California Passes Employer Pay Data Reporting Requirement: SB 973 Awaits Governor’s Signature

September 08, 2020

By Jeffrey F. Webb & George W. Abele

The California Assembly and the California Senate each have passed SB 973, which would require private employers with 100 or more employees to submit an annual pay data report to the California Department of Fair Employment and Housing (“DFEH”). Governor Newsom has until September 30, 2020 to sign the bill, which would take effect January 1, 2021.

What data would be collected and when?

SB 973 would require covered employers to report the number of employees by race, ethnicity, and sex in each of the following job categories: executive or senior-level officials and managers, first or mid-level officials and managers, professionals, technicians, sales workers, administrative support workers, craft workers, operatives, laborers and helpers, and service workers—the same categories used in reporting demographic information on the federal EEO-1 form. Employers would count individuals in these groups by looking at a single pay period of their choosing between October 1 and December 31 of the calendar year preceding March 31.

Employers also would be obligated to report 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 in the Occupational Employment Statistics survey. To do so, employers would use W-2 data for each employee, regardless of whether the employee worked the full year. Employers also would report the total number of hours worked by each employee in each pay band, although the legislation does not address the fact that exempt employees typically do not track hours worked.

Employers with multiple establishments in California would be required to file a report for each establishment, as well as a consolidated report. The first annual report would be due on or before March 31, 2021, and subsequent annual reports would be due on or before March 31 each year thereafter.

What enforcement provisions are included in the bill?

SB 973 authorizes the DFEH to obtain a list from the Employment Development Department of the names and addresses of all California employers with 100 or more employees. If the DFEH does not receive the required report from an employer, it may seek an order requiring the employer to comply and recover the costs associated with seeking the order for compliance.

How would the data be used?

The Legislature stated that its intent in enacting this bill is to allow designated state agencies to collect wage data to more efficiently identify wage patterns and allow for targeted enforcement of equal pay or discrimination laws, when appropriate. The Legislature intends that this pay data will be kept confidential and will not be available for disclosure, except as necessary for administrative enforcement or through the normal rules of discovery in a civil action.

What motivated the bill?

Employers with 100 or more employees have been required to report demographic information to the Equal Employment Opportunity Commission (“EEOC”) for decades. In 2016, the Obama Administration announced its intent to expand the EEOC reporting requirements to include employee pay data by race, gender, and ethnicity, but the current Administration decided it would not collect such pay data.

SB 973’s legislative findings declare that it is the intent of the Legislature to ensure that pay data will continue to be compiled and aggregated in California, notwithstanding the policy change at the federal level. While the Legislature acknowledges in the bill’s legislative findings that there are legitimate and lawful reasons for paying some employees more than others, the Legislature nevertheless concludes that a discriminatory pay gap persists in California despite the recent enactment of legislation intended to strengthen equal pay laws. The legislative findings indicate that the Legislature believes that pay gaps may persist because they are often hidden from sight and that the bill’s pay data reporting requirement may help bring pay gaps to light so that they can be addressed.

What concerns have been raised about pay data reporting?

As we have noted in prior alerts,[1] Equal Employment Opportunity (“EEO”) pay analysis is a complicated exercise, if done properly and done well. It requires the development of similarly situated employee groupings for comparison, as well as a comprehensive understanding of an employer’s pay practices and the many non-discriminatory organizational, individual, and market factors that influence pay decisions. It requires detailed information concerning the job and type of work performed by an employee, as well as detailed information concerning each employee’s background.

There is good reason to question the value of the data that would be collected under this legislation, given the absence of other necessary data and the aggregation of the data into broad groups of questionable relevance. Individuals within these broad groups, for example, may or may not perform substantially similar work, the standard for analyzing equal pay claims under California law. The collection of W-2 data also is of little relevance, because the data can reflect differences that are not discriminatory. Thus, for example, a recently promoted employee would have fewer paychecks in their new position and increased pay rate (and thus lower W-2 earnings) than an employee who started in that position. An employee who was hired early in the year would have more W-2 earnings than an employee who was hired late in the year. Given these and other deficiencies, pay data collected under this legislation will be prone to identify false positives—employers with what may appear to be suspect pay distributions that have perfectly legitimate, non-discriminatory explanations for the detected variations.

What should employers do now?

Although several organizations have submitted letters of opposition to the Governor, the legislation may be signed. We will provide a further update on all legislation the Governor signs. In the meantime, employers may want to work with their counsel to determine what their pay reporting would look like and what actions, if any, they should take as a result. If you have questions about SB 973 or pay equity generally, please contact any member of our Pay Equity Practice Group.

[1] The Prior Client Alert Articles are: EEOC Proposes New Pay Data Collection Tool: All Employers to Share Pain With Federal Contractors, EEOC Announces Proposed Revisions to EEO-1 Pay Data Collection Tool, and EEO-1 Pay Data Collection Tool: Still Alive and Well with a Deadline of March 31, 2018 for First Report

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