The State of California has new pay reporting and pay transparency requirements that went into effect at the start of the year. For a quick refresher regarding the pay transparency requirements, jump on over to our blog post here. In the meantime, Biddle clients and BCGi members are emailing in tons of questions in the run-up to the Wednesday, May 10, 2023 filing deadline for the first California (CA) pay data reports.
As a preliminary matter, this only applies to “private” companies, defined as “not government.” So if your organization is a government agency, department, etc., you are exempt. Go pour a tall glass of wine and see how your pension is doing.
For the rest of us, there are now two “components,” really two reports: one for “payroll employees,” and one for “labor contractor employees.” As with most federal reporting requirements, “Do we have to file?” and “Who is included in the reporting?” are separate inquiries (that could lead to surprising results).
Once you figure out whether or not your organization is required to file and, if so, who is included in the reporting, there are also a couple of quirks when it comes to calculating hours worked and pay that we will touch on as well.
Do We Have to File?
California’s Senate Bill 1162 applies to private employers with at least 100 employees and at least one employee “in” California. What “in” means here is a bit unclear, and the “why” isn’t much clearer. Let’s tackle the first part first.
How Do We Count Employees for the Threshold?
Does your organization have at least 100 employees? For most this is a relatively easy “yes” or “no” question. But many employers will find themselves approaching the threshold or bouncing above and below it throughout the year. So who do we count and when do we count them?
Employers are instructed to choose a “pay period” between October 1, 2022 and December 31, 2022. Employers are then instructed to total up the number of employees on the payroll during the pay period chosen.
Note that this is technically the same approach as for EEO-1 reporting, though almost everyone works from a single-date “snapshot” report pulled as of some date between October 1 and December 31 (usually representing the end of a pay period). Anyone who was employed during the chosen pay period who was not employed on the “as of” date would get excluded. The EEOC (technically, the Joint Reporting Committee, but it’s helmed by the EEOC) has not expressed any great concern over whether employers are totaling employees during a chosen pay period or using a simple snapshot for EEO-1 reporting purposes. Whether and to what extent the California Civil Rights Department will be similarly flexible remains to be seen.
To be safe, employers should consider pulling together total employee headcounts for each pay period that falls between October 1 and December 31, 2022. If any of those pay period totals come out to 100 or more, the 100+ employee box is checked. The only remaining question determining whether or not you have to file is whether any of those 100+ employees are “in” California (which is not as straightforward as you might hope—read on).
When it comes to preparing the actual report, though, employers will have to pick a “snapshot date” to go off of because employees absolutely can and do change jobs and/or pay during a “pay period.”
For “payroll employees,” people on your organization’s payroll, all the data you need should be readily available. However, the same exercise must be performed for “labor contractor employees,” people who perform work for your organization but are paid by someone else.
The “Labor Contractor Employee” Wrinkle
The new law recognizes that some employers use “contract labor,” people who perform work for the organization but are not on the organization’s payroll. However, it only seems to envision one scenario in which employers get their contract labor from a “labor contractor” in the form of “labor contractor employees.” And it assumes that the information you need will be readily available and provided to you by your “labor contractor(s).”
That is all well and good, and if your organization might have to file a “labor contractor employee” report, we recommend gathering the necessary data sooner rather than later as you are at the mercy of the response time of your contract labor supplier(s).
The question not really addressed has to do with independent contractors, people who do not work for a “labor contractor employer”—they work for themselves.
The California Civil Rights Department merely defines “labor contractor employer” as “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.”
They then define “labor contractor employee” as someone on the payroll of a “labor contractor employer.” Independent contractors will likely be considered within the scope of the definition of a “labor contractor employer,” even if they are not incorporated, because the definition includes individuals. So the more independent contractors you have throughout the year, the more arduous this exercise becomes.
Another “Labor Contractor Employee” Wrinkle
Interestingly, that definition of “labor contractor employer” describes providing an employer with workers “to perform labor within the client employer’s usual course of business” (emphasis added). Does that mean contract workers brought in for special projects might be excluded if their work does not represent the employer’s “usual course of business?” And how is “usual course” defined, anyway?
Well, it’s not. So if you think there are truly “special circumstances,” there might be an out, but we recommend soliciting legal advice from a California employment attorney before excluding anyone from your headcounts for these reporting purposes.
The “Regularly Employed” Wrinkle
Let’s say you went to the trouble of totaling up all your payroll employees (or labor contractor employees) for each pay period between October 1 and December 31, and none of them reach the 100 employee threshold. We’re done, and we don’t have to file, right?
Not so fast. When the California Civil Right Department says “100 or more employees,” they mean that many in any pay period between 10/01 and 12/31 or that you “regularly employ” 100 or more employees during the rest of the year. Wait, what?
Think of seasonal work. The hardware store chain ramps up hiring during the summer months when more people are doing more home improvement work. But by October 1, the employer has let go most or all of their “seasonal workers.” If the “snapshot period” date range doesn’t line up with your “season,” California still wants you to report if you “regularly employ” 100 or more people any time during the year.
Do they define “regularly?” They do not, so employers might have some wriggle-room there.
What Does “In California” Mean?
Let’s assume your organization meets the 100+ employee threshold. The next question is whether or not one or more of those employees are “in California.” Here it might be nice if California would define what they mean by “in California,” but they do not.
They appear to intend for that to be interpreted broadly, and this really comes down to jurisdiction. Protecting its citizens is one of the strongest jurisdictional ties they can have, so if any employees reside in California, this box is probably checked, even if they don’t work in California (more on that below).
And if your organization maintains a brick-and-mortar location in California, you’re in, even if all of the employees who work at your California location live in another state.
If your only connection to The Golden State is an employee who resides elsewhere but performs work in California, you’re probably off the hook unless they’re performing work at your facility in California.
But this is just to answer the question, “Do we have to file?” We are not to the “Who is included?” part yet, so don’t get confused. Remember, “Do we have to file?” and “Who is included?” are two separate inquiries.
So let’s get to the next question…
Who Is Included?
100 or more employees across the entire enterprise and at least 1 employee “in” California punches your ticket—you are required to file. But who must be included in the reports?
To answer that question you’ll need to know where your people live and where they work. Where they live is relatively straightforward. Don’t go down a rabbit hole with individual employees who maintain multiple residences and such; just go with what they’ve put down for their contact information. Where they want their W-2 sent is probably a pretty solid option.
Where people “work” gets a little tricky, and this is one of the reasons so many employers’ return-to-work policies often involve at least 51% of time spent in the office rather than working remotely. It’s just easier for employers to determine benefits and compliance when they can tie their employees to a physical work address.
A California resident working at a California location is obviously going to be included. Same for a California resident who works from home but is “assigned” to a California location.
A California resident who works from home but is “assigned” to a physical location in, say, Nevada, is also included. Note that not only do you not have to report on the other, non-California employees at that Nevada location, but the latest guidance explicitly instructs you not to. So before you go being overly generous, understand that doing so might actually be a violation!
Flipping the script for a moment, a Nevada resident who commutes to work at a location in California is also included.
And a Nevada resident who works from home but is “assigned” to a California location is also included.
But flip the script back and a California resident who commutes to Nevada for work is not included.
When it comes to figuring out where to assign people who work remotely, follow the same “rules” as for EEO-1 reporting.
Can you “assign” all your remote workers who live in California to a location in a different state? In theory, yes, though we doubt your organization would make such a drastic move just to avoid this reporting requirement.
What about employees who work at client sites? Think consultants. If they are “assigned” to a location in California, they’re included, even if they perform all of their work out-of-state.
So everyone who works at a California location, physically or remotely, is included in your reporting, along with any California residents working remotely from within the state, and any “roving” employees assigned to a California location.
Technically, an organization can meet the 100+ employee threshold with at least one employee “in” California and be required to file a report, but if that California employee commutes to Nevada for work, there could be no qualifying employees to put in those reports. If that is your organization’s situation and you’re not sure what to do, we feel comfortable predicting that the California Civil Rights Department will not be overly concerned, but feel free to contact them and inquire if you feel that is necessary.
As for calculating pay, hours worked, assigning pay bands, etc., all that minutiae can be just as tricky as figuring out whether or not you have to file. The good news is that the California Civil Rights Department maintains a pretty robust website with guides and FAQs that are up-to-date and actually useful.
In most instances you’ll be using Box 5 on the W-2, Medicare wages and tips, but you’ll need to be on the lookout for employees with wages not reported in Box 5, like H-2A visa-holders.
You are not supposed to “annualize” wages or hours worked for employees who didn’t work a full year, so that’s a load off. Full-time and part-time employees are treated equally, and you just report actual hours worked when possible (“proxy” calculations based on full- or part-time status are allowed but should be “tailored” to the individual rather than assume, for example, that all part-time employees work 20 hours per week).
W-2 corrections that occur after reports are filed will likely result in an obligation to submit corrected reports.
Note that California sex self-identification includes three categories: male; female; and non-binary.
There are also FAQs for staffing firms and how to handle merger, acquisition, and divestiture activity, along with all the other details you’ll need such as the current pay bands and race/ethnicity designations. Just click on over to the California Department of Civil Rights landing page.
And of course if you have any questions about the new California pay data reporting requirement, or need help filing, feel free to contact us at BCGi@Biddle.com.