Last week, Governor Newsom signed into law Senate Bill 973 requiring certain employers to file a pay data report with the Department of Fair Employment and Housing (“DFEH”) containing information about employees’ pay, position, and demographics. The purpose of the new law is to strengthen enforcement of California’s Equal Pay Act, which requires equal pay for substantially similar work regardless of sex, race, or ethnicity.
The new law specifically provides that it is in response to the elimination of pay data by gender, race, and ethnicity on the Employer Information Report (“EEO-1”) by the current administration under federal law—“It is the intent of the Legislature, in enacting this bill, to ensure that this pay data will continue to be compiled and aggregated in California.” Further, the new law makes clear that the pay data collected from employers will be used for “targeted enforcement” of equal pay and anti-discrimination laws.
Employers Covered by SB 973
Private employers with 100 or more employees and who are subject to filing an annual EEO-1 under federal law must submit a “pay data report” to the DFEH. The report covering the prior calendar year must be submitted annually on or before March 31. The first report for year 2020 is due March 31, 2021.
The information that employers are required to collect and provide in the “pay data report” includes the number of employees by race, ethnicity, and sex in certain job categories set forth in the new law—(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; and (10) Service workers. The law does not further define these job categories, but they are the same as in the EEO-1.
To determine the number of employees to include in the pay data report, the new law provides that employers may select a single pay period between October 1 and December 31—the “Reporting Year”— to create a “snapshot” for reporting purposes. For example, in the pay data report to be submitted on or before March 31, 2021, an employer would select any pay period between October 1 and December 31, 2020, to use as the employer’s “snapshot” and then count the number of employees on the payroll during that time by race, ethnicity, and sex in the enumerated job categories.
Additionally, employers must include in the pay data report the number of employees by race, ethnicity, and sex whose annual earnings fall within each of the pay bands used by the U.S. Bureau of Labor Statistics in the Occupational Employment Statistics Survey. To determine the correct number of employees to include in the pay data report, employers must calculate the total earnings, based on the Internal Revenue Service Form W-2, of each employee in the “snapshot” period. Employees include part-time, exempt, and non-exempt workers, regardless of whether the individual worked the entire calendar year. Employers must also include the total number of hours worked by each employee counted in each pay band during the “Reporting Year.”
Employers with multiple establishments in California must file a pay data report for each, as well as a consolidated report. An establishment is defined as an “economic unit producing goods or services.”
Notably, the law gives employers the option to provide clarifying remarks about the information in the pay data report. This is important given the likelihood that information in the report could be misconstrued without additional context or explanation. The information that employers must provide is fairly general and does not account for legitimate, non-discriminatory reasons as to why individuals within a certain pay band may be compensated differently. For example, they may not perform substantially similar work as required under the Equal Pay Act to determine if pay discrimination exists. Further, the information provided does not account for how long individuals within a pay band worked for the employer or in the current position, both of which must be considered when determining why one employee in a particular pay band earned more or less than another employee in the same pay band.
Some employers may be relieved to know that they may comply with the new law by submitting an EEO-1, provided it contains the same or substantially similar pay data as required under SB 973. Due to the coronavirus pandemic, however, the Equal Employment Opportunity Commission (“EEOC”) suspended collection of the 2019 and 2020 EEO-1 reports until 2021 when businesses return to more normal operations. Thus, employers who relied on having more time to file these EEO-1 reports may not have collected the necessary information and are now faced with this new requirement under California law.
The new law empowers the DFEH to seek an order requiring compliance from an employer and recover the associated costs from the employer. Additionally, the DFEH may request from the Employment Development Department the names and addresses of all businesses with 100 or more employees. The law requires the DFEH to provide the Division of Labor Standards Enforcement (“DLSE”) with the pay data reports upon request.
Confidentiality of Individually Identifiable Information
The law requires that any individually identifiable information submitted to the DFEH or to the DLSE remains confidential. This includes data that is associated with a specific person or business. If, however, the DFEH or DLSE commences an investigation or enforcement action involving information submitted in a pay data report, such information may be disclosed to the extent necessary for purposes of any enforcement proceeding.
Impact of the New Law
SB 973 becomes effective on January 1, 2021. The law places an additional burden on employers already grappling with novel employment issues due to the pandemic. Employers should begin preparing now to file their pay data report by the March 31, 2021 deadline. Consultation with experienced employment counsel is advised to ensure compliance with the new law and avoid the pitfalls that may arise when compiling and reporting the necessary data.