The Ultimate Guide to California Pay Transparency & Pay Equity Compliance

California continues to lead the way in workplace equity, introducing laws designed to make pay practices fairer and more transparent. These rules aren't just about compliance—they're about fostering trust and accountability between employers and employees. For HR professionals, understanding the requirements is key to creating equitable workplaces and avoiding legal missteps.

The state's pay transparency laws have grown significantly, with SB 1162 now requiring employers to include pay ranges in job postings and provide pay scale information to employees upon request. These regulations build on earlier laws like the California Equal Pay Act, which addressed wage disparities for “substantially similar work” and banned salary history inquiries. Together, these laws aim to level the playing field for workers and hold employers accountable for fairness.

California's approach to pay transparency goes beyond job postings. Employers must also comply with strict recordkeeping and reporting obligations, ensuring that pay equity becomes a long-term priority rather than a one-time adjustment. For businesses hiring in California, knowing what's required and how to implement the rules effectively is non-negotiable.

Understanding California Pay Transparency

SB 1162 requires employers with 15 or more employees to include pay scales in all job postings. This applies to any role that could be filled by a California resident, whether the position is fully remote, hybrid, or onsite. The legislation also extends existing laws like the California Equal Pay Act, which prohibits wage gaps based on sex, race, or ethnicity for substantially similar work. Employers are further restricted from asking candidates about their salary history, a rule that's been in place since 2018.

The goal of these laws is to address wage inequities by increasing visibility into pay practices. Requiring pay ranges in postings and providing pay scale details to employees ensures transparency and accountability. This transparency empowers workers to understand their compensation and advocate for fair treatment. It also places responsibility on employers to maintain consistent, equitable pay practices.

Who Must Comply

Businesses with 15 or more employees must disclose pay ranges in job postings for all roles, including remote positions that may be performed by California residents. This requirement covers postings made directly by the business or through third-party staffing agencies.

Employers of any size must provide pay scale information to current employees who request it. This includes the range of pay for the employee's current role and must be accurate and up-to-date. Employers are also required to maintain records of job titles and wage history for each employee throughout their employment and for three years after termination. This recordkeeping ensures compliance and allows for audits to identify potential pay equity issues.

The Difference Between Pay Equity and Pay Transparency

Pay equity and pay transparency both address fair compensation practices but tackle entirely different aspects of wage fairness. It's important to recognize how each operates to meet compliance requirements and foster trust in the workplace.

Pay Equity

Pay equity ensures fairness by addressing wage gaps between employees performing substantially similar work. The focus is on eliminating unjustified differences in pay based on sex, race, or ethnicity. Employers must measure roles against specific criteria like skills, effort, responsibility, and working conditions to determine if they are comparable.

For instance, two employees with different job titles but who perform similar tasks and contribute equally should receive comparable pay. If wage differences exist, employers must justify them through objective criteria such as seniority, merit-based performance, or production figures. Without clear documentation, these gaps can expose employers to legal risks.

Pay Transparency

Pay transparency, on the other hand, focuses on information. It requires employers to disclose salary ranges in job postings and provide pay scale details to current employees upon request. Employees are also protected from retaliation when discussing wages with colleagues.

Transparency makes compensation practices visible. For example, listing a salary range in a job advertisement or sharing pay scales with employees ensures consistency and builds accountability. It also helps employees understand how their compensation is determined, which can reduce misunderstandings or perceptions of unfair treatment.

While pay equity addresses whether wages are fair, transparency ensures that pay practices themselves are accessible and open. Together, they create a foundation for equitable and honest compensation systems, benefiting both employers and employees.

Key Requirements of California's Equal Pay Act

California's Equal Pay Act outlines straightforward obligations for employers to ensure fair compensation practices. The law focuses on eliminating unjustified wage disparities and creating workplace accountability. Here's what every employer needs to know:

Substantially Similar Work

Pay comparisons aren't based on job titles. The law evaluates whether two roles involve similar skill, effort, responsibility, and working conditions. For example, if two employees perform comparable tasks but work in different departments, their pay must align unless clear, lawful factors justify differences. Employers must rely on measurable criteria—such as seniority or productivity metrics—to support any pay gaps.

Prohibitions on Salary History

Employers cannot ask about or use a candidate's salary history during hiring. Applications, interviews, or casual conversations cannot include questions about previous pay. Even if a candidate volunteers their salary history, it cannot influence the offered compensation. Instead, focus on the role's pay scale and the candidate's qualifications. The goal is to break cycles of inequity tied to past wages.

Retaliation Protections

Employees have the right to discuss pay without fear. Employers cannot punish workers who talk about wages, ask for pay scale information, or file pay-related claims. Retaliation—whether through termination, demotion, or other adverse actions—violates the law. Protections also extend to employees who aid coworkers in pay equity claims or participate in investigations.

Record Retention

Employers must keep detailed records of wages, job titles, and pay decisions for at least three years. SB 1162 adds requirements to maintain records of pay scales and job postings. These documents ensure transparency and serve as evidence during audits or investigations. Failure to properly retain records can result in penalties and weaken an employer's legal defense.

Pay Data Reporting Obligations

California’s pay data reporting laws require employers to take specific actions to ensure compliance. These requirements aim to uncover pay disparities and promote workplace equity, making them a key responsibility for employers operating within the state. Clarity and thoroughness are non-negotiable when preparing these reports.

Who Must Report

The reporting mandate applies to private employers with 100 or more employees. This includes full-time, part-time, and temporary staff on payroll. Businesses utilizing 100 or more workers through labor contractors, such as staffing agencies, must also report data for those individuals. Employers with multiple locations in California are required to submit separate reports for each site. For remote roles, employees working from California must also be included, regardless of where the company is headquartered.

What to Include

The required pay data report is comprehensive and must follow strict guidelines. Employers must provide:

Employee demographics: A breakdown of employees by race, ethnicity, and sex across specific job categories, such as managers, professionals, and technicians.
Compensation details: Median and mean hourly pay rates for each demographic group within each job category.
Workforce structure: Information about job categories aligning with federal EEO-1 reporting standards.
Remote worker inclusion: Data for employees working remotely in California, ensuring no gaps in reporting.

Employers must also maintain supporting records like payroll data and methodologies used to calculate submitted figures. These records are critical for accuracy and compliance audits.

Deadline

The 2024 pay data report must be submitted by May 14, 2025. Moving forward, annual reports are due on the second Wednesday of May. Missing the deadline can result in financial penalties, so employers should plan ahead to compile data well in advance.

Compliance Steps for Medium-Sized Businesses

Medium-sized businesses have a unique opportunity to establish clear, compliant pay practices while fostering trust with their workforce. California pay transparency and pay equity laws outline specific steps employers must follow, and taking a thoughtful approach can help you meet these obligations while positioning your organization as a fair, transparent employer.

Develop Transparent Pay Ranges

Conduct a thorough review of current employee salaries. Identify inconsistencies and ensure pay aligns with both market rates and your internal benchmarks. Establish clear pay ranges for every position by using measurable factors:

Skills: Define the technical expertise, certifications, or qualifications required.
Experience: Outline the years of relevant experience needed to meet job expectations.
Responsibilities: Detail the scope of tasks, decision-making authority, or leadership required.

Document the methodology used to create pay ranges and apply it consistently across all roles. Transparency isn't just a legal requirement—it strengthens employee confidence in your pay practices.

Review and Update Job Descriptions

Audit job descriptions to ensure they accurately reflect each role's duties, qualifications, and performance expectations. Make updates where necessary to maintain clarity. Look for overlap between positions to identify potential pay equity gaps. For example, employees performing substantially similar work under different titles should have comparable pay unless justified by clear factors like seniority or performance.

Maintain Accurate Records

Keep detailed records of pay scales, wage adjustments, and job title histories. Organize this data in a way that makes it easy to retrieve when needed. Retain records for at least three years, or longer if required, to comply with legal retention rules. Include records for terminated employees to ensure accountability in case of an audit or dispute.

Train Your Hiring Team

Educate hiring managers and recruiters on California pay transparency and pay equity laws. Focus training on specific topics, including:

Avoiding salary history inquiries during interviews or negotiations.
Communicating pay ranges clearly with candidates and employees.
Handling pay-related questions with consistent, compliant messaging.

Provide clear scripts or templates for discussing pay to ensure standardized, accurate communication.

Respond to Employee Requests

Set up a process to address employee pay scale requests promptly. For example:

Acknowledge the request in writing.
Provide the requested pay scale information without unnecessary delays.
Document the interaction for compliance and recordkeeping.

If employees raise concerns about wage differences, treat them seriously. Investigate, respond, and take action where necessary to maintain trust and avoid legal issues.

Conduct Regular Equity Audits

Examine compensation within each job category to identify and address unexplained wage disparities. Compare salaries using objective factors such as:

Length of service.
Performance-based metrics.
Quantifiable outputs like production levels.

When pay gaps appear without a valid explanation, make adjustments promptly. Document all changes and the reasons behind them. Regular audits ensure compliance and demonstrate your commitment to fair pay practices.

Penalties and Enforcement

California pay transparency and pay equity laws are not just guidelines—they carry real consequences for businesses that fail to comply. Fines and legal action can follow even seemingly small oversights, making strict adherence a priority for employers.

Potential Fines

Monetary penalties for noncompliance are significant and can quickly escalate. Employers who neglect to include pay ranges in job postings face financial repercussions:

$100 to $10,000 per violation: The Labor Commissioner’s Office calculates fines based on the number and severity of infractions. Each individual job posting that violates the law counts as a separate offense.
Increased penalties for repeat violations: Employers that continue to ignore legal obligations after an initial warning or citation will see fines rise substantially.

Neglecting to follow California's requirements isn't just a financial risk—it also signals carelessness to current and prospective employees.

Employee Legal Rights

Employees hold the power to address violations directly. California law offers clear options for workers to take action if employers violate pay transparency or equity rules:

Submitting complaints to the Labor Commissioner's Office: Employees can file grievances that trigger investigations into employer practices.
Filing lawsuits: Workers may choose to pursue civil action, seeking remedies such as back pay, damages, or other compensation in court.

These legal pathways ensure that employees have recourse and encourage employers to maintain transparency and fairness. Ignoring employee concerns can lead to reputational damage, legal costs, and long-term operational setbacks.

First-Time Violation Leniency

For initial violations, enforcement agencies may provide some flexibility. Employers who unintentionally omit pay ranges in job postings can often avoid fines by addressing the issue quickly:

Warnings instead of penalties: First-time offenders often receive a formal notice with instructions to correct the violation.
Prompt correction required: Employers must update non-compliant job postings immediately to avoid further scrutiny or penalties.

However, leniency has limits. Repeated or uncorrected violations will result in monetary fines and potential legal action. Building compliant pay practices from the outset is the most effective way to prevent issues altogether.

Final Thoughts

As you navigate the complexities of California's pay transparency and pay equity laws, remember that compliance is an ongoing commitment to fairness and trust in your workplace. We're here to support you in building equitable compensation practices that benefit your employees and your business. Book a demo with GoCo today to learn how our platform can help you streamline compliance and create a more transparent, equitable workplace.