California’s New Pay Transparency Law: What You Need to Know

California’s new pay transparency law is already having a major impact on employers and employees alike. Companies now need to be transparent about what they’re paying and offering to current employees and applicants, while job seekers now have more information when negotiating salary.

For business owners, having a strong culture and HR team will be more important than ever as our working landscape dramatically changes over the next year. Acquiring and retaining talent will become a more competitive venture as worker compensation becomes more public.

In this article, we’ll take a look at what the new law is requiring of California business owners, the potential impact of this law in the coming year, and how you can adapt as employee recruitment transforms.

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What Does the New Law Entail?

California’s new pay transparency law requires companies with 15 or more employees to provide workers with pay scale information on their job position as well as a wage range in all job postings. Bonuses, tips, and other benefits do not have to be included in this information.

All employers regardless of company size must keep records of employees’ job titles and wage rate history for the duration of their time at the company plus three years after they leave. These records must be open to inspection in case of an Equal Pay Act Claim so that the Labor Commissioner can examine if there’s a wage discrepancy.

In addition to the requirements mentioned, companies with 100 or more employees will have to report data to the state on pay and hours worked categorized by the establishment, job category, sex, race, and ethnicity of their employees.

Failure to comply with these new laws could make business owners subject to penalties of $100 to $10,000 per violation. These laws will require business owners to adapt their recruitment and company culture fast if they haven’t been transparent about pay scales in the past.

Potential Impact on Employers and Employees

The driving force behind this law is a public demand for pay equity. The hope is that with salaries out in the open, employers will be less inclined to discriminate against workers. For applicants, knowing the wage range for job postings will allow them to properly negotiate pay and make the application process more efficient.

While some businesses have been slow to adapt to the new law, there could be long-term benefits for business owners that embrace it early. These potential benefits include:

Defined salary ranges for employees and applicants can lower the likelihood of pay discrimination and reduce potential legal issues.
Defined salary ranges make budgeting and planning easier with less likelihood of overpaying.
Pay transparency can build a natural trust within your workforce culture. Employees are more inclined to trust their employer if they know they are being compensated fairly and not being discriminated against.
Accurate and specific salary postings make applicants more likely to apply.

There is significant discussion surrounding the advantages that the new law offers to employees, but it is important to note that employers also stand to reap numerous benefits, if not more, from this law. Why? It provides the perfect opportunity to develop a healthy work culture and productive environment through trust.

How Businesses Can Adapt

The new law has created a highly competitive environment for recruiting talent because applicants now know what they’re going to be entitled to. So besides offering higher salaries, what can you do to attract and keep the best talent for your company?

Before doing anything, you should ensure you are complying with the new law. Conducting a pay equity audit of your company to find discrepancies, determining pay ranges for existing positions, and updating job postings to include pay information are the best ways to make sure you’ll be following the new requirements.

Next, consider using the 3 Pillars to create a strong company culture that incorporates the new pay transparency requirements.

At Culture Works, we use a 3 Pillar approach when developing a culture for small to mid-sized companies. These pillars are Attract, Engage, and Retain, and they can all be used with the new law.

Attract: Ensuring your HR practices, compensation structures, and talent attraction strategies are aligned with an ever-changing talent pool.

Having HR operations that know the ins and outs of pay transparency will reduce bad exposure when recruiting talent.

Engage: Creating performance and culture accountability through culture roadmaps and playbooks.

Getting everyone on the same page, which pay transparency can aid in, will drive your company’s achievements and success through a motivated and engaged workforce.

Retain: Offer career pathing and promotions to retain your talent and decrease turnover.

Having a clear path for your employees, as well as transparent salary ranges for promotions will serve as a motivator and incentive to stay with your company long-term.

In addition to the 3 Pillars, creating a strong compensation structure will be vital in staying competitive in the new landscape. A compensation structure gives you clear indicators of what pay scale, raises, and bonuses to offer to current employees and applicants.

Creating and maintaining a good compensation structure consists of gathering relevant data like employee opinions and market research, developing a pay structure that retains and attracts high-level talent, and alignment with a company’s model, life-cycle stage, and workforce plan.

Have More Questions?

The new pay transparency law is radicalizing employee recruitment and retention. Having a strong culture and HR team will be pivotal in adjusting to the new landscape.

Connect with Culture works today to learn more about the new pay transparency law, adapting to it, and how the right HR team can help your company grow.