On September 4, 2020, the California Legislature passed Senator Hannah-Beth Jackson’s bill relating to annual reporting of pay data (Senate Bill 973). If Governor Newsom signs the bill, as expected, SB 973 would require private employers with 100 or more employees to report pay data to the Department of Fair Housing and Employment (DFEH) by March 31, 2021, and by March 31 each year thereafter, for specified job categories by gender, race, and ethnicity.

Legislation Intended to Close the Pay Gap for Women and People of Color

Senator 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.” (Bill Analysis here.) 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.” (Bill Analysis here.)

According to Senator 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.” Senator 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 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.” (Bill Analysis here.)

Proposed Pay Data Report

If signed by the governor, the new law takes effect January 1, 2021. If effective, 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:

  1. The number of employees by race, ethnicity, and sex for the following 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 October 1 and December 31 of the “Reporting Year.”
    1. Executive or senior level officials and managers.
    2. First or mid-level officials and managers.
    3. Professionals.
    4. Technicians.
    5. Sales workers.
    6. Administrative support workers.
    7. Craft workers.
    8. Operatives.
    9. Laborers and helpers.
    10. Service workers.
  2. 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.
  3. The total number of hours worked by each employee counted in each pay band during the “Reporting Year.”
  4. 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.

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.

Reports Shared with the DLSE

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.

Please contact your Baker McKenzie employment attorney for more.