In an effort to close gender and racial pay gaps, California Governor Gavin Newsom recently signed Senate Bill (SB) 973 to require certain California employers to submit an annual pay data report to the Department of Fair Employment and Housing (DFEH) starting next year. The new law largely mirrors the EEO-1 “Component 2” pay data reporting requirement, which was imposed by the Obama administration and has been suspended by the Trump administration.

Under SB 973, private employers that have 100 or more employees and are required to file an annual Employer Information Report (EEO-1) must submit a pay data report to the DFEH covering the prior calendar year. The report must include: (1) the number of employees by race, ethnicity, and sex in each of ten job categories (the same job categories used in the EEO-1); (2) the number of employees by race, ethnicity, and sex whose annual earnings fall within each of the pay bands used by the United States Bureau of Labor Statistics; and (3) the total number of hours worked by each employee counted in each pay band. Employers with multiple establishments in California must submit a report for each establishment and a consolidated report that includes all employees. Employees include all individuals on payroll, whether full- or part-time, for whom the employer must withhold federal social security taxes and include in an EEO-1 Report.

Covered employers must submit the first report on or before March 31, 2021. Subsequent reports must be filed on or before March 31 each year thereafter.

The pay data must be in a format that allows the DFEH to search and sort the information using readily available software, and it is acceptable to submit a copy of the employer’s EEO-1 with the same or substantially similar required pay data. The DFEH may seek an order requiring an employer who does not submit the required data to comply with the law.

SB 973 also grants the DFEH broad new authority to receive, investigate, and prosecute complaints alleging discriminatory wage practices under the California’s Equal Pay Act (Labor Code 1197.5). The DFEH is authorized to share the reports with the California Division of Labor Standards Enforcement (DLSE) for the agencies to identify wage patterns and engage in “targeted enforcement” of California’s equal pay and anti-discrimination laws. The legislature intends that, except for this administrative enforcement or through civil discovery, pay data will be kept confidential and not available for disclosure. The DFEH may, however, publish an annual report that aggregates wage reports, provided that the aggregate reports are reasonably calculated to prevent the association of data with any individual business or person.

Next Steps for California Employers

The new law leaves a number of questions unanswered, such as whether the law applies to employers with more than 100 employees in the U.S. or only to those employers with more than 100 employees in California, and whether only California employees must be included in the pay report. The DFEH will likely issue guidance on these subjects, but in the meantime, employers who are required to file federal EEO-1 Reports should begin preparing for the first reporting deadline under SB 973, which is less than six months away. It will be important to designate a person or department responsible for the submission, confirm that there are adequate HR systems in place to collect and report the information, and to generally stay abreast of DFEH guidance on the matter. Employers should also consider proactively reviewing their pay practices and conducting a privileged audit to discover and address any disparities ahead of the report deadline.

Tags: california, pay data, pay equity
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Photo of Carolyn Rashby Carolyn Rashby

Carolyn Rashby provides business-focused advice and counsel to companies navigating the constantly evolving and overlapping maze of federal, state, and local employment requirements. Carolyn’s approach is preventive, while recognizing the need to set clients up for the best possible defense should disputes arise.…

Carolyn Rashby provides business-focused advice and counsel to companies navigating the constantly evolving and overlapping maze of federal, state, and local employment requirements. Carolyn’s approach is preventive, while recognizing the need to set clients up for the best possible defense should disputes arise.

As a senior member of Covington’s Institutional Culture and Social Responsibility Practice Group, Carolyn has co-led significant investigations into workplace culture, DEI issues, and reports of sexual misconduct and workplace harassment.

As an employment lawyer with over two decades of experience, Carolyn focuses on a wide range of compliance and regulatory matters for employers, including:

  • Conducting audits regarding employee classification and pay equity
  • Advising on employment issues arising in corporate transactions
  • Strategic counseling on a wide range of issues including discrimination and harassment, wages and hours, worker classification, workplace accommodations and leave management, performance management and termination decisions, workplace violence, employment agreements, trade secrets, restrictive covenants, employee handbooks, and personnel policies
  • Drafting employment contracts and offer letters, separation agreements, NDAs, and other employment agreements
  • Advising on employee privacy matters, including under the California Consumer Privacy Act
  • Providing guidance on use of AI in the workplace and development of related policies
  • Leading anti-harassment and other workplace-related trainings, for employees, executives, and boards

Carolyn also works frequently with the firm’s white collar, privacy, employee benefits and executive compensation, corporate, government contracts, and cybersecurity practice groups to ensure that all potential employment issues are addressed in matters handled by these groups.

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Photo of Michelle Barineau Michelle Barineau

Michelle Barineau counsels U.S. and multinational clients on a broad range of employment issues. Michelle routinely provides guidance pertaining to wage and hour compliance, job classifications, pay equity, and employee leave. She also prepares key employment documents including employment agreements, employee policies, and…

Michelle Barineau counsels U.S. and multinational clients on a broad range of employment issues. Michelle routinely provides guidance pertaining to wage and hour compliance, job classifications, pay equity, and employee leave. She also prepares key employment documents including employment agreements, employee policies, and separation agreements.

Michelle guides employers through hiring and terminating employees and managing their performance, as well as workforce change strategies, including reorganizations, reductions in force, and WARN compliance. In addition, Michelle provides practical advice about workplace issues impacting employers including remote work, workplace culture, diversity, equity, and inclusion, and the use of artificial intelligence in the workplace. She helps clients navigate matters involving harassment, discrimination, non-competition, and other issues arising under state and federal employment laws including Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Equal Pay Act, the Family and Medical Leave Act, and the Fair Labor Standards Act. She assists clients when responding to agency charges and demand letters, including whistleblower retaliation complaints, and frequently interacts with the Equal Employment Opportunity Commission, state and local equal employment opportunity agencies, and the Occupational Safety and Health Administration.

Michelle has experience investigating employment complaints and she frequently partners with white collar colleagues to conduct sensitive internal investigations, workplace culture assessments, and racial equity audits. She works with colleagues in the privacy, employee benefits and executive compensation, and corporate groups when employment matters arise and she regularly works with colleagues in California to advise on matters implicating California employment laws. Michelle is a co-founder of Covington’s AI Roundtable, which convenes senior lawyers at the firm working closely on AI issues to discuss legal implications of AI deployment and use.

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