• Thu. Nov 24th, 2022

California Employers: Reflections on Expanded Payroll Data Reporting Requirements in California – Labor Rights/Industrial Relations

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The central theses

  • While employers were previously required to disclose data on headcounts, salaries and hours worked for covered employees by race, ethnicity and gender in each specific job category, SB 1162 added several new obligations

  • Under SB 1162, the CRD may request a court to award a civil penalty of up to $100 per worker to any employer who fails to file the required reports. For any subsequent failures, the CRD may impose a civil penalty of up to $200 per employee.

  • The passage of SB 1162, effective January 1, 2023, brings with it many substantive obligations related to the reporting of payroll data and the disclosure of payroll data. Employers are encouraged to start early to determine the appropriate job survey range (set by the US Bureau of Labor Statistics) for each of their positions so they are ready to provide all required data in May 2023.

As we detail here, the passage of SB 1162 in California expanded payroll reporting requirements for private employers with 100 or more employees who file annual federal employer information reports (EEO-1) to include employee payroll information in a report to the Civil Rights Department (CRD) (formerly Department of Fair Employment and Housing). While employers were previously required to disclose data on head counts, salaries and hours worked for covered employees by race, ethnicity and gender in each specific job category, SB 1162 added several new obligations:

  • All employers with 100 or more employees must now register with the state.[w]in each job category, for each combination of race, ethnicity, and gender, the median and median hourly rates.”

  • Employers who employ 100 or more workers through “contractors” must submit a separate report containing data on pay, hours worked, race/ethnicity, and gender for those workers.

  • Employers with at least 100 employees must file these wage declarations independently of an EEO-1 declaration and are no longer allowed to file an EEO-1 declaration in place of the state-required declaration.

Under SB 1162, the CRD may request a court to award a civil penalty of up to $100 per worker to any employer who fails to file the required reports. For any subsequent failures, the CRD may impose a civil penalty of up to $200 per employee.

Salary data reports, including average and median salary information, are due beginning May 10, 2023. (SB 1162 also moves the reporting deadline from March to the second Wednesday of May each year.)

SB 1162 also imposes new pay transparency requirements on California employers. Under the new law, employers with 15 or more employees must include the salary or hourly wage range in all job postings, including job postings that are published, announced, posted or “otherwise advertised” by third parties. The new law also expands rights previously reserved for job applicants by requiring all employers, regardless of size, to provide current employees with salary scales for their positions upon “reasonable request”.

What exactly is a temporary work agency?

The requirement that raises the most questions is the mandate for employers to file a separate report for workers employed through an “employment contractor”. Part of the confusion with this requirement is definitional. That is, while “contractor” is defined as “an individual or entity who provides labor to a client-employer, either under contract or not, to perform work in the ordinary course of business of the client-employer”, the term “usual course of business” is business is undefined. Add to that the fact that no contract is required for a company to be considered an “employer” and further ambiguity as to who is affected or which companies are covered.

While staffing agencies and more traditional companies that provide temporary workers are certainly covered by SB 1162, legislators’ failure to clarify these terms may result in other, non-traditional companies – including those that work without a contract – being covered.

Accordingly, until the CRD provides guidance on who or what is and is not an “employer” under SB 1162, employers may refer to how “normal course of business” is defined in other legal contexts. This includes California Labor Code Section 2810.3, the Employers’ Joint Liability Act, which defines “ordinary course of business” as “the regular and usual work of a business performed within or on the premises or worksite of the principal’s employer.”

It is likely that California Labor Code § 2810.3’s definition of “ordinary course of business” applies equally to SB 1162, since both statutes define “employee” identically. This definition of ordinary course of business is a useful aid in determining who or what an employment contractor is for purposes of SB 1162 reporting requirements.

Contractual considerations

As noted above, the CRD may seek a court to impose a civil penalty of up to $100 per employee for initial violations and $200 per employee for subsequent violations. While SB 1162 includes a built-in mechanism to apportion an appropriate share of penalties to workers who fail to provide employers with required reporting data, employers can take additional steps to limit or eliminate potential financial consequences.

In particular, employers should confirm that their contracts with subcontractors contain adequate indemnity clauses to cover such contingencies. Wording demanding compensation for any failure to “provide the employer (or the CRD) with all necessary payroll information, such as is required by California Government Code § 12999” should be included.

The final result

The passage of SB 1162, effective January 1, 2023, brings with it many substantive obligations related to the reporting of payroll data and the disclosure of payroll data. Employers are encouraged to start early to determine the appropriate job survey range (set by the US Bureau of Labor Statistics) for each of their positions so they are ready to provide all required data in May 2023. Employers should also review their contracts with any company that might be considered a current employment contract partner to determine whether the terms of the contract should be renegotiated. Finally, employers should review all existing job postings to ensure that the information required by SB 1162 is included.

The content of this article is intended to provide a general guide to the topic. In relation to your specific circumstances, you should seek advice from a specialist.

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