Getting to Know the California Fair Pay Act

Updated: as of 2017, race and ethnicity are now added as protected categories. As of 2018, it covers public employers and Section 432.3 has been clarified

Last October, California Governor Jerry Brown effectively closed a major loophole in past legislation by signing the California Fair Pay Act. The Act, designed to close the wage gap between women and men, stands as the nation’s strictest fair-pay law currently on the books, requiring employers to equally compensate employees for “substantially similar” work.

More specifically, section two of the Act states that:

“An employer shall not pay any of its employees at wage rates less than the rates paid to employees of the opposite sex for substantially similar work, when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions, except where the employer demonstrates:

The wage differential is based upon one or more of the following factors:

  • A seniority system.
  • A merit system.
  • A system that measures earnings by quantity or quality of production.
  • A bona fide factor other than sex, such as education, training, or experience. This factor shall apply only if the employer demonstrates that the factor is not based on or derived from a sex-based differential in compensation, is job related with respect to the position in question, and is consistent with a business necessity.”

Because the Act is fairly complex, we won’t touch on every detail in this blog but will focus on what employers can and should be doing now to maintain compliance. For complete details on the Act, please click here.

As always, we do want to note that this blog is not intended to serve as legal advice. We’ll provide you with helpful information and possible steps you can take, but if you do have specific questions, we recommend consulting your own legal teams.

With that disclaimer out of the way, let’s talk compliance, more specifically, five things you may want or need to consider.

  1. Determine what employee information must be kept on file and for how long.

Although not mentioned above, the Act also extends the time period employers must keep records associated with an employee’s terms and conditions from two to three years. Records may include things like an employee’s wages and job classifications. The first thing you should do is gain clarification on exactly what records need to be kept before determining how you plan to retain those details for the appropriate time period.

  1. Review your current compensation-related policies to help ensure you are operating in accordance with the law.

In addition to the change regarding record-keeping, the law also states: “An employer shall not prohibit an employee from disclosing the employee’s own wages, discussing the wages of others, inquiring about another employee’s wages, or aiding or encouraging any other employee to exercise his or her rights under this section.” As a result, employers should pay close attention to specific policies that may require employees to maintain confidential information, possibly including pay information. If these policies are in direct violation of the law, they will need to be rewritten and distributed to employees to communicate any changes.

  1. Consider reviewing all employee job descriptions and conducting a pay/salary analysis.

Having a clear job description will allow you to identify positions that may be considered “substantially similar” for both open requisitions and existing positions.

Once you’ve reviewed the descriptions, consider conducting a pay/salary analysis for all employees. Because the law went into effect on January 1, it’s best to get out ahead and correct any pay disparities rather than waiting until an employee’s next scheduled increase or performance evaluation. If you’re using an all-in-one HRIS, like SentricWorkforce, you should be able to pull reports with the required information quickly and easily.

  1. Contract, hire or consult with a labor attorney.

Depending on the outcome of your pay/salary analysis, you may want to consider contracting, hiring or simply consulting with a labor attorney to determine if any changes need to be made. He or she should be able to help guide you through the process to ensure compliance with the law.

  1. Outline a clear process for employee concerns.

Based on the law, employees must have a way of filing a complaint if they believe “…the wages paid are less than the wages to which the employee is entitled.” If you don’t have a process in place, be sure to create and communicate details with employees.

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