On September 30, 2020, California Governor Gavin Newsom signed Senate Bill 973 into law. SB 973 requires California private employers with 100 or more employees to report pay data to the Department of Fair Employment and Housing (“DFEH”). The bill takes effect on January 1, 2021, requiring covered employers to submit their first reports by March 31, 2021, and annually thereafter.

Enacted for the explicitly stated purpose of targeting enforcement of equal pay and discrimination laws, employers who are required to file an EEO-1 annual report under federal law will be required to submit a pay data report to the DFEH for the prior calendar year. The report must include the number of employees by race, ethnicity, and sex in each of the following 10 job categories from the federal EEO-1 report: (1) executive or senior-level officials and managers, (2) first or mid-level officials and managers, (3) professionals, (4) technicians, (5) sales workers, (6) administrative support workers, (7) craft workers, (8) operatives, (9) laborers and helpers, and (10) service workers.

Secondly, using their employees’ W-2 income, employers must also report to the DFEH the number of employees by race, ethnicity, and sex, whose annual earning fall within each of the 11 pay bands established by the U.S. Bureau of Labor Statistics. Employers must also report the total number of hours worked by each employee within a given pay band during the reporting year, regardless of whether the employee worked for the full calendar year.

An employer with multiple establishments, defined as an economic unit producing goods or services, must submit a pay data report for each establishment and a consolidated report that includes all employees. The report is to include the employer’s North American Industry Classification System (NAICS) code.

An employer can satisfy its reporting obligation by submitting to the DFEH its EEO-1 Report that contains the same or substantially similar pay data required by SB 973.

SB 973 also permits for the pay data report to have a section for employers to provide clarifying remarks regarding any information provided, though an employer is not required to submit any remarks.

With the reported data, the legislation empowers the DFEH to use the reports in its investigation and enforcement actions under the Fair Employment and Housing Act, including the Fair Pay Act.

SB 973, however, also leaves many unanswered questions, including what the pay data report will look like. Employers will have to wait for further guidance about whether the reporting requirements apply to employers with more than 100 employees overall or only to those employers with more than 100 employees in California. The guidance will also have answer whether a reporting employer will be required to report the pay data for employees who do not reside or work in the state.

While additional guidance is presumably expected, covered employers will still need to file their first reports in only six months. Employers should take care to ensure that they are able to compile the necessary data, should they be required to produce and file pay data reports. Employers should also consider working with their counsel to review their pay practices and conduct audits in order to address any pay disparities prior to making any required reports that may lead to enforcement actions.

If you have any questions regarding the issues raised in this client alert, please contact your Labor and Employment counsel at Smith, Gambrell & Russell, LLP.