California has introduced a new Senate Bill 1162, also known as California Pay Data Reporting which could affect businesses not located in the state of California.
Those affected are:
- Employers based in California and have 100 or more employees
- Any employers that have 100 or more employees and at least 1 employee based in CA
- Employers based in CA that hire labor contractors whom provide 100 or more labor contractor employees
- Any employers that hire labor contractors whom provide 100 or more labor contractor employees and have at least 1 labor contractor employee based in CA
Important note: Employers should not report on employees who are working outside of CA and are assigned to an establishment outside of CA.
Affected employers will be required to complete a Payroll Employee Report and/or Labor Contractor Employee Report. Find out the new employer requirements to avoid penalties and fines.
The Basics of California Pay Data Reporting
What is SB 1162 intended to address?
California legislation has enacted this law to fix the pay gap and ensure equal pay for equal work.
By enacting the 2020 Senate Bill 973, the CA legislature found that
“[d]espite significant progress made in California in recent years to strengthen California’s equal pay laws, the gender pay gap persists, resulting in billions of dollars in lost wages for women each year in California. Pay discrimination is not just a women’s issue, but also harms families and the state’s economy. In California, in 2016, women working full time, year round made a median 88 cents to every dollar earned by men, and for women of color, that gap is far worse. Although there are legitimate and lawful reasons for paying some employees more than others, pay discrimination continues to exist, is often ‘hidden from sight,’ and can be the result of unconscious biases or historic inequities.”
California SB 1162 Notice
The legislation hopes that since employers are required to submit this information, they will see issues in their pay distribution they may have yet to be aware of and take action against pay discrimination.
Relevant Definitions
- CRD – The California Civil Rights Department
- Pay Data Report – A Payroll Employee Report and/or Labor Contractor Employee Report
- Snapshot Period – A single pay period between October 1 and December 31 of the reporting year.
- Payroll Employee Report – The type of pay data report by which employers annually report to CRD data on their payroll employees
- Employer – A private individual, entity, or other person that is obligated to file a Payroll Employee Report and/or Labor Contractor Employee Report
- Payroll Employee – An individual on an employer’s payroll, including a part-time individual, for whom the employer is required to withhold federal social security taxes from that individuals’ wages
- Labor Contractor Employee Report – The type of pay data report by which a client employer annually reports data on their labor contractor employees to CRD
- Client Employer – A private individual, entity, or other person that has workers hired through labor contractors
- Labor Contractor – An individual or entity that supplies, either with or without a contract, a client employer with workers to perform labor within the client employer’s usual course of business.
- Labor Contractor Employee – An individual on a labor contractor’s payroll, including a part-time individual, for whom the labor contractor is required to withhold federal social security taxes from that individuals’ wages, and who performs labor for a client employer within the client employer’s usual course of business
When is Pay Data Reporting due to California?
SB 1162 pay data report is due by the second Wednesday of May each year, beginning on May 10th, 2023.
Who needs to complete California Pay Data Reporting?
Employers with more than 100 employees (nationwide) AND either are located in California or employ at least 1 individual that is a California resident MUST submit a Payroll Employee Report. This does include remote workers.
Similarly, client employers that hires labor contractors whom supplies 100 or more labor contractor employees (nationwide) AND either are located in CA or employee at least 1 individual that is a CA resident MUST submit a Labor Contractor Employee Report.
Use this California Pay Data Reporting Questionnaire to help determine if filing is required.
What are the new requirements covered by SB 1162 that SB 973 did not cover?
Previously employers were only required to submit a Payroll Employee Report if they had to file a federal EEO-1 report. The new 2023 requirements state that private employers that employ over 100 employees and either are based in CA or employee at least 1 CA employee must file a Payroll Employee Report.
- Previously employers were only required to submit a Payroll Employee Report if they filed a federal EEO-1.
- 2023 requires private employers that employ over 100 employees and either are based in CA or employee at least 1 CA employee to file a Payroll Employee Report.
- Client employers who employ 100 or more labor contractor employees (and the employer is based in CA or at least 1 labor contractor employee is based in CA) must file a Labor Contractor Employee Report.
- Payroll Employee Reports and Labor Contractor Employee Reports include the mean and median hourly rate of employee groupings.
- Employers can no longer only submit a federal EEO-1 report to satisfy SB 1162 requirements.
- The CRD may now penalize labor contractors who do not provide the required information to the client employer in a timely manner.
How does an employer get an establishment number to report on the Pay Data Report?
In previous years it was up to the employer to get an establishment number before submission. However, new in the 2023 reporting year, the CRD will automate the creation of establishment IDs.
Are there penalties for not filing SB 1162?
Yes, there are penalties for not filing.
Suppose California finds an employer who did not meet the requirements to file with the state. The Division of Labor Standards Enforcement (DLSE) may impose a fine between $100-10,000 per violation.
If it is the employer’s first offense, action may not be taken against them. If the employer can prove they have updated any job listing with all the required information, including pay rate, they may not be penalized.
Frequently Asked Questions about California SB 1162
Will the employers’ SB 1162 (Pay Data Reporting) be publicly available?
No, this information will not be available to the public. Government Code section 12999(i) prohibits the Division of Labor Standards Enforcement (DLSE) from making these reports public with any identifiable information, including the employers and employees within the California Pay Data Reporting.
How long will the Pay Data Reporting information be kept after submission?
California will keep the reports for a minimum period of 10 years according to Gov. Code § 12999(l).
How long does the employer need to keep the data reported in Pay Data Reporting?
Employers are required to keep records for at least the previous two tax seasons.
Suppose a business is located in California, but some employees are not California residents. Do they need to be included in the report?
Yes, the out-of-state employee must still be included in the report.
The reasoning here is that the employer is established in CA. Therefore, they must include all employed individuals during their selected Snapshot Period time frame, even if some employees do not reside in California. The employees report to a CA establishment.
What if an employee lives in California but does not work in California? Should this employee be included in Pay Data Report?
Pay Data Reporting is for employees who work inside the state of California, not for individuals who only live in California.
Suppose the employee lives in California but reports to an entity outside of California when physically reporting to work. Then this employee is not required to be included on the Pay Data Report.
What if a business is a smaller entity of a larger corporation?
If the smaller company’s employee count is less than the reporting requirement of 100 employees but exceeds this amount when combined with the larger entity, then both businesses would fall under one entity. If this is the case, Pay Data Reporting would be required if any employees worked in California.
The smaller entity could submit its report on its own, or this data could be included in the larger entity’s report.
What if a California entity has other smaller entities outside California? Should the smaller entities with less than 100 employees be included in Pay Data Reporting?
Yes, the smaller entities and their employees will need to be included on the SINGLE Pay Data Report submitted to CA.
If the main establishment is located in California and the smaller establishments are not, and they still report to the primary office in CA, then they must be included.
Therefore, no matter the smaller establishments’ physical location, all employees must be included in the report.
What if the employee got a corrected W-2, should the employer use that corrected amount in the Pay Data Report?
This one is more tricky to try and get proper payment amounts.
If the employer had already filed their Pay Data Report with the state of CA before a Corrected W-2 was issued to the employee, an update to the Pay Data Report would only be necessary if the new amount would move the employee out of the originally reported numeric pay band.
However, if the numeric value changes, the employer must mark the previous submission as incorrect in the portal. Then upload a new Pay Data Report to have the most accurate information.
Suppose the employer has not filed their Pay Data Report with the State of CA and issued a Corrected W-2 to an employee. The employer should use the amount in the W-2C to get the numeric pay band.
Which states other than California have adopted their own type of Pay Data Reporting?
While California is entering its fear year of Pay Data Reporting, other states have already adopted this requirement for employers. These other states include:
- Colorado
- Washington
- New York City
While these states have had laws in effect from previous years, none of the states require an actual Pay Data Reporting file. The other state laws address job listing opportunities and transparency.
California SB 1162 – Snapshot Period FAQ
How should employers select a time frame for the employee salary ranges?
Employers must report on their workforce by choosing a single pay period—or “Snapshot Period”—from the fourth quarter of each reporting year (currently 2022) between the dates of October 1st through December 31st.
Employers can choose any pay period between October 1st and December 31st. It does not matter what type of pay schedule the employer has (weekly, bi-weekly, monthly).
What is the purpose of making the employer choose a Snapshot Period?
The Snapshot Period is essential for the employer to determine which individuals must be included in the Pay Data Report. A fixed period makes reporting on employees easier since employees change throughout the year.
A fixed period also makes it easier for employers to determine if they must submit a Pay Data Report.
While selecting a Snapshot pay period for their employees may seem confusing, it does not matter if the employees were paid during the pay period; the vital part is to see all employed individuals.
This Snapshot Period is not used to determine the hours worked or their pay.
What classifies as an employee once a Snapshot Period is selected?
According to California Government Code section 12999(m)(1) an employee is classified as:
an individual on an employer’s payroll, including a part-time individual, whom the employer is required to include in an EEO-1 Report and for whom the employer is required to withhold federal social security taxes from that individual’s wages.
According to this definition, an employee would include any part-time, full-time, and temporary employees—even those provided by a hiring agency.
What if the Snapshot Period chosen not have a California resident during this time frame?
Reporting is not required if the selected time frame does not include any CA employees and the business is not located in CA.
What if the Snapshot Period chosen has an individual who is no longer employed? Should that employee still be included in the report?
Yes, any individuals who were employed during the Snapshot Period should be included in the Pay Data Report—even if they are no longer employed.
An employee that was fired in the middle of the Snapshot Period must also be included in the Pay Data Report.
The Snapshot Period determines which individuals must be included in the Pay Data Report, so their current employment status makes no difference.
Labor Contractor Information
How should Labor Contractors be reported on the Pay Data Report?
Filing a Labor Contractor Employee Report is a specific filing type and is different from the Payroll Employee Report. These are two separate submissions. Employers may need to submit one, both, or neither of these reports. Employers need to determine this on a case-by-case basis.
According to CA Senate Bill 1162, private employers who employed more than 100 labor contractor employees in the previous calendar year and had at least one contractor based out of California will be required to file a separate “Labor Contractor Employee Report.”
The Labor Contractor Employee Report will be filed separately from the Employee Pay Data Report. This report will include all hired labor contractor employees from the past calendar year. Client employers should not file a report for each labor contractor hired. All hired labor contractors will appear on one Labor Contractor Employee Report submission.
How should client employers find the total number of labor contractor employees?
If a hired labor contractor has 100 or more labor contractor employees, then the client employer is required to file a Labor Contractor Employee Report.
The total number of Labor Contractor Employees can be found by looking at the hired labor contractor’s total labor contractor employee count.
For example, suppose a client employer hired a labor contractor to do construction work. The hired labor contractor has a total hired labor contractor employee count of 150, but only 25 are assigned to work on this employer’s site.
When it is time for the employer to determine if they need to file the Labor Contractor Employee Report, they will need to look at the hired contractor’s total labor contractor employee count of 150.
When completing the Labor Contractor Employee Report, the employer should include all 150 labor contractor employees—even though only 25 were assigned to this job.
It is a requirement of the labor contractor to supply all the necessary information to the client employer or risk being fined.
What if the client employer is required to file a Labor Contractor Employee Report but does not have the required information about the labor contractor?
According to Senate Bill 1162, it is a requirement for the client employer’s labor contractors to provide necessary data and information to the client employer submitting the report. It also requires the client employer to identify their labor contractors.
If a Labor Contractor Employee Report is required, how does the client employer select a Snapshot Period for the labor contractor?
It is recommended that the client employer works with the labor contractor to select a single Snapshot Period that will be used for that specific labor contractor.
Suppose the client employer has more than one hired labor contractor that must be reported in the single Labor Contractor Employee report. Then the client employer must work with each labor contractor separately to find a Snapshot Period.
Importantly, each labor contractor does not have to follow the same Snapshot Period. This period may be different across all hired labor contractors.
What if the labor contractor does not supply the required information to the client employer to file a Labor Contractor Employee Report?
According to Senate Bill 1162, penalties will be given to any labor contractor that fails to supply necessary data to a client employer.
Completing the Report – FAQ
What are the different types of grouping categories required in Pay Data Reporting?
- Job category
- Sex (Gender)
- Race
- Ethnicity
How are the employees grouped once all the data has been gathered for all employees?
Employee grouping can begin after each employee has the following columns:
- Job category
- Pay band
- Hours worked
- Sex (Gender)
- Ethnicity
- Race
Group the employees that share the same job category, pay band, race, ethnicity, and sex (gender). Then add all the hours together of each employee to get the total amount of hours this group worked.
This whole group will be reported as one row in the Pay Data Report.
What are the different race and ethnicity guidelines that should be followed when reporting to California?
In order to not confuse employers who may have reported a similar federal report EEO-1. The same guidelines will be followed and are as follows:
- A10 – Hispanic/Latino – Male
- A20 – Hispanic/Latino – Female
- A30 – Hispanic/Latino – Non-Binary
- B10 – Non-Hispanic/Non-Latino – Male – White
- B20 – Non-Hispanic/Non-Latino – Male – Black or African American
- B30 – Non-Hispanic/Non-Latino – Male – Native Hawaiian or Other Pacific Islander
- B40 – Non-Hispanic/Non-Latino – Male – Asian
- B50 – Non-Hispanic/Non-Latino – Male – American Indian or Alaskan Native
- B60 – Non-Hispanic/Non-Latino – Male – Two or more races
- C10 – Non-Hispanic/Non-Latino – Female – White
- C20 – Non-Hispanic/Non-Latino – Female – Black or African American
- C30 – Non-Hispanic/Non-Latino – Female – Native Hawaiian or Other Pacific Islander
- C40 – Non-Hispanic/Non-Latino – Female – Asian
- C50 – Non-Hispanic/Non-Latino – Female – American Indian or Alaskan Native
- C60 – Non-Hispanic/Non-Latino – Female – Two or more races
- D10 – Non-Hispanic/Non-Latino – Non-Binary – White
- D20 – Non-Hispanic/Non-Latino – Non-Binary – Black or African American
- D30 – Non-Hispanic/Non-Latino – Non-Binary – Native Hawaiian or Other Pacific Islander
- D40 – Non-Hispanic/Non-Latino – Non-Binary – Asian
- D50 – Non-Hispanic/Non-Latino – Non-Binary – American Indian or Alaskan Native
- D60 – Non-Hispanic/Non-Latino – Non-Binary – Two or more races
Which genders does California recognize?
For reporting SB 1162, California recognizes the following genders:
- Male
- Female
- Nonbinary
Employers may use the employees’ self-identification as the classification. If an employee does not want to provide this information, it will be up to the employer to use their records and best judgment to make a gender classification.
This field may not be left blank.
Exceptions to leaving the gender field blank
The gender field is always required when submitting a Payroll Employee Report.
However, when submitting a Labor Contractor Employee Report, the gender field may be left blank. The client employer may not have this information if the labor contractor does not provide the necessary records before the deadline.
This exception should not be expected going forward after reporting tax season 2022.
What are the different categories employees can be labeled?
Employees can be classified into ten different job categories. They are as follows:
- Executive or senior-level officials and managers
- First or mid-level officials and managers
- Professionals
- Technicians
- Sales workers
- Administrative support workers
- Craft workers
- Operatives
- Laborers and helpers
- Service workers
Each job title will fall under a numeric value when it is time to report grouped job category on the Pay Data Report. This numeric value makes it easier to enter each row as quick data bursts instead of listing the entire job category out.
How should the employer measure pay to classify employee pay bands?
Employers should use their employees’ W-2 Box 5 Medicare Wages and Tips amount to measure pay classification.
However, if an employee has wages that are not reported in Box 5, then the employer can use W-2 Box 1 amount instead and note this in the associated remarks field. This may be the case for an H-2A visa holder, for example.
Should each employee have their exact salary in the report?
When reporting an employee’s salary, exact numbers are not required. Instead, they use “Pay Band,” which only reports a digit. That digit is then related to a SALARY RANGE.
What are the employee pay bands or salary ranges?
An employee pay band assigns a numerical value to the associated pay range. The pay bands are as follows:
- $19,239 and under
- $19,240 – $24,959
- $24,960 – $32,239
- $32,240 – $41,079
- $41,080 – $53,039
- $53,040 – $68,119
- $68,120 – $87,359
- $87,360 – $112,319
- $112,320 – $144,559
- $144,560 – $186,159
- $186,160 – $239,199
- $239,200 and over
Should the employer use the employee’s annual amounts if the employee did not work the whole reporting year?
No, the employer will use the amount of W-2 Box 5 to calculate that employee’s pay band.
If the employee’s annual pay would put them in a higher pay band, but the amount listed in Box 5 is lower than their annual pay, then the employer should use the lower range to get the correct pay band number.
For example, suppose an employee’s annual salary is $150,000, but they were terminated early, and their report only shows $70,000. According to the designated pay bands, this employee would fall under pay band 7, not pay band 10.
Learn more about Form W-2 by reviewing this comprehensive guide.
How to calculate employees’ total hours for the Pay Data Report?
The employer must calculate the total hours worked for each employee. Each employee’s hour total includes the number of hours worked and the number of hours on paid or unpaid leave. This time may include:
- Vacation
- Sick
- Holiday
- Mandatory leave
- Pregnancy
- Any other employer-approved leave of absence
Suppose no such records exist for this time calculation for an employee. In that case, the employer can get the employee’s total hours by multiplying the total number of days worked during the Reporting Year (including paid leave days) by the average number of hours worked per day.
This value should be calculated for each employee. One value cannot be used as a placeholder when calculating the hours for all full-time employees.
California does not expect the total hours worked to be an exact number but for the employer to make a reasonable estimation on a case-by-case basis.
How to Calculate the Mean Hourly Rate with an Example
The mean is the average of the data set values.
To find the mean, employers should first group each category of employees by the following:
- Establishment name
- Job category
- Race/Ethnicity
- Sex (Gender)
Once all employees are in a matching category, the mean is calculated for each category by adding each employee’s hourly rates together to get the sum. Then the sum is divided by the total number of employees within this same category.
However, if this combination of categories yields only one employee, then the employee’s hourly rate should be reported without modification.
How to Calculate the Median Hourly Rate with an Example
The median is the value lying at the midpoint of the data set values.
Employers should group each category of employees by the following:
- Establishment name
- Job category
- Race/Ethnicity
- Sex (Gender)
Once all the employees are in a matching category, the first step is to order all the employees’ hours from smallest to largest. Then, the employer must find the middle value within the data set. This is the median.
However, if this combination of categories yields only one employee, then the employee’s hourly wage should be reported without modification.
Should the employer use the whole year to calculate the employees’ total hours?
No, the employees’ hours should be based on the number of days the employee actually worked while including estimated hours for paid leave.
For example, if an employee only worked for 50 days (without taking any vacation or sick days) and an average work day of 5 hours, then this employee would have 250 total work hours.
In contrast, if another employee had the same days worked and average work hours but had two vacation days, this is a bit different. For this situation, the employer should multiply the number of vacation days by the average work day hours to get the vacation hours. In this scenario, this would be calculated as follows:
250 work hours + 10 vacation hours = 260 total work hours
Employers may choose to have an external business generate and submit the Pay Data Report on their behalf, but it must be approved and certified by the employer.
The employer may choose any individual to certify the report. However, this individual should possess the knowledge to review and verify that the information within the Pay Data Report is accurate on behalf of the employer.
Who should be included in the California Pay Data Report?
The individuals that should be included in the Pay Data Report depend on a couple of factors: the location of the company/employer and the residence location of the employee/labor contractor employee.
If the company is located in California, then all employees and labor contractor employees should be included in the Pay Data Report. It does not matter if they are residents of CA or not.
Suppose the company is not located in California but has employees or labor contractor employees that are CA residents. In that case, only the CA residents should be included in the Pay Data Report.
Should employees that were hired by labor contractors or staffing agencies be included?
Employers must file a separate Pay Data Report covering these individuals.
Additionally, the client employer must disclose the names of all labor contractors who supply labor contractor employees.
Conclusion
With this comprehensive article, we made it our goal to try and get employers the most up-to-date and accurate information available.
As a new bill, Senate Bill 1162 raises many questions for employers in 2023. As more information is released, this article will be updated. Be sure to check back for updates!
BoomTax, The Boom Post, and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors prior to engaging in any transaction.
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