SB 973 – Annual pay reporting now a requirement for many California employers
It’s not a case of the third time being the charm; rather, perhaps the fourth, or maybe the fifth time – depending on how you count…
With the deadline to sign off on legislation rapidly approaching, late on September 30th, California Governor Gavin Newson signed into law SB 973, which requires the annual reporting of pay data by private employers with 100 or more employees to the Department of Fair Employment and Housing (DFEH) by (initially) March 31, 2021 and then by March 31st each year thereafter.
Employers should first prepare for a major déjà vu moment, recognizing the uncanny similarities of the SB 973 requirements to those of the rescinded federal EEO-1 pay report (“EEO-1 Component 2”). Further, SB 973 is also pretty much a carbon copy of three previous legislative attempts at gathering pay data – one vetoed in 2017 and two held in committee in 2018 and 2019.
The enacted legislation can be found here: Senate Bill 973
The legislation was introduced by State Senator Hannah-Beth Jackson, who also introduced the California Fair Pay Act (SB 358), the 2015 “game-changer” that went into effect in 2016, making it illegal for an employer in California to “pay any of its employees at wage rates less than the rates paid to employees of the opposite sex for substantially similar work, when viewed as a composite of skill,…”
For more on this critical new law, which is intended to provide the state with the means to “more efficiently identify wage patterns and allow for targeted enforcement of equal pay or discrimination laws…” please continue to our blog.
Behind SB 973 is the motivation to continue efforts to reduce gender and racial pay gaps. Within the legislation itself it is noted that pay discrepancies resulting from unconscious biases or historic inequities still exist and are often “hidden from sight.” The expectation is that the new reporting requirements will help bring these to light and allow them to be resolved.
Who is required to report under SB 973?
Private employers with 100 or more employees that are required to file an annual Employer Information Report (EEO-1) pursuant to federal law. There is still ambiguity as to whether or not this applies to employers with 100 or more employees in California or 100 or more nationwide. It is clear though that employers with multiple establishments must submit a report for each establishment as well as a consolidated report that includes all employees.
What must be included in the report?
SB 973 specifically requires that the pay data report include:
(1) The number of employees by race, ethnicity, and sex in each of the following job categories:
(A) Executive or senior level officials and managers.
(B) First or mid-level officials and managers.
(E) Sales workers.
(F) Administrative support workers.
(G) Craft workers.
(I) Laborers and helpers.
(J) Service workers.
(2) 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.
(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.
Employers may, but are not required to, provide clarifying remarks concerning the information in the report.
How is the data to be reported?
The legislation is clear that employers must provide the pay data in a format that allows the DFEH to search and sort the information using readily available software.
For employers accustomed to providing the annual EEO-1 report, the “good news” is that the legislations states: “If an employer submits to the department a copy of the employer’s Employer Information Report, otherwise known as an EEO-1 Report, containing the same or substantially similar pay data information required under this section, then the employer is in compliance with this section.”
Employers must submit information based on an employee workforce “snapshot” taken from the end of any pay period between October 1st and December 31st. The submission must account for and include all employees who were active as of that snapshot pay period. In the snapshot the employer must calculate the total earnings, as shown on the IRS Form W-2, for each employee for the entire “Reporting Year,” regardless of whether or not an employee worked for the full calendar year
SB 973 is not shy about tracing its origins to the rescinded federal EEO-1 Component 2 report, and, like that report, the W-2 income data will also be reported by tallying the number of employees in each of the job categories and categorizing their pay in pay bands as established by the Bureau of Labor Statistics in the Occupation Employment Statistics Survey.
What is the deadline?
The pay data report must be submitted to California’s Department of Fair Employment and Housing (DFEH) by March 31, 2021, and annually thereafter, with the report based on the prior calendar year. The first deadline is March 31, 2021, and will be based on the employee workforce snapshot taken from the end of any pay period between October 1st and December 31st of 2020.
What else should employers keep in mind?
All employers, not just those covered under SB 973, should make a serious effort to ensure their compensation program is free of pay inequities. They are rarely intentional, but they do occur – more often than we might expect. In light of the new requirements for many employers under this law, here are a few additional considerations:
- For many employers this will be a very new experience, and will possibly be challenging come next March. Definitely plan ahead!
- Working with the established pay groupings may prove challenging for some employers. The groupings are broad and require the aggregation of often dissimilar jobs into the specified pay groupings.
- Exactly what is meant by allowing employers to provide “clarifying remarks” is difficult to ascertain at this time. It probably should not be considered a path to forgiveness or exoneration, and it is always important to keep in mind that once put in writing, it is hard to walk back; so, proceed with caution. Hopefully more guidance will come out on this.
- There is still much to be clarified, including the applicability of overtime, commissions, bonuses, etc. which can be seasonally-impacted and therefore not necessarily accurately reflected on a single “snapshot” reflecting ytd pay.
- At the heart of SB 973 is the movement toward equal pay for equal work. California has been ahead of the curve in legislating this, and most employers have been working toward this goal. Nevertheless, it is always a good idea to conduct a thorough pay equity analysis, whether or not reporting is required. All employers should make sure this is done between now and the end of the year. Be sure to involve employment counsel in the event that anomalies are uncovered. It is in everyone’s best interest to make this a priority!