California Employers May Need to File Pay-Data Reports Similar to EEO-1

 

By Toni Vranjes July 23, 2019
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A California bill that would require large employers to file with the state government annual pay-data reports that have information sorted by race, ethnicity and sex has cleared a key hurdle. Now the state Assembly must decide the bill's fate.

The goal of SB 171 is to fight pay discrimination against women and minorities. Companies would be required to analyze pay data by gender, race, ethnicity and job classification and then send the information to the state. If an employer's data doesn't comply with relevant laws, the business could face investigations and penalties.

The state Senate approved the bill in May, after which it went to two Assembly committees.

The California Legislature's actions coincide with developments at the federal level mandating that large employers submit pay-equity data to the Equal Employment Opportunity Commission (EEOC).

In light of this news, companies should scrutinize their pay practices, according to California employment attorneys.

Background

In 2016, the Obama administration issued a revised EEO-1 form, requiring employers to report pay-data information broken down by specific demographics. The federal Office of Management and Budget authorized two data collections in a three-year period, but the Trump administration delayed the data collection in 2017.

A federal judge reinstated the revised EEO-1 form in March, and the federal pay reports for 2017 and 2018 are now due to the EEOC by September 30.

"In California, the desire is to lock it in and make [pay-data reporting] an annual obligation for employers," regardless of what happens at the federal level, said Christopher Olmsted, an attorney with Ogletree Deakins in San Diego.

"Many employers are unaware of their own pay disparities," said Sen. Hannah-Beth Jackson, D-Santa Barbara, who introduced the bill. "SB 171 will help California employers examine their pay practices and take action to compensate their workers fairly, as well as improve their hiring practices." The new legislation would apply to companies with 100 or more employees.

Under SB 171, California employers would need to submit their initial pay reports by March 2021, and the state would have to keep the reports for at least 10 years.

In addition, the California bill would authorize the government to publish aggregate reports on the data, as long as the reports are "reasonably calculated" to prevent the data from being linked to a company or person.

Pay-Equity Goals

SB 171 states that it aims to better identify wage patterns and enable enforcement of equal-pay or anti-discrimination laws.

Citing 2016 data, the bill highlights the persistent gender wage gap and notes that full-time female workers in California earned a median 88 cents for every dollar made by men—and women of color earned even less.

"This is money being lost that could go to basic necessities," said Jessica Stender, senior counsel for Equal Rights Advocates and a co-sponsor of the bill.

 

Stender noted that executives—especially those in larger companies—may be unaware of wage gaps, and analyzing the numbers can help them uncover any disparities.

The process also helps companies determine if there are legitimate justifications for pay disparities, she added. If they conclude that there are none, then they can fix the problem.

More Scrutiny Expected

If SB 171 is enacted, employers would be required to send a copy of their federal pay-data report to the state, said Chantelle Egan, an attorney with Seyfarth Shaw in San Francisco.

After filing their reports, however, companies could face greater scrutiny from state regulators. Under SB 171, employers must submit pay data to the California Department of Fair Employment and Housing, and the reports would also be sent to the California Division of Labor Standards Enforcement upon request.

[SHRM members-only resource: California Labor and Employment Law Overview]

The enforcement division administers the state's extensive labor laws, such as the Equal Pay Act, and has the authority to conduct field audits and investigate companies' pay practices.

"There's broad authority granted under the bill as to how the state can use the data," Egan observed.

According to Olmsted, state regulators could evaluate the data then contend that an employer is paying members of different races, ethnicities or genders in an unlawful way.

Key Takeaways

In light of these developments, Olmsted expects to see more class-action litigation on pay-equity issues. He urges employers to review their pay practices to ensure that any wage disparities are based on legitimate business criteria.

"We recommend that employers conduct periodic pay audits to ensure there are no mistakes with regard to compensation," he said.

Toni Vranjes is a freelance business writer in San Pedro, Calif.

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