California’s pay transparency law is in effect, and it has national implications

When the clock struck midnight on New Year’s Day, and you gleefully clinked glasses of champagne, inevitably spilling half of it on your friend’s coworker’s sister’s cream carpet, California’s pay transparency law went into effect.

The latest domino to fall in a series of pay transparency laws, SB 1162, which was signed into law by Governor Gavin Newsom in September, will have ripple effects that extend far beyond the Golden State.

As Kara Govro, chief HR legal analyst at compliance platform Mineral, told HR Brew, doing business in California is somewhat inescapable, as the state boasts upward of 19 million workers. “California is huge,” she said. “If you’re a national employer and you want to hire remotely, are you really planning to exclude California just to get out of complying with this law?”

Expected to surpass Germany as the fourth-largest economy in the world this year, California is home to Silicon Valley behemoths, the US entertainment industry, and nearly 40 million residents. For comparison, consider New York City’s November pay transparency law, which affects employers conducting business in the comparatively Small Apple of 8.5 million people.

California’s law could have national implications bigger than any of the imaginary waves surfed by one Jeff Spicoli in 1982. While Newsom has been quick to indicate that pay transparency will help fight against pay disparity based on gender and race, California’s law maintains certain clauses—like allowing workers to ask for pay bands for their current jobs—that might cause turmoil among employees, Govro warned.

“Employees are going to talk, they’re going to get disgruntled, morale is going to drop,” she predicted.

The basics. California’s law is similar to the rules in NYC, Colorado, and Washington State, in that all employers with 15 or more employees must post salary and hourly pay ranges for all open positions listed externally and internally. A key distinction, Govro indicated, is that employees can legally ask to see salary ranges for their current roles, and employers have to reveal them. Though employers aren’t legally obligated to divulge the reasoning behind pay bands, Govro said organizations “should be prepared to explain why the ranges are the way they are” to stave off any strife.

Companies with 100 or more employees must submit an annual pay data report to California's Civil Rights Department that includes "the median and mean hourly rate for each combination of race, ethnicity, and sex within each job category." Failure to submit the report will incur a penalty of $100 per employee for the first offense and up to $200 for repeated violations. Companies that fail to list salary ranges for open jobs can expect penalties between $100 to $10,000 for each violation. The first offense incurs no penalty.

Govro predicted that certain companies will take liberties and perhaps feign ignorance—something that occurred in NYC’s somewhat haphazard rollout—but the broad language of SB 1162 indicates that very few exceptions will be made for things like remote hires. “It just says employers have to post pay ranges for jobs,” Govro said. “So, if you’re in California, or you are a California employer, which really could mean you have [one employee] in California—that makes you most likely a California employer.”

The implications. Govro explained that California’s move is a potential harbinger of more pay transparency on the horizon throughout the country, given the size of the state’s economy. “It’s going to put everybody at a disadvantage who's not doing it, because jobs with pay ranges get more applicants,” she said.

For job-seekers, that might be cause for more Champagne.—SB

Editor's note 1/3/23: This article has been updated since it was first published.

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