SB 973: California’s new requirement to report employee pay data

California continues to be on the leading edge of pushing employers to disclose more and more information about their workforces. To that end, Wednesday is the deadline for certain California employers to submit their annual report on pay, hours worked, and demographics of their employees to the DFEH.

This requirement will sound familiar to anyone who has followed the tumultuous history of “Component 2,” a short-lived, but potentially returning, federal pay data reporting requirement. Under federal law, certain companies must file an annual EEO-1 report with the EEOC. In 2017 and 2018, the EEO-1 added a new “Component 2” section, which — for the first time — collected pay data from employers. Component 2 was discontinued in 2019 after concerns were raised about the use and utility of such data. With the passage of SB 973, however, private employers now have a similar obligation in California.

1. Which employers must submit pay data reports to DFEH?

Covered companies are those who (1) have at least 100 total employees, (2) have at least one employee in California, and (3) are required to file federal EEO-1 reports. The law requires employers to count employees located inside and outside California towards the 100-person threshold. However, an employer with no employees in California during the reporting year is not required to file a pay data report. Part-time employees count the same as full-time employees. When counting employees, employers can use either the “Reporting Year” (prior calendar year) or a “Snapshot Period” (a single pay period during the Reporting Year).

2. What information must be contained in a pay data report?

The pay data report must include the following information:

1. The Reporting Year and dates of the Snapshot Period. (Even if the company uses the Reporting Year to count employees, it must select a Snapshot Period for the report).

2. For each establishment, during the Snapshot Period, the number of employees by race, ethnicity, and sex in each of ten enumerated job categories. Employers should note that California requires that employees be allowed to identify their “sex” as male, female or nonbinary, which is different from current federal requirements.

3. For each establishment, during the Snapshot Period, the number of employees by race, ethnicity, and sex, whose total W-2 (Box 5) annual earnings fall within each of the pay bands used by the U.S. Bureau of Labor Statistics in the Occupational Employment Statistics survey.

4. For the Reporting Year, the total number of hours worked by each employee, plus the hours for any paid time off.

5. Specified information about the employer, including name, address and certain government identifiers.

6. For a multiple-establishment employer, each establishment’s name, address, number of employees, and major activity.

7. Any clarifying remarks the employer wishes to provide about the submission.

8. A certification that the information contained in the report is accurate and meets certain other requirements.

9. The name, title, address, phone number, and email address of someone who can be contacted about the report.

Notably, employers must include in the reports all employees (a) assigned to California establishments, whether they work in California or not (or telework), and (b) who work in California, even if they are assigned to a location outside the state. Employers “may include other employees, without a California connection, which is what the DFEH says it “expects.” However, employees are not required to be included if they live in California, but are not assigned to, and do not work at, a location within the state.

The reports should be submitted through DFEH’s website and DFEH has published a series of FAQs for employers that can be found here: https://www.dfeh.ca.gov/paydatareporting/faqs/

3. What will employee pay data be used for?

There is some question about how the data will ultimately be used. Employee advocates say the data will increase pay transparency, and thus further pay equity goals. Industry groups and businesses counter that such high-level, aggregated data, viewed without consideration of factors that impact compensation (like tenure, job, skill, etc.), serve no useful purpose to evaluate employers, identify potential discrimination, or advance pay equity.

There also are confidentiality concerns. The law says: “it is the intent of the Legislature that this pay data will be kept confidential and not available for disclosure.” However, the DFEH has said it may develop and publish aggregate reports based on the data obtained. The pay data also is likely to be accessible to agencies in the context of administrative enforcement, and potentially in civil actions. For employers, this means it is advisable to take the time to carefully consider and evaluate the information provided. This may be an opportunity to use the information gathered to conduct a privileged internal pay analysis to anticipate and mitigate any pay equity issues. 