United States: Pay Equity Update - California Pay Data Reporting And Pay Transparency For Federal Contractors

Executive Summary: This Alert discusses actions at the state and federal level to require transparency in pay, in an effort to address pay equity issues. Employers should be aware of new and existing requirements and ensure they have policies and procedures in place to enable compliance with applicable requirements.

2023 California Pay Data Report Due May 8, 2024

The California Civil Rights Department ("CRD") requires private employers with 100 or more U.S. employees, and/or 100 or more workers hired through labor contractors, and at least one employee in California, to annually report pay, demographic, and other workforce data to the CRD. Specifically, employers must (1) submit an annual report of the number of employees within each establishment by race, ethnicity, and sex by job category and pay band during the prior year; (2) submit a separate pay data report for employees hired through labor contractors such as temporary staffing agencies; and (3) provide the median and mean hourly rate for each combination of race, ethnicity, and sex for each job category for both traditional employees and those hired through labor contractors.

Employers are not required to report employees working outside of California and assigned to an establishment outside California.

The "snapshot period" for the 2023 reporting year is any pay period between October 1, 2023, and December 31, 2023.

Important Updates to the 2023 Report

• New Data Collection Template: CRD updated the Excel template for collecting the 2023 pay data. Do not use templates from prior years. The 2023 template is available at www.calcivilrights.ca.gov/paydatareporting.
• Reporting Remote Employees: Employers must now report whether employees worked remotely during the Snapshot Period. Remote workers, for purposes of the Pay Data Report, include both W-2 employees and contract workers, who are 100 percent remote with no expectation that the employee will regularly report in person to a physical establishment to perform work duties. Employees in hybrid or similar roles for any portion of time during the snapshot period would not be considered remote workers for pay data reporting purposes.
• Labor Contractor Data: Covered employers are still required to separately report pay data for labor contractors at all of the employer's establishments. However, beginning with the 2023 report, labor contractors' sex and race/ethnicity can no longer be recorded as "unknown."

The penalties for employers that fail to file a required report can reach $100 per employee and increase to $200 per employee for a subsequent failure to file a required report. These penalties are also assessable against a labor contractor that failed to provide required pay data to a client employer in a timely fashion. The CRD is also entitled to recover its costs in any enforcement action against an employer. Employers should be aware that the CRD is actively pursuing non-filers.

The FAQs on the CRD website provide additional guidance for employers submitting a pay data report.

Pay Equity & Transparency Requirements for Federal Contractors

Currently, 22 states and 22 localities prohibit either private or governmental employers from asking applicants for prior pay information, while 10 states and eight localities have implemented pay transparency obligations. The federal government recently proposed such requirements for federal contractors.

On January 30, 2024, the Federal Acquisition Regulation (FAR) Council submitted a proposed rule titled "Pay Equity and Transparency in Federal Contracting." The legal authority for the proposed regulations stems from President Biden's March 2022 Executive Order 14069, entitled "Advancing Economy, Efficiency, and Effectiveness in Federal Contracting by Promoting Pay Equity and Transparency," which seeks to eliminate discriminatory pay practices by federal contractors. The Executive Order directed the FAR Council and other agency heads to consider issuing proposed rules to advance the economy, efficiency, and effectiveness in federal procurement by promoting pay equity and transparency for job applicants and employees of federal contractors and subcontractors.

The January 30, 2024, proposal, if approved, would:

• prohibit contractors and subcontractors from requesting or considering applicants' compensation history when making employment decisions related to personnel working "on or in connection with a government contract" (similar "salary bans" already apply to employers in at least 17 states and several counties and cities across the United States); and
• require contractors and subcontractors to disclose the compensation in all postings for open positions involving work on or in connection with a federal contract. In addition, contractors must provide a general description of benefits and any other forms of compensation.

Applicants for positions working on or in connection with a covered federal contract may file complaints against contractors alleging a violation of the regulation with the applicable contracting agency once the proposed regulations are finalized. The complaint must be submitted within 180 days of the violation and will be investigated by the contracting agency. The proposed regulation requires that complaints alleging noncompliance with the salary history ban and pay transparency requirement be filed with the appropriate contracting agency.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.