For many of us with a career, we have thought of salaries as a private matter. Many companies have strict policies on the discussion of salaries among peers. While there is nothing wrong with keeping one’s salary confidential, this can also raise issues of inequality. Sometimes, but not often, a wage gap can be legitimate. Mostly, it varies based on race and gender. When this happens, a distinct disclosure requirement needs to be set by employers to make pay transparency mandatory. The new California pay transparency law, SB 1162 aims to discourage pay disparity between employees. Signed on September 27, 2022, by California Governor Gavin Newsom, Senate Bill 1162 is set to take effect on January 1, 2023. Here, we give an in-depth analysis of the newly passed law.

What Does SB 1162 Say?

1162 is an effort to expand pay transparency and counter workplace discrimination. To eliminate gender and race-based pay disparities, SB 1162 covers two main transparency requirements. The first requirement talks about annual pay data reporting. According to the new California salary law:

1. On or before the second Wednesday of May 2023, and on or before the second Wednesday of May of each year thereafter, a private employer that has 100 or more employees shall submit a pay data report to the department covering the prior calendar year, which, for purposes of this section, shall be referred to as the “Reporting Year.”
2. On or before the second Wednesday of May 2023, and on or before the second Wednesday of May of each year thereafter, a private employer that has 100 or more employees hired through labor contractors within the prior calendar year shall submit a separate pay data report to the department covering the employees hired through labor contractors in the prior calendar year. The private employer shall also disclose on the pay data report the ownership names of all labor contractors used to supply employees. A labor contractor shall supply all necessary pay data to the private employer.

As for the second requirement, the law enforces employers to disclose the pay scale to the applicants or employees. It says:

1. An employer, upon reasonable request, shall provide the pay scale for a position to an applicant applying for employment.
2. An employer, upon request, shall provide an employee with the pay scale for the position in which the employee is currently employed.
3. An employer with 15 or more employees shall include the pay scale for a position in any job posting.
4. An employer shall maintain records of a job title and wage rate history for each employee for the duration of the employment plus three years after the end of the employment in order for the Labor Commissioner to determine if there is still a pattern of wage discrepancy. These records shall be open to inspection by the Labor Commissioner.
5. An employer with 15 or more employees that engages a third party to announce, post, publish or otherwise make known a job posting shall provide the pay scale to the third party. The third party shall include the pay scale in the job posting.

Pros and Cons of SB 1162

Not every law passed is necessarily constructive for the people. Certain laws even abridge the rights of individuals and require a judicial review.

Pros:

• Pay transparency can increase productivity. It is observed that when employees have knowledge of what their peers are earning, they tend to work harder. Salary transparency shows employees that pay and bonuses are performance-based, hence the increased productivity.
• Wage gaps are removed when employees talk about their salaries openly. Any disparities can come to light and be resolved. If employers are biased, let’s say towards female employees or a person of color, this can be confronted and rectified.
• Pay transparency tends to attract new employees. Every prospective employee would want to work in an environment where he can trust his employer. Also, applicants applying for different positions would prefer to reach out to job listings that clearly outline the salary and benefits.

Cons:

• Wage transparency encourages comparison. The employees might start wondering why they are being paid less than their counterparts. This can disrupt the work environment and increase competition in the team.
• Competent employees may leave the workplace thinking they are not being rewarded sufficiently based on their performance. They might feel that their employer has been unfair. With salary transparency, fair distribution of salaries is enforced.
• While pay transparency increases productivity, it also decreases efficiency. This happens when employees start resenting their hard work over the fact that they have been earning less than a less-experienced coworker.

Is SB 1162 The Way To Go?

Race and gender-based discrimination has been around for centuries now. With laws like 1162, women and people of color in particular can take a sigh of relief. The only thing employers need to be cautious of is that pay transparency without proper implementation policies can be troublesome.