The Situation: The national trend toward pay equity is gaining momentum, leading to transformative changes for employers. A growing list of states and local jurisdictions are enacting pay transparency laws, including requirements for employers to report detailed compensation data to the government, and to disclose compensation information and pay ranges in job postings and advertisements.
The Result: New reporting and disclosure obligations will increase risks of government audits/investigations, single plaintiff and class litigation, may subject employers to hefty civil penalties, and can create reputational vulnerabilities. These laws may also increase employee discontent, particularly if current employees feel they are undercompensated in comparison to the newly advertised pay ranges.
Looking Ahead: Employers who have operations in jurisdictions with pay transparency laws, or who have jobs that could be performed in such jurisdictions should evaluate their job posting and pay practices to ensure they comply with upcoming changes in state and local laws. We recommend that employers promptly conduct privileged pay equity audits and address identified pay gaps. Developing a robust and consistent pay philosophy will enable employers to respond to questions from employees and candidates about the relative position of their compensation within a particular job’s established pay range.
The pay equity landscape continues to be a priority for the federal government, states, and local jurisdictions. The recent push toward pay transparency has led to new and complex challenges for employers.
Following Mississippi’s 2022 revisions to its anti-discrimination statute, each state now has an equal pay law prohibiting discrimination in compensation. Many US jurisdictions now restrict employers from inquiring into or using pay history in employment decisions, including hiring and promotion. And more recently, a number of states and local jurisdictions have enacted (or are currently legislating) laws furthering pay equity by requiring transparency in pay ranges through disclosure in job postings, and several have gone so far as to require pay equity disclosures to the government.
The federal government is also heightening its focus on pay equity. Federal government contractors have long been required to analyze their compensation systems, but in 2022 the Office of Federal Contract Compliance Programs issued and revised its guidance on how such employers can maintain compliance. And, the Equal Employment Opportunity Commission (“EEOC”) has identified equal pay protection as one of its six national priorities in its Strategic Enforcement Plan, and has recently publicized its pursuit of equal pay litigation.
Employers must take note of the changing legislative landscape and increased scrutiny in this area, and ensure that their policies and practices are up-to-date. While each of the new pay transparency laws present new challenges for employers, a few that we highlight here require affirmative changes to existing practices.
Annual Pay Data Reporting Obligations
Of particular note, California and Illinois both require that employers report certain pay data to the state. The states will analyze and aggregate reported data to assess pay disparities.
Beginning May 2023, the following annual state reporting obligations apply:
- All employers with 100 or more employees are required to submit a pay data report to the state covering the prior calendar year. This obligation applies even where the employer is not required to file an EEO-1 and employers may no longer satisfy the requirement by just submitting an EE0-1 report.
- All employers who have 100 or more employees through labor contractors must submit a separate pay data report to the state for those employees.
- Covered employers with multiple establishments must submit a report for each establishment, rather than one multisite report.
- The pay data report must include the following information:
- The number of employees by race, ethnicity, and sex in each of the multiple job categories listed in the law;
- The number of employees by race, ethnicity, and sex, whose annual earnings fall within each of the pay bands used by the U.S. Bureau of Labor Statistics in the Occupational Employment Statistics survey;
- Within each job category, for each combination of race, ethnicity, and sex, the median and mean hourly rate;
- The total hours worked by each employee counted in each pay band; and
- The employer’s North American Industry Classification System (“NAICS”) code.
If an employer fails to file a report, the California Civil Rights Department may seek an order requiring the employer to do so and is entitled to recover the costs associated with seeking the order. Employers may also be liable for penalties of up to $100 per employee and up to $200 per employee, if the employer fails to file after being ordered to do so.
Privateemployers with 100 or more employees who are required to file an EEO-1 with the EEOC are required to obtain an Equal Pay Registration Certificate from the Illinois Department of Labor. To obtain this Certificate, employers must report the following pay related information on an application:
- A copy of the most recently filed EEO-1.
- A list of all employees employed during the calendar year immediately prior to the due date, along with the total wages paid to each employee, categorized by gender, race, and ethnicity categories as reported in the most recent EEO-1.
- An Equal Pay Compliance Statement signed by a corporate officer, legal counsel, or authorized agent of the business. The Statement certifies the following:
- The employer has complied with the Equal Pay Act and other applicable federal and state laws;
- The average compensation for its female and minority employees is not consistently below the average compensation, as determined by rule by the US Department of Labor, for its male and non-minority employees within each of the major job categories in the Employer Information Report EEO-1 for which an employee is expected to perform work;
- The employer does not restrict employees of one sex to certain job classifications and makes retention and promotion decisions without regard to sex;
- The employer affirmatively corrects wage and benefit disparities when identified;
- An explanation of how often the employer evaluates benefits and wages; and
- The approach the employer takes in determining what level of wages and benefits to pay its employees.
A covered employer’s initial application must be submitted to the Department between March 24, 2022 and March 23, 2024. The Department is expected to assign application due dates and employers will have at least 120 days’ notice before the assigned deadline.
The Department can assess penalties against employers who fail to file an initial application or recertification of up to $10,000. Employers who inadvertently fail to file, will first be given an additional 30 calendar days to submit the application or recertification. If the Department finds that an employer falsifies or misrepresents information on an application, it may seek to suspend or revoke an employer’s Certificate or impose penalties up to $10,000. In addition, if the Department discovers pay disparities, it may issue an investigation and any typical remedies may be awarded.
Compensation Disclosure Obligations
California, Colorado, New York City, and the state of Washington each now require employers to disclose pay and/or benefit information on job postings or advertisements. Other states, such as Nevada and Connecticut, require employers to provide applicants with the wage or salary range or rate for positions for which they have interviewed, and several other jurisdictions require salary range disclosures upon request for both applicants and current employees.
The new affirmative disclosure obligations present compliance challenges for employers posting remote job opportunities, as the requirements generally apply to any position which may be performed in a covered state.
Effective January 1, 2023, employers with 15 or more employees in California must include the pay scale (salary or hourly wage range that the employer reasonably expects to pay) for a position in any job posting. Any aggrieved person may file a complaint with the California Labor Commissioner, and/or bring a civil action for injunctive relief and any other relief that the court deems appropriate. The Labor Commissioner may order the employer to pay a penalty between $100 and $10,000 per violation, the amount depending on the totality of the circumstances. However, no penalty will be assessed if the employer demonstrates that all job postings for open positions have been updated to include the pay scale. Employers also have an obligation to maintain records for each employee, open for inspection by the Labor Commissioner, of a job title and wage rate history for the duration of employment plus three years after it ends. If an employer fails to comply with the record-keeping requirement, there is a rebuttable presumption in favor of the employee’s claim. Guidance has not yet been issued, but is expected.
Effective January 1, 2021, employers that employ at least one person in Colorado have been required to disclose pay and benefits information on job postings. Job postings, including promotion postings, must include:
- The hourly rate or salary compensation (or a range) that the employer is offering for the position. The range can be from the lowest to the highest pay the employer actually believes it might pay for the job, depending on circumstances such as employee qualifications, employer finances, or other operational considerations;
- A general description of any bonuses, commissions, or other forms of compensation that are being offered; and
- A general description of all employment benefits the employer is offering, including health care, retirement, any paid days off (including sick leave, parental leave, and paid time off or vacation), and any other benefits that must be reported for federal tax purposes.
Any aggrieved person may file a complaint with the Colorado Division of Labor Standards. If the Division finds a violation, it may order employer actions to bring itself into compliance and remedy the violation, and/or fines of between $500 to $10,000 per violation. Colorado also has recordkeeping requirements. Records must include each employee’s job description (and any changes to descriptions), compensation (including wages/salaries, bonuses, commissions) and benefits. Colorado issued comprehensive guidance on the law.
New York City
Effective November 1, 2022, employers with four or more employees, or one or more domestic workers, at least one of whom works in New York City, will be required to publish on advertisements for jobs that can be performed in New York City (including promotions and transfers) the minimum and maximum base annual salary or hourly rate the employer in good faith believes at the time they are willing to pay. Any aggrieved person may file a complaint with the New York City Commission on Human Rights. If the Commission finds a violation, it can order the employer to pay monetary damages, amend postings, create or update applicable policies, conduct training, provide notices of rights, etc. Although a penalty will not be assessed for an initial violation, the Commission may assess penalties up to $250,000 for an uncured first violation and for any subsequent violations. Current employees can bring a private cause of action in court. New York City has issued guidance.
Effective January 1, 2023, employers with 15 or more employees (unspecified whether they must be 15 employees in Washington) must disclose in each job posting: (i) the wage scale or salary range; and (ii) a general description of benefits and other compensation offerings. Aggrieved persons may file a complaint with the Washington Department of Labor & Industries or directly file suit. If a violation is found, the employee or applicant may be awarded actual damages, double statutory damages (or $5,000, whichever is greater), interest and costs and fees. In addition, the Department may assess penalties from $500 for a first violation to $1,000 or 10% of damages (whichever is greater) for any subsequent violation. Department guidance is expected.
Jones Day will continue to monitor and report updates in this rapidly changing pay transparency landscape. Stay tuned for future publications.
Three Key Takeaways
- Employers should ensure that their job postings are revised, as necessary, to comply with applicable law, including employers who have postings for positions that could be performed remotely from a state with disclosure and/or reporting laws.
- Employers should take affirmative steps to mitigate risk in all jurisdictions where they have employees and contractors by reviewing pay practices, developing a pay transparency strategy and a robust compensation philosophy, and conducting privileged annual pay equity analyses.
- Employers should ensure that employees involved in the hiring or compensation process, are trained on appropriate topics for interviews, know not to solicit information on an applicant’s wage history, and are guided by a well-defined pay philosophy when evaluating and adjusting employee compensation.