Labor Commissioner’s Office Publishes Guidance Re Transparency Act and Disclosure of Pay Scales

As many employers already know, California imposes several restrictions concerning pay disclosures. Labor Code Section 432.3 prohibits employers from inquiring into and relying on an applicant’s salary history and further requires employers, upon reasonable request, to provide the pay scale to an applicant applying for employment.

Starting January 1, 2023, all employers, “on request,” are required to now also provide the “pay scale” to a current employee for the position in which the employee is currently employed. And, employers with 15 or more employees are required to include the “pay scale” in job postings (including third party postings). See more about the new requirements here.

As there were ambiguities in the law regarding the new obligations, the Labor Commissioner published guidance for employers.

What Must Be Included in Pay Scales?

California law defines “pay scale” as the “salary or hourly wage range the employer reasonably expects to pay for the position.” The new law was silent on whether additional benefits, such as bonuses, tips, or more, must be included in the posting.

The labor commissioner guidance clarified that “Any compensation or tangible benefits provided in addition to a salary or hourly wage are not required to be posted.” But, an employer may include this information to make its recruitment efforts more competitive.

However, if the position’s hourly or salary wage is based on a piece rate or commission, then the piece rate or commission range the employer reasonably expects to pay for the position must be included in the job posting.

This new guidance creates even more confusion because many employers use a commission system that is based on a guaranteed hourly rate or salary (referred to as a “draw”), with an additional commission incentive as an added component. It is unclear whether this type of commission structure must be included in the job ad or whether this will be viewed as a benefit provided in addition to base wages (which therefore is not required to be included).

Links Not Permissible

The guidance clarifies that the pay scale must be included within the posting. A link or a QR code on the job ad, that will take the applicant to the pay scale, is not compliant. 

Remote Work is Covered

The Guidance provides that “the pay scale must be included within the job posting if the position may ever be filled in California, either in-person or remotely.” This means that out of state employers, who may hire remote employees in California, are also covered (to the extent they have at least 15 employees).

What if a Position Does Not Have a Range of Pay?

An employer who intends to pay a set hourly amount or a set piece rate amount, may provide that set hourly rate or set piece rate, instead of a “range.”

Employee Count

The law does not specify how employers should count employees for purposes of determining whether they have 15 or more employees and therefore must comply with the job ad posting requirement. Under the published guidance, the 15-threshold requirement is similar to how employers must count employees for  minimum wage rates purposes. This means that all employees nationwide must be counted. The job ad requirement therefore applies if an employer has at least 15 employees and that “at least one of the employees” is “currently located in California.”

What’s Next?

Unfortunately, the guidance does not address all issues like: Can an employer pay more than the posted range? How often can employees make a request for pay scale? What is the time frame for providing a requested pay scale? We hope the Labor Commissioner will publish further guidance, but in the meanwhile, employers are advised to carefully review their practices and consult counsel to confirm compliance.

We are also encouraging employers to conduct internal audits to detect and correct any “gender or race-based pay disparities that exist in their workforce.” If disparities exist, consider whether they can be justified based on:

• Seniority;
• Merit;
• A system that measures production; and/or
• A “bonafide factor other than sex, race

Sue M. Bendavid and Tal Burnovski Yeyni are California employment defense and compliance attorneys.