State legislature passed a law this week requiring all employers in California to post salaries for job listings, USA Today reports. SB 1162 also requires businesses with over 100 employees to disclose pay scales by gender, race, and ethnicity. The state would then make this data available to the public. California Gov. Gavin Newsom will either approve or veto the bill by September 30th.
Pay data disclosure requirements
SB 1162 will require employers to report hourly pay (both median and mean) by each combination of ethnicity, race, and sex for all positions. In comparison, current law “requires only numerical counts of employees by race, ethnicity and sex within each job category and pay band”. Additionally, businesses with over 100 employees hired through labor contractors will also be required to disclose pay data, along with race and gender data. Smaller businesses with over 15 employees would also need to post a pay scale for all open positions. It should be noted if an employer fails to meet this requirement, they won’t be penalized for a first offense, as long as they update their job listings to feature the pay scale, and provide proof they have done so. All businesses of all sizes will also need to deliver pay scales for existing positions if an employee requests this information. Currently, businesses are already legally required to provide applicants with the relevant pay scales for open positions.
Opposition to the bill
Notably, the California Chamber of Commerce isn’t in favor of the bill, describing it as a “job killer”. They say it’ll make the hiring process “more burdensome”, as well as “encourage lawsuits against businesses” based on “broad, unreliable data collected by the state”. Employers across California, and other states and cities pushing for pay disclosure, are also in opposition. While they say they agree with the importance of pay transparency and equity, employers are unhappy with how these goals are being implemented. Out of the many responsibilities of business owners, hiring and recruitment is one of the most difficult. It takes businesses 36 working days on average to fill an open position, while entry-level positions are most challenging to fill for over 40% of companies. Moreover, 41% of businesses say just one bad hire ends up costing roughly $25,000, Forbes reports.
In addition to an efficient hiring process, choosing the right business structure is also an essential step for business success. Not only does opting for an unsuitable structure result in potential tax ramifications, but it also can potentially result in the business shutting down completely. Most small businesses (around 35%) in the U.S. are limited liability companies (LLCs). An LLC can be formed in any state regardless of where the business is based, although the home state is usually most convenient. Delaware, in particular, is widely considered a business-friendly state and a popular choice for LLC formation. Filing fees and franchise taxes are notably low in Delaware. On the other hand, Florida is similarly considered a business-friendly state where it’s more affordable to create and maintain an LLC. The process of how to setup an LLC in Florida is also a relatively simple one. And, since the state has no minimum capital requirement, an LLC can be formed here with any amount of money.
The drive toward pay equity
Ultimately, SB 1162 is part of a wide effort to achieve pay equity and reverse the growing wealth gap. A recent analysis of California SB 973 pay data uncovered a gender pay gap of $46B in 2020, and racial pay gap of $61B. While women are expected to close this pay gap by 2059, it’ll take at least a hundred years for Black and Hispanic women to finally earn as much as men. Moreover, due to the racial wealth gap, the average Black household owns almost 90% less wealth than the average white household. “Disclosing salary ranges during hiring negotiations has been proven to narrow the wage gap,” said state Sen. Monique Limón. “I am hopeful that the governor will sign SB 1162 and take meaningful action to create an equitable economy that supports women, families, and people of color.” Michelle Holder, a labor economist, is also pleased with growing recent efforts to eliminate pay disparity. “I am hopeful this momentum continues at the local and state levels, and perhaps works its way up to the federal level at some point”, she said.
If Governor Newsom approves the bill, the described pay scale disclosure requirements will come into effect on January 1, 2023, while the new pay data reports (including mean and median pay gap information) will be required from May 10th 2023. It’s therefore imperative California businesses act now to help ensure compliance by, for example, gathering and assessing data in order to highlight places where changes are needed.
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