California pay transparency law: What employers should know

In a perfect world, in every workplace, employees would know exactly how their paychecks stack up against their peers and never have to wonder, “am I being paid fairly?”

That’s the vision behind California’s pay transparency law, SB 1162. The law is a big step toward closing wage gaps and promoting equitable compensation across demographics. But for employers, navigating this new law requires more than just good intentions—it demands a clear understanding of the legal requirements and how to implement them effectively. 

In this article, we’ll break down what SB 1162 means for your business and how you can not only comply with the law, but also turn transparency into a competitive advantage.

What is SB 1162? California salary transparency law explained

California SB 1162, or the California Pay Transparency Act, is a piece of legislation that was designed to promote pay transparency and address wage disparities in workplaces across the state. Originally written to create a more equitable environment for all employees, the law mandates that employers disclose pay ranges in job postings, report detailed pay data to state authorities, and take other steps to promote better pay transparency in California. 

The goal is to shed light on compensation practices, making it easier to identify and correct any disparities that may exist based on gender, race, or other protected characteristics.
SB 1162 was signed by Governor Gavin Newsom in September of 2022 and took effect Jan. 1, 2023. The law requires employers to be more upfront about their pay practices and is designed to help employees and job seekers make informed decisions about their careers. As a result, California is helping set a precedent for other states to follow in the fight against wage inequality—alongside other states with similar laws, like New York, Washington, and Colorado.

California Pay Transparency Law requirements

Under California SB 1162, employers are required to adhere to a number of provisions aimed at promoting pay transparency and equity. The requirements are designed to help keep compensation practices fair, open, and easily accessible to both current employees and job applicants.

Here are the main requirements of the law:

Pay scale disclosure

All employers with 15 or more employees must:

• Include the pay scale for all positions in job postings (both their own job postings and those they engage via third parties to announce, post, or publish)
• Provide job applicants with the pay scale for the position upon request
• Provide current employees with the pay scale for their position upon request

Pay data reporting

Private employers with 100 or more employees and/or 100 or more workers hired through labor contractors must:

• Compile an annual pay data report. The report must include detailed information on the pay, hours worked, and the number of employees by race, ethnicity, and sex across various job categories whose earnings fall within each of the pay bands used by the US Bureau of Labor Statistics in the Occupational Employment Statistics survey. Within each job category, the report must include the employer’s median and mean hourly rate for each combination of race, ethnicity and sex.
• Submit the report for the previous calendar year on or before the second Wednesday of May to the California Civil Rights Department.
• Submit a separate pay data report to the California Civil Rights Department for workers hired through labor contractors. It must include the names of all labor contractors used (the labor contractors must supply the employer with all necessary information for the report).

Record-keeping

All employers with 15 or more employees must: 

• Maintain records of a job title and wage rate history for each of their employees for the duration of their employment and for a minimum of three years after their employment ends
• Make all records available for the state labor commissioner's inspection upon request

Salary history inquiry ban

Since 2018, California has prohibited employers from asking job applicants about their salary histories during the hiring process. By focusing on applicants’ qualifications rather than their past earnings, this provision aims to promote fairer compensation practices moving forward. Employers cannot rely on salary history to make hiring decisions or establish an employee’s compensation.

How to stay in compliance with California pay transparency law

Staying compliant with California's pay transparency law can help your business avoid legal penalties and foster a fair and equitable workplace. Here are some practical steps employers can take to make sure they are meeting the requirements of SB 1162:

Develop and maintain accurate pay records 

One of the first steps employers can take to comply with SB 1162 is make sure all their employee pay records are accurate, up-to-date, and properly maintained. 

Employers should keep detailed records of each employee’s job title, wage history, and any changes in compensation. According to the law, these records must be retained for the duration of the employee’s tenure and for three years after employment ends. Accurate record-keeping has benefits beyond just compliance with the state’s pay transparency law—it can also help your business defend itself in the event of a dispute or audit.

Review your hiring practices

Next, employers should conduct a thorough review of their hiring practices to ensure they align with the requirements of the pay transparency law. This includes eliminating any questions about salary history from job applications and interviews, as well as rewriting job postings if needed to make sure they include clear and accurate pay scales.

Regularly auditing your hiring processes can help identify and correct any practices that may inadvertently violate the law—and make sure all candidates are treated fairly from the start.

Establish and communicate compensation ranges

Under the law, many California employers need to establish clear pay ranges for all positions within the company and communicate them both internally and externally. Being transparent about the pay scales you offer helps employees understand where they stand within their pay band and allows job applicants to make informed decisions about whether to pursue a position.

When establishing pay ranges, base them on objective criteria such as market rates, job responsibilities, and experience levels. Regularly review them to make sure they remain competitive and equitable.

Train HR teams on pay transparency policies

HR teams play a key role in implementing and enforcing pay transparency policies, so another key step to take is to provide your HR leaders with comprehensive training on the requirements of California SB 1162. This typically includes information about how to handle pay scale disclosures, maintain accurate records, and avoid salary history inquiries. Offer training that covers how to effectively communicate pay policies to employees and job applicants alike. 

Well-informed HR professionals can help your company not only comply with the law, but also foster a culture of transparency and fairness.

Consequences of non-compliance with SB 1162

Failing to comply with California's pay transparency law, SB 1162, can result in significant consequences for businesses. These penalties are designed to enforce adherence to the law and to ensure that employers take their responsibilities seriously. Here are some of the consequences that businesses may face if they fail to comply with SB 1162:

Civil penalties

One of the most immediate consequences of non-compliance with SB 1162 is the imposition of civil penalties. Employers who fail to disclose pay scales in job postings can be subject to fines of no less than $100 and no more than $10,000 per violation.

These penalties can quickly add up, particularly for larger organizations or those with multiple violations, leading to substantial financial burdens.

Legal liabilities

Non-compliance with SB 1162 can also expose businesses to legal liabilities. Employees or job applicants who believe they have been harmed by an employer's failure to comply with the law may file complaints or lawsuits—and failing to keep the employee records required by the law can create a rebuttable presumption against the employer if an employee files a claim against them—meaning the burden of disproving the claim shifts to the employer.

Reputational damage

Beyond financial penalties, non-compliance with SB 1162 can damage a company’s reputation. During a time when transparency and fairness are increasingly valued, businesses that violate pay transparency laws may lose the trust of their employees, customers, and the public. Resulting decreased employee morale, higher turnover rates, and a tarnished brand image can all have negative impacts on the business.

The best way to streamline payroll compliance

Need to make sure you always comply with California’s pay transparency laws—and similar laws in other states and local jurisdictions where they’re being considered now and in the future?

With Rippling, you can set up pay ranges in the Compensation Bands app, then enable pay transparency so that pay scales automatically populate to any job postings you set up through Rippling Recruiting. Then, candidates will be able to see pay scales alongside the position details within job posts.

Frequently asked questions

Who is affected by the pay transparency requirements in California?

The pay transparency requirements under California SB 1162 primarily affect employers with 15 or more employees. These businesses are required to include pay scales in job postings and provide pay scale information to current employees upon request.

Additionally, employers with 100 or more employees must submit annual pay data reports to the California Civil Rights Department (CRD).

However, even smaller employers who do not meet these thresholds should be aware of the evolving landscape of pay transparency laws, since they may still be subject to other related regulations or may choose to adopt similar practices to stay competitive in the labor market.

Is it legal to talk about your salary in California?

Yes, it is completely legal to talk about your salary in California. In fact, the state’s labor laws protect employees’ rights to discuss their wages with co-workers. This protection is part of broader efforts to promote pay transparency and reduce wage disparities. Employers cannot retaliate against employees for discussing their pay, and any attempts to prevent these discussions are considered illegal under California law.

This blog is based on information available to Rippling as of September 3, 2024.

Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.