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What California’s pay transparency means to HR Leaders –– and the national labor force.
By now, the ink is dry on California’s pay transparency law, which was signed into law by Governor Newsom in September of 2022 and went into effect on January 1, 2023. But even though HR Leaders, business owners, and people managers everywhere have had some time to get familiar with this new policy –– and the impact it will have on our day-to-day lives and industries at large –– we’re still left with countless unanswered questions. What does California’s pay transparency law actually mean? How will this change anything? Will this change everything?
The long answers to these questions and more are below, but in short: California’s pay transparency law likely has a bigger impact on you than you think.
Like New York’s (city and state) recently enacted pay transparency law, California’s pay transparency law mandates that certain employers in the state (more on what this means shortly) include accurate salary ranges in all job listings. Granting powers to California’s Civil Rights Department of the Business, Consumer Services, and Housing Agency, SB1162 aims to “safeguard the right” of every California candidate “to obtain and hold employment without discrimination based on specific characteristics or status.”
Before the bill’s passage, private employers with over 100 employees were already required to file an annual Employer Information Report (EEO-1), logging their number of employees of each race, sex, and ethnicity. Under this new law, pay data regarding each of these groups must now be included in this report, with noncompliant employers running the risk of facing civil penalties. As with New York’s version of the law, this bill aims to make the hiring process a more equitable and empathetic endeavor by giving candidates access to long-hidden pay information.
But it’s not just candidates that have access to this intel, nor is it just mid-size or larger companies being impacted –– those working for employers with as few as 15 employees can also request salary ranges for their own position, meaning that this new law hopes to bring pay transparency to all California workers.
More central to the bill than reporting requirements is the stipulation that employers must make this reported information widely available to applicants. As of the bill’s effective date, the California employers we mentioned above will have to include accurate pay ranges based off of reported data in job postings, whether they appear on internal job sites, LinkedIn, or the classifieds. (Anyone still using those?) California’s new law does not specify whether the pay range can be open-ended (i.e. “$50k and up”), contrasting New York’s explicit inclusion of a cut-and-dry pay range. With that said, neither New York’s insistence on clear pay ranges nor California’s laissez-faire approach has stopped employers from toeing the line of legality, so it remains to be seen whether “good faith” salary ranges are truly attainable.
But what about California applicants for remote job listings? According to SB-1162, employers hiring remote workers based in California are every bit as responsible for accurately reporting pay ranges. Of course, there are workarounds. Businesses can always list remote positions which exclude candidates in California (and New York, and California, and Washington…) but this would diminish the talent pool significantly. How significant? That depends on how you feel about excluding the world’s 4th largest economy from the running, all to avoid disclosing salary information. In Colorado or Washington, this exclusion might work –– but not so in the Golden State.
Another area where New York City’s law differs from California’s is in its enforcement of this new policy. Per California’s pay transparency law, employers or business owners who fail to file their employee compensation report may be fined $100 per employee for a first offense and no more than $200 per employee for secondary offenses.
Compare this to New York City’s whopping $250,000 fine for unresolved violations and California’s seems like a slap on the wrist. However, should an investigation ensue and the California Labor Commissioner uncover an intentional violation of the pay transparency law, the at-fault employer could be on the hook to the tune of $10,000 per employee –– a figure which still pales in comparison to that of the Empire State. But consider this violation from a mid-size California company with 100+ employees, and this fee begins to add up quickly.
Why California’s new pay transparency law is so important depends on who you ask. If you ask women or workers of color, they’ll tell you it’s because transparency is the first step (or leap) toward bridging the wage gap. If you ask young professionals, they’ll note that clearly outlined pay ranges provide a barometer of worth when you have no other precedents to rely on. And if you ask HR Leaders, we’ll tell you it’s the foundation on which a company culture of candor and fairness is built.
For as long as job listings have existed, the compensation conversation has been a way for businesses to wield a lever against candidates –– and pay transparency is a way to create a more even exchange of power. And while this will particularly impact candidates who have long been disadvantaged by black box salary negotiations, it stands to create a more equitable and open environment for candidates from every background.
The ever increasing demand for transparency in the workplace will be the forcing function we need to close the pay gap and increase representation at leadership levels. Transparency doesn't just mean sharing pay bands. Employees want to know why and how decisions are made about their pay. They want to know the clearly defined and consistently applied criteria for performance and promotion practices. As employers are forced to get more clear on the decision-making mechanisms that impact employees' careers and compensation, the decisions will be made with more rigor and less bias.
~Rachel Kleban, Human Resources Consultant
With California, New York, Colorado, Rhode Island, and Washington all embracing legislation at the state level, pay transparency is a topic of great discussion amongst HR professionals and business owners alike. And we’re not expecting this discussion to die down any time soon. As we continue to see more and more states embrace pay transparency laws, and watch our colleagues and their teams adjust and adapt to new policies, we get to discover in real time the many ways in which pay transparency is already shaping the future of HR.
This story is still unfolding and your state could be next aboard the pay transparency train, so join the conversation with other TroopHR members –– and be sure to keep up with all the latest HR news.