California Is The Latest State To Pass A Pay Transparency Law. What Will It Mean For Workers?

California could soon be the fourth U.S. state to require greater pay transparency from employers.

Senate bill (SB) 1162, which would increase transparency around employer pay ranges, passed California’s state legislature in August. The bill must be either signed or vetoed by Governor Gavin Newsom by September 30.

If passed, the new law could potentially narrow the gender pay gap and raise disproportionately low wages earned by Black and Latino workers.

What’s in Senate Bill 1162?

SB 1162 was introduced to California’s Senate by Sen. Monique Limón (D- Santa Barbara) in February 2022.

The bill expands on pre-existing pay transparency laws like SB 973, which Newsom signed into law in 2020. SB 973 requires certain employers to report pay and demographic information for their California employees to the Department of Fair Housing and Employment (DFEH) every year.

The DFEH can take enforcement action against employers who report pay discrimination, but the bill was also meant to encourage voluntary compliance.

The new law would require California-based employers and those hiring in California to go a few steps farther. If passed, the bill would require employers to do the following:

• Employers with 15 or more employees must include the pay scale for a position in all job postings, including posts on third-party sites such as LinkedIn or Indeed.
• Private employers with 100 or more employees must submit an annual pay data report, including median and mean hourly rates for race, ethnicity and sex within each job category, to the DFEH. The reports will be publicly accessible.
• If requested, the employer must provide the employee with the pay scale for their current role.

Employers will also have to pay civil penalties for violating the new law, although the fines are minimal. For each employee not included in the report, the employer would be fined $100 for the first omission and $200 for repeat omissions.

Who Will the Bill Impact?

It’s difficult to estimate how SB 1162 would impact Californians, but employees are likely to benefit. Here’s what could happen:

How Pay Transparency May Affect Employees

In 2020, data from private employers in California showed that women, Latinos and Black workers were overrepresented in the state’s lowest pay bands. That information was collected as a result of SB 973 and released in March 2022.

The new law would mandate even more transparency, requiring upfront pay disclosures that could expose pay disparities within companies and make it more difficult for companies to hide discriminatory pay practices.

Christopher Patrick, principal lawyer at Jackson Lewis P.C., says the bill would benefit both employees and job applicants.

“Employees will benefit from knowing more about employer compensation practices,” he says. Job seekers will be empowered to only apply to roles that will pay within specific ranges and to better negotiate starting salaries, he adds.

Studies indicate that disclosing pay bands helps narrow the gender gap by producing better offers for women and minority job candidates, while slightly lowering pay for men.

But some policies around transparency are more effective than others.

Penalties and enforcement measures, such as the ones that SB 1162 proposes, appear less effective at closing pay gaps. However, companies that voluntarily practice pay transparency may significantly decrease the pay gap. A large-scale study from PayScale found that at companies voluntarily practicing pay transparency, women earned $1.00 to $1.01 for every dollar a man earned.

Transparency laws may have uneven results, but they can still push more companies into adopting transparent pay policies—an important move given that only a minority of companies in the U.S. currently practice any kind of pay transparency.

How Pay Transparency May Affect Employers

Employers may lack optimism about the new law.

“It will likely result in more employees discussing their pay with coworkers, and more requests to managers and supervisors for pay adjustments to equalize apparent pay differences that employees do not readily understand or accept,” says Patrick.

The California Chamber of Commerce, which labeled an early version of the bill a “job killer,” has warned that SB 1162 would encourage litigation against employers.

Also in opposition is the Society for Human Resource Management (SHRM), an HR professional association with over 25,000 members in California.

SHRM argues that pay transparency creates compression, or a narrowing gap between pay for new employees and seasoned employees, which often happens when companies increase pay to attract talent.

In a letter to Senator Limón, SHRM Chief of Staff Emily Dickens warned, “If the pay scale is required to be included in a job posting, some applicants may be dissuaded from even applying, given the lack of understanding related to the organization’s total compensation philosophy.” Total compensation can include benefits like health insurance, bonus opportunities or vacation time.

A 2022 survey from hiring platform Indeed found otherwise. Here’s what 1,500 U.S.-based job-seekers reported:

• 75% said they’re more likely to apply for a job if the salary range is listed
• 56% are more likely to apply to a company whose name they don’t recognize if the salary range is listed

On the other hand, the survey showed that pay transparency can hurt companies where pay is less equitable. Sixty-nine percent of survey respondents said they started looking for a new job after finding out they were paid less than their coworkers.

Patrick says that some employers are more prepared for new transparency laws than others.

“These items will require a cultural shift in how they administer core human resources processes,” he says, noting that many large, California-based employers have already been “laying the groundwork for this type of compliance over the past few years.”

Pay Transparency Laws By State

Similar laws have either passed or are pending in other parts of the U.S.

Colorado

The Equal Pay for Equal Work Act (EPEWA) went into effect in Colorado in 2021. The EPEWA requires Colorado employers to include pay information in job postings and to let employees share pay information, even for remote jobs.

A review from the Colorado Department of Labor and Employment found that numerous large employers based in Colorado began including pay information in their job postings for the first time as a result of the EPEWA.

One Colorado-based news channel found, however, that some postings for remote work advised Colorado residents not to apply, presumably to avoid needing to disclose pay ranges. The roles KUSA in Denver found were with major companies like Nike and Johnson & Johnson.

Despite that, job seekers in Colorado appear unfazed. Research from Recruitonomics found that the EPEWA led to a decrease in jobs listed online, but an increase in labor participation, and that applicants prioritized job postings that included pay information.

Washington

Washington’s Senate bill (SB) 5761 will go into effect on January 1, 2023. The bill will require employers of 15 or more people to include the wage scale or salary range in each job posting, along with the total list of benefits for the role. This information also has to be included in notices for internal transfers and promotions.

New York City

If signed by the mayor, New York City’s Pay Transparency Law will go into effect November 1, 2022. The law would require employers who advertise jobs to be performed in New York City to include the minimum and maximum annual salary or hourly wage in job postings.

Even if your state isn’t on this list, you may already have access to useful pay information. Depending on where you live, you may be able to do one or more of the following:

• Request pay range information after your first job interview or during the hiring process
• Ask for benefit information during the hiring process
• Request a pay range before making an internal transfer or accepting a promotion
• Refuse to disclose your prior pay rate with a potential employer

As a best practice, review the laws in your state before applying for a job or switching internal roles. The more pay information you access up front, the better chance you have of negotiating a fair offer.