employee counted in each pay band during the “Reporting Year”; and the employer’s North American Industry Classification System (NAICS) code.
An employer complies with the new law by submitting an EEO-1 Report that contains the same or substantially similar pay information. Employers with multiple establishments must submit a report for each establishment and a consolidated report that includes all employees. All employers must provide the data in a format that allows the DFEH to search and sort the information using readily available software. Employers may, but are not required to, provide clarifying remarks concerning the information in the report.
Maintenance, Distribution and Enforcement
The DFEH must make the reports available to the Division of Labor Standards Enforcement (DLSE) upon request and maintain the data for at least 10 years. Both the DFEH and DLSE must keep the data confidential, except as necessary for administrative enforcement or through the normal rules of discovery in a civil action.
The DFEH may seek an order requiring an employer to comply with these requirements and shall be entitled to recover the costs associated with seeking the order for compliance.
Though a laudable effort to promote transparency and further close gender and racial pay gaps, from a practical perspective SB 973 imposes significant burdens on California employers to compile information that could evidence a wage disparity where none exists. SB 973 may or may not help remedy illegal pay gaps, but it is virtually certain to lead to a new “cottage industry” in employment litigation.