California Expands Pay Transparency Requirements
More than 17 million workers and job seekers in California will be able to access your company's pay scales starting on January 1, 2023. How does this affect you and your business? What is required under the rule? Let’s get started.
California Senate Bill 1162
Signed by Governor Newson and Filed with the Secretary of State on September 27, 2022
Effective Date: January 1, 2023
California’s new pay transparency requirement will only be a problem for businesses that do not adequately plan for it. Preparing requires some effort, but there isn’t anything groundbreaking or innovative about what needs to be done. It all just takes a little time, focus, and money. However, once you have yourself prepared, maintenance should be inexpensive and mainly hassle-free. In fact, the results of other states adopting similar rules have been that companies must have a better understanding of their compensation policies and employees gain a better understanding of the value of their work. Being prepared means staying competitive. So, what do you need to know?
A few significant changes to how California employers handle compensation:
If you have more than 15 employees:
Pay Scale Details:
Upon request, employers must provide the pay scale for the position that the employee is currently employed.
For ALL job postings, an employer is required to specify minimum and maximum base pay. This also applies to third-party recruiting agencies.
“Pay scale” means the salary or hourly wage range that the employer reasonably expects to pay for the position.
“Applicant” or “applicant for employment” means an individual seeking employment with the employer and is not currently employed with that employer in any capacity or position.
A reminder of the legacy rules:
Upon a reasonable request, an employer must provide the pay scale for a position to an applicant applying for employment. The pay scale is defined as the mean salary or hourly wage range.
If you have more than 100 Employees:
Annual Employer Information Report (EEO-1)
New Rules
The pay data report is due on or before the second Wednesday of May, beginning May 2023.
A separate pay data report is due for labor contractors.
The report must include the median and mean hourly rate for each combination of race, ethnicity, and sex within specified job categories.
A reminder of the legacy rules:
Upon a reasonable request, an employer must provide the pay scale for a position to an applicant applying for employment. The pay scale is defined as the mean salary or hourly wage range.
Every Employer
Salary History
New Rules
Requires an employer to maintain records of job title and wage rate history for each employee (open to inspection by the Labor Commissioner), plus an additional three years after the end of employment. An employer is subject to civil action should compliance not be upheld.
A reminder of the legacy rule:
Maintaining salary history was not previously required
What to Expect
Assume employees will request their pay ranges soon after the rule becomes a reality. Most people assume they are underpaid or paid poorly relative to their peers. Even if they don’t request, they will be watching job postings to learn if they are being treated fairly.
Expect to give some long-term employee raises. If your legacy employees haven’t been keeping up with your new hires, expect them to demand you correct things.
Expect challenges from both staff and job seekers. If you prepare properly, these can be easily addressed. If not, you should expect to hear from the State of California before the end of 2023.
How to Prepare
Make sure your job descriptions are up to date.
Ensure pay ranges are accurately assigned to job descriptions. They will be visible to external applicants, and current employees will be able to search job postings to view the ranges. Employees may request ranges and must receive the pay range upon request.
Address any known pay equity issues before January 1, 2023. Review pays for every employee relative to their job description, the market, your compensation philosophy, and their internal peers. Most companies start compensation planning season in the fall, so that a little extra effort will go a long way.
Document Your Compensation Programs
Ensure you document your pay architecture. Whether you market price every job, use a hybrid structure, or a traditional pay structure, you need to be able to explain why salary ranges may overlap with other positions.
Document your approach to placement in range.
Create a Compensation Guide or Manual that details methodologies, guidelines, exceptions, and approaches.
Document how employees are placed into and progress within the pay range, how they move up to a new pay range within the structure, and what it means to be at the minimum pay rate vs. maximum pay rate, etc.
Explain the Merit Increase and Promotion rules and process.
Define your benefits in a way their value can be clearly understood.
Make this Compensation Guide accessible to every people manager, HR Business Partner, and Talent Acquisition professional.
Create a defined process for responding to employee pay review requests or reclassification requests. A best practice is to have a dynamic tool that allows for easy reference and reporting.
Ensure pay ranges are visible to managers for the positions in their control span. A best practice is to have a dynamic tool that allows for easy reference and reporting.
Management Knowledge Readiness
Managers are the first line of access for employees. Their response to employee questions regarding job description, career growth, and, most importantly, in this context, their pay range must be consistent and confident.
When managers do not know the answers to personnel questions about their role, employees may face lower morale and will likely talk with their peers. These are also potential causes of complaints to the State.
Ensure Management has direct contact with an HR Representative or Business Partner to ensure they are responding to employee inquiries efficiently and accurately.
FutureSense Will Help You Succeed
We will create your job descriptions. We have deep expertise but limited capacity for the remainder of 2022. Contacting us soon may be the key to your success.
We will create your Compensation Philosophy and supporting strategy. Your philosophy will guide your decisions regarding your newly defined pay ranges.
We will create your compensation Guide. Having a clearly defined document process will ensure you have the answers when employees request more information.
We will price your jobs and ensure rational pay ranges and levels.
We will verify, enhance, or build your salary structure and model placement options to assess market competitiveness and other pay component effectiveness.
We will perform a pay equity / DEI review. This process analyzes employee groups for any pay equity issues related to employee pay rates and placement in the structure.
We will train your management teams. We will equip them to answer employee questions about their assigned pay range, placement within the pay range, and Compensation Philosophy and approach.
The end of the year 2022 is coming up fast. Contact us right away and let us help your compensation get off to a good start in the new year.
Contact us; FutureSense at 888-336-0909 if you also need assistance with consultation on remuneration or equity compensation that improves employee happiness.
About FutureSense
FutureSense is a management consulting firm that provides integrated solutions to build and sustain human capital capacity. The firm can work with you by offering support and guidance to manage your workforce. To learn more about FutureSense, please visit FutureSense.com.