What Employers Need to Know About the California Pay Transparency Law

As fair pay and workplace equity discussions continue to increase, transparency is becoming a critical component of creating more inclusive and equitable work cultures. In the state of California, pay transparency laws have become a critical consideration for employers, requiring both understanding and compliance.  

The California Pay Transparency Law, SB 1162, was enacted to help address gender and racial wage gaps. It has significant implications for employers of all industries and sizes. In this article, we’ll review key components of this law, its impact on employers, and best practices for staying compliant. 

Why California’s Pay Transparency Law Matters 

The emphasis on pay transparency is not just a trend, it’s a response to increasing demands for fairness and equity in compensation practices in workplaces nationwide. There has been more pressure on employers, particularly in recent years, to provide greater transparency around salary structures.  

This demand lead to California passing their Pay Transparency Law in 2022, SB 1162, which requires employers to share salary information more openly and restricts certain hiring practices. For employers, understanding the legal requirements is imperative, since failing to comply with these new rules can lead to penalties, legal action, and damage to the company’s reputation. 

SB 1162 also requires certain employers submit an annual pay data report to the CA Civil Rights Department with employee data. Click below to download our free checklist to help you prepare that report. 

Overview of California's Pay Transparency Law 

In California, SB 1162 is the official name of the legislation that governs pay transparency throughout the state. The law was signed in 2022 and implementation began in January 2023. Its primary goal is to increase salary transparency across the state to help close gender and racial wage gaps. 

Under this law, employers are required to make specific disclosures about compensation practices. The law applies to most employers with 15 or more employees, regardless of industry. For those with fewer than 15 employees, the law will require salary disclosures at this stage, but they should still be aware of the overall trends in compensation transparency. 

Goal of Closing Pay Gaps Between Genders and Races 

One of the main reasons this law was enacted was to try to close the pay gap between men and women and among racial groups in California. The Civil Rights Department (CDR) discovered that these pay gaps were resulting in billions of lost wages each year for women and racial groups and enacting this legislation was a proactive step forward to help close those pay gaps. Data from the CRD in 2021 showed: 

• Women made an estimated 81 cents for every dollar that men earned. 

• Women earned less in nearly every industry that was surveyed. 

• The pay gap is greater for women of color – Latina women earned 44 centers for every dollar white men earned and Black women earned 58 cents . 

*This data was collected in 2021 and covered approximately 40% of California’s workforce. Please read the California CRD press release from 2024 for more information. 

Key Requirements for Employers Under California's Pay Transparency Law 

If you meet the requirements above, you must follow the California Pay Transparency Law. Here are steps on what your HR team can do to ensure compliance: 

Pay Disclosure Requirements 

One of the most important elements of California’s Pay Transparency Law is the requirement to disclose salary ranges in job postings. Starting in 2023, employers have to include the expected salary range in any job listing that is shared with the public. This includes job boards, company websites, or third-party recruitment platforms. The salary range should reflect what the employer is prepared to pay for the position based on the qualifications, experience, and other factors relevant to the respective role. 

During the hiring process, employers must also provide salary ranges upon request. If a candidate asks for this information, the employer must be able to provide it in a timely manner and without any type of penalty or retaliation. This step ensures that job seekers have a better understanding of what to expect in terms of compensation, which helps them make more informed decisions about job opportunities and potential job offers. 

Prohibition Against Salary History Inquiries 

Under SB 1162, employers are prohibited from asking about a candidate’s previous salary history. This is a significant change for many businesses because it prevents employers from using a candidate’s past compensation as a benchmark. The rationale behind this prohibition is to eliminate offering lower pay based on previous wages, especially for women and people of color, who have historically been paid less than their counterparts. 

This prohibition requires employers to adjust their hiring processes. Rather than relying on past salaries, employers will need to focus on the value of the position and the candidate’s skills and experience when determining compensation. 

Employee Rights Under the Pay Transparency Law 

The California Pay Transparency Law also grants employees certain rights. Employees have the right to ask their employers for the salary range for their current position, and employers are obligated to provide this information. This transparency cultivates and supports an environment where employees can better advocate for themselves and confirm that they are not being underpaid compared to their colleagues who are performing similar work. 

Additionally, employees can raise concerns if they believe that they are being paid less than the advertised salary range for their role. This law supports transparency by giving workers the tools to ensure they are being compensated fairly. 

Recordkeeping and Compliance Obligations 

Employers must maintain records of the salary ranges for all positions, as well as any data regarding how those salary ranges were determined. Employers are also responsible for tracking the compensation data of applicants and employees for auditing purposes. If the state’s labor department conducts a review or audit, employers will need to provide these records to demonstrate their compliance with the pay transparency laws in California. 

Finally, employers will have to provide a pay data report to the California Civil Rights Department (CRD) annually, which includes details about the compensation and demographic data of their workforce. The California Pay Report is due annually on the second Wednesday of May. For more information on the report and portal, click here. These records must be kept for at least three years. 

Penalties for Non-Compliance 

Failure to comply with California’s Pay Transparency Law SB 1162 can have serious consequences for employers. Non-compliant employers may face penalties or fines. For example, an employer that fails to include salary ranges in job postings could be fined up to $100 per violation, with the fine escalating to $200 for subsequent violations.  

Additionally, if the CRD finds that an employer is not maintaining or submitting the required pay data reports, the employer could be fined up to $500 for the first violation and up to $1,000 for subsequent violations. 

Lawsuits can be filed by employees or job applicants if they feel their rights under the law have been violated. In that scenario, an employer may face significant legal fees, damages, and negative impacts on their bottom line and company reputation. With that said, it’s important for HR to understand their role in partnering with the business to help them remain in compliance with the law. 

Impact on Employers & HR Best Practices 

For HR, the California Pay Transparency Law represents both opportunities and challenges. It presents an opportunity for companies to build a strong employer reputation by demonstrating their commitment to fairness and equity, in addition to adjusting their existing process to comply with the law. 

Here are some key actions companies should take to ensure compliance, and where HR can provide guidance: 

1. Update Job Descriptions and Postings: Review and revise all job descriptions to include salary ranges in job postings. This will not only help ensure compliance but also enhance the candidate experience. Be sure to keep these updates as salary structures change.  
2. Review Compensation Structures: Take the time to assess your company’s current compensation practices. Are there any areas where pay discrepancies exist that could be addressed? Use this opportunity to check that your pay structures are competitive, equitable, and compliant with the law. 
3. Train Hiring Managers: Hiring managers and interviewers need to be well-versed in the requirements of the law. They should understand that asking for a candidate’s salary history is prohibited and that they must share salary ranges during interviews, if requested. 
4. Prepare for Multi-State Considerations: If your business operates in multiple states, it’s essential to keep updated of the different pay transparency laws. While California has one set of rules, other states may have similar or even stricter requirements. HR should consult with legal counsel or other experts, like OutSolve, to make sure that their company is compliant anywhere they do business. 

Additional Resources & Next Steps 

Many employers find it helpful to work with compliance experts to adhere with California's Pay Transparency Law. Organizations like OutSolve offer expert services and resources to help support and guide employers through the complexities of pay transparency laws. For more detailed information, check out the Ultimate Guide to State Pay Transparency Laws provided by OutSolve here. 

By staying informed and working with experts, you can protect your business from legal penalties while supporting a more equitable workplace. 

What California Pay Transparency Laws Mean for Your Organization 

California’s Pay Transparency Law SB 1162 is a significant shift in the way employers manage, communicate, and disclose compensation information. By staying on top of and complying with all aspects of the law, you help create a more transparent, equitable, and fair work environment for all employees. Taking proactive steps will help protect your company’s reputation and long-term success.  

Don’t wait for enforcement actions or penalties—reach out to compliance experts to help align your processes with California’s Pay Transparency Law SB 1162.