California Requires Employers to Submit Pay Data Report

Governor Gavin Newsom signed Senate Bill 973 on September 30, which requires private employers in California to submit an annual Pay Data Report to the Department of Fair Employment and Housing (DFEH), with the first report due by March 31, 2021.

Report Must Include Pay Data Categorized By Race, Ethnicity, and Gender

Covered Employers: The new law applies to private employers with more than 100 employees who are required to file annual, federal EEO-1 information. The law does not provide any guidance as to whether the 100-employee requirement includes California employees only or all US employees.

Reporting Year: The reporting year is a calendar year, and each employer shall create a snapshot that counts individuals by choosing a single “snapshot” pay period between October 1 and December 31 of the Reporting Year to capture the employees whose information is reported.

Report Contents:

1. Number of employees categorized by race, ethnicity, and sex[1] in each of the EEO-1 defined job types (executives, mid-level managers, professionals, technicians, sales workers, administrative support workers, craft workers, operatives, laborers and helpers, and service workers)
2. Number of employees by race, ethnicity, and sex whose annual earnings (annual reported W-2 pay for the Reporting Year regardless of hours the employee worked) fall within each of the pay bands used by the US Bureau of Labor Statistics in its Occupational Employment Statistics survey
3. Total number of hours worked by each employee counted in each pay band during the Reporting Year
4. For employers with multiple establishments (defined as “an economic unit producing goods or services”), the report must contain the required information for each establishment and a consolidated report for all employees
5. The employer’s North American Industry Classification System (NAICS) code

In addition, the employer may elect to provide clarifying remarks.

Details: Employee is defined as, “an individual on an employer’s payroll . . . whom the employer is required to include in an EEO-1 report and for whom the employer is required to withhold [payroll taxes].” The race and ethnicity categories for the report are the same as those collected and used for EEO-1 purposes. Total earnings means the total for the entire Reporting Year as shown on the Form W-2 for each employee employed in the “snapshot,” regardless of how much of the year the employee worked. The law remains unclear as to whether the report must include all employees and establishments in the United States or just those in California. The report must be submitted in a format that allows searching and sorting using readily available software.

Confidentiality and Retention: The state and its agencies are required to keep the report data for each unique employer confidential, and it may not be collected through a Public Records Act request. The state or its agencies may, however, report on and publish aggregated data, provided that aggregated reports are reasonably calculated to prevent the association of any data with any individual business or person. The agency must retain the data for a minimum of 10 years.

Enforcement: Upon the DFEH’s request to the State’s Employment Development Department (EDD), the EDD is directed to provide a list to the DFEH of all businesses with more than 100 employees within 60 days. The DFEH can then use that list to determine if employers have complied with the reporting requirements of SB 973. If the DFEH does not timely receive the required report from the employer, it may seek an order compelling compliance and recover the costs associated with seeking compliance.

Other Jurisdictions: The California law is modeled after federal legislation proposed in the previous administration that stalled due to significant litigation. In addition, as recently announced, the federal government is still reviewing pay data administration with the Equal Employment Opportunity Commission (EEOC) funding an independent study. Notably other states, such as New York and Rhode Island, have considered similar legislation, but have not yet passed any such legislation. However, employers should be on notice that with the passage of SB 973, bills in other states may now be more likely to become law.

Action Items: Select a “snapshot” pay period between now and the end of the year. Develop the form of information to use once annual W-2 information for 2020 becomes available, along with processes to collect and report the required information. Prepare the report with the assistance and at the direction of counsel to ensure communications regarding the report, including the results and any impact the report will have to the company, is privileged—as you would with the EEO-1 report. Instead of preparing a separate report for California, employers may also submit a copy of their EEO-1 report to the DFEH to satisfy the reporting requirements of SB 973 and be in compliance if the EEO-1 report contains the same or substantially similar pay data information as required by the new law.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Los Angeles
Kathryn T. McGuigan

Orange County
Daryl S. Landy
Barbara J. Miller

Silicon Valley
Alicia J. Farquhar

San Francisco
Michael D. Schlemmer

[1] Notably, the legislation in requiring pay data on the basis of sex does not specifically address the use of a non-binary category. But employers should be careful to comply with the Fair Employment and Housing Council Regulations Regarding Transgender Identity and Expression; though an employer non-binary option and voluntary self-identification remain a reasonable alternative.