Wednesday, March 22, 2023

Last-Minute Tips to Comply with California’s Pay-Data Reporting Rules

California HR professionals should focus this month on completing pay-data reports, which must be submitted to the Department of Fair Employment and Housing (DFEH) by March 31.

The new California law, SB 973, applies to private employers with 100 or more employees—the same employers that are required to file an annual EEO-1 report with the U.S. Equal Employment Opportunity Commission (EEOC). California lawmakers passed SB 973 in response to the federal government’s decision to rescind what was known as “Component 2” of the EEO-1 report, which asked for pay data broken down by job category, race, sex, and ethnicity.

Even if a covered business has just one California employee or one who lives out of state but reports to a California manager, the company is required to file pay data on that employee with the DFEH.

Here’s what HR professionals need to know ahead of the deadline.

Ample Resources Available

The good news for employers is that the DFEH has thorough guidelines, including a 70-page user guide, downloadable Excel and CSV templates, and FAQs, which have been continually updated since they were first published in November to reflect answers to questions the department has received from employers. Employment law attorneys give the portal high marks for its clarity, usability and granularity.

Companies that are accustomed to filing EEO-1 reports shouldn’t have much trouble, said Britney Torres, an attorney with Littler in Sacramento, Calif. “For employers that are used to submitting the EEO-1 and are relatively comfortable with their data systems, this will not be too difficult, as long as you know the differences between the California law and the EEO-1 requirements,” Torres said.

Much of that boils down to how the data are submitted. “For DFEH, there is a single report. For the EEO-1, there are individual reports by the establishment,” she said.

The DFEH’s guide breaks down the similarities and differences. One difference is that when tracking gender, the new California law has a category for nonbinary employees, in addition to male and female. The FAQs also include guidance on how to determine gender when an employee has declined to state one.

Employers must submit pay data for all of 2020, but they can choose any period from the fourth quarter as the basis for the report. So if one period contains fewer employees, companies may find it’s easier to work with that group to ease the reporting burden.

While the requirements are “unsurprisingly more onerous” than the federal requirements, said Teresa Ghali, an attorney with GBG in San Francisco, most employers should be able to submit reports without the help of legal counsel. Reports can be submitted by third-party vendors or legal counsel, she noted, but the employer must certify them as true.

For any questions not covered by the FAQs, seek counsel, advised Martha Doty, an attorney with Alston & Bird in Los Angeles. And if employers detect a potential flaw in their data, or it seems to point to fault or bias, “get on the phone and have a privileged conversation about what to do next”. Above all, make sure the data submitted are accurate, she said.

Focus on Meeting the Deadline

Questions about which employees are covered may arise because the COVID-19 pandemic has led to more remote workforces, said Kiosho Dickey, an attorney with Ogletree Deakins in Columbia, S.C. Many employees are moving about the country, and employers will need an accurate snapshot of their workforce. “You need a good handle on where people are really working from,” she said. Dickey recommends reporting on only employees covered by the statute who live in or report to a manager in California, rather than the entire workforce.

While there is a comment section for each of the categories, Torres holds that “less is more. Don’t get chatty in the comments section.” She also encourages employers not to fret about the content of what they are reporting and to focus on meeting the deadline.

The law’s purpose is twofold, Ghali said. “The DFEH wants to encourage self-monitoring, and wants to see pay data for enforcement purposes”. But employment attorneys don’t expect enforcement in the first year. The initial focus is on complying with the deadline, not so much on the data submitted.

However, if companies have serious concerns about the accuracy of their data and choose to conduct a pay-equity audit, they should do so with legal counsel, so that information and communications fall within the scope of attorney-client privilege, Ghali noted.

Attorneys aren’t clear on what California will do with the data once it’s collected. “This is not a perfect tool for ferreting out discrimination,” Dickey said. “California is gathering data. I don’t necessarily see what red flags there will be from this type of aggregated report.”

While there is a one-month extension available in some circumstances, the bar is high, Dickey said. The first reason for deferral is the loss of records due to floods, fires, or natural disasters. The second reason is severe economic hardship, and the third is if the reporting process requires technology or infrastructure changes. Few employers will meet these requirements, she said.

Employers should file as soon as possible because the portal may be overloaded and slow as the deadline approaches. Dickey noted that the California data management is being run by the same company that ran the EEOC reports, so she expects few complications. But if the DFEH detects errors, reports will be kicked back for resubmission.

Employers should remember to keep a final copy of the uploaded file on hand, as well as a copy of the certification page.