California Tightens Pay Transparency- What Employers Need to Know About SB 642 and SB 464 – The National Law Review

Report on California’s Enhanced Pay Equity Legislation and its Alignment with Sustainable Development Goals

Recent legislative amendments in California have significantly expanded the state’s pay equity and transparency framework. These changes, embodied in Senate Bills 642 and 464, reinforce California’s commitment to achieving key United Nations Sustainable Development Goals (SDGs), particularly SDG 5 (Gender Equality), SDG 8 (Decent Work and Economic Growth), and SDG 10 (Reduced Inequalities).

Existing Pay Equity Framework as a Foundation for SDG 10

The California Equal Pay Act

The existing California Equal Pay Act serves as a foundational tool for promoting SDG 10 (Reduced Inequalities). Its core tenets prohibit employers from using an applicant’s salary history in the hiring process, a practice known to perpetuate historical pay gaps based on gender and race. By mandating that employers provide pay scales upon reasonable request, the law promotes transparency and empowers individuals, directly contributing to the reduction of wage inequality.

Mandatory Pay Data Reporting

To monitor progress towards equality, California requires annual pay data reporting from private employers. This mandate is critical for achieving the targets of SDG 5 and SDG 10.

• Covered Employers: The requirement applies to private employers with 100 or more payroll employees or 100 or more workers hired through labor contractors.
• Data Requirements: Employers must submit detailed reports to the California Civil Rights Department (CRD) that include workforce data disaggregated by job category, pay band, race/ethnicity, and sex.
• Purpose: This data collection provides the empirical evidence needed to identify and address systemic pay disparities, making it an essential mechanism for holding organizations accountable to gender and racial equality principles.

New Amendments Strengthening SDG Commitments

Senate Bill 642: Advancing Decent Work (SDG 8) and Accountability

SB 642 strengthens the legal framework for pay transparency, reinforcing the principles of Decent Work (SDG 8) by ensuring fair and transparent compensation practices. The bill introduces several key changes effective January 1, 2026:

1. Statute of Limitations: It establishes a three-year statute of limitations for civil actions, providing a clear timeframe for recourse against violations.
2. Expanded Relief Period: A six-year “look-back” period allows for more comprehensive relief for existing violations, enhancing access to justice.
3. Clarified Definitions: The bill clarifies that a “pay scale” must be a “good faith estimate” and expands the definition of “wages” to include all forms of compensation, such as stocks and options. This comprehensive view of compensation is vital for addressing the full scope of economic inequality.

Senate Bill 464: Improving Data for Gender Equality (SDG 5)

SB 464 refines the pay data reporting process to generate more precise and actionable insights, directly supporting the measurement and achievement of SDG 5 (Gender Equality). The notable changes include:

• Data Segregation: Requires employers to separate demographic data from personnel files, enhancing data management and privacy.
• Standardized Occupational Classification: Beginning January 1, 2027, employers must use the federal Standard Occupational Classification (SOC) system. This replaces the broader EEO-1 categories and allows for more granular analysis of pay gaps within specific job roles, leading to more targeted interventions.
• Enforcement: Authorizes courts to impose civil penalties for non-filing at the request of the CRD, strengthening the enforcement mechanism.

Operational and Compliance Implications

Application to Remote Workforce

The legislation’s reach extends to the modern, flexible workforce, a key consideration for SDG 8. The Labor Commissioner has clarified that if a position could potentially be filled by a remote worker in California, the job posting must include the pay scale. This ensures that pay transparency standards are upheld regardless of the employee’s physical work location within the state.

Consequences of Non-Compliance

Failure to comply carries significant risk. The law now authorizes private parties to bring civil actions for violations. This private right of action, combined with the extended relief period under SB 642, creates a powerful incentive for employers to adhere strictly to the law, thereby fostering a corporate culture of accountability that aligns with the SDGs.

Recommendations for Employers to Align with SDG Principles

To ensure compliance and actively contribute to the Sustainable Development Goals, employers should consider the following actions:

• Review Data Processes: Audit and refine workforce data collection and reporting systems to ensure accurate and timely submission to the CRD, demonstrating a commitment to transparency and SDG 5.
• Enhance Pay Scale Transparency: Evaluate all job posting and internal promotion processes to ensure full compliance with pay scale disclosure requirements, fostering trust and supporting SDG 10.
• Conduct Proactive Pay Equity Audits: Regularly analyze compensation data to identify and rectify unjustified pay disparities, moving beyond compliance to proactively championing SDG 5 and SDG 8.
• Update Policies and Training: Implement and update internal policies and provide training to HR personnel and hiring managers on the evolving legal landscape to embed principles of equity and decent work throughout the organization.

Analysis of SDGs, Targets, and Indicators

1. Which SDGs are addressed or connected to the issues highlighted in the article?

1. SDG 5: Gender Equality

   • The article focuses on California’s Equal Pay Act, which explicitly aims to eliminate pay disparities based on sex, race, or ethnicity. The legislation’s core purpose is to enforce non-discrimination in compensation, directly contributing to the economic empowerment and equality of women.

2. SDG 8: Decent Work and Economic Growth

   • The article discusses labor laws, pay transparency, and employer obligations, all of which are central to ensuring decent work. The legislation promotes the principle of “equal pay for work of equal value” and protects labor rights through new legal frameworks and reporting requirements.

3. SDG 10: Reduced Inequalities

   • The legislation described in the article is designed to reduce income inequality by tackling pay disparities affecting individuals based on their sex, race, and ethnicity. By mandating pay data reporting and transparency, the laws aim to ensure equal opportunity and reduce inequalities of outcome in the workplace.

4. SDG 16: Peace, Justice and Strong Institutions

   • The article details the creation and enforcement of laws (SB 642, SB 464) and the role of a state institution, the California Civil Rights Department (CRD), in administering them. This reflects the development of effective, accountable, and transparent institutions that promote and enforce non-discriminatory laws.

2. What specific targets under those SDGs can be identified based on the article’s content?

1. Targets under SDG 5 (Gender Equality)

   • Target 5.1: End all forms of discrimination against all women and girls everywhere. The California Equal Pay Act and its amendments are legal instruments designed to end the discriminatory practice of unequal pay based on sex.

2. Targets under SDG 8 (Decent Work and Economic Growth)

   • Target 8.5: By 2030, achieve full and productive employment and decent work for all women and men… and equal pay for work of equal value. The article’s entire focus is on legislation to enforce equal pay, directly aligning with this target.
   • Target 8.8: Protect labour rights and promote safe and secure working environments for all workers. The laws discussed, such as SB 642 which establishes a statute of limitations for violations, are mechanisms to protect the labor rights of employees concerning fair compensation.

3. Targets under SDG 10 (Reduced Inequalities)

   • Target 10.3: Ensure equal opportunity and reduce inequalities of outcome, including by eliminating discriminatory laws, policies and practices and promoting appropriate legislation. The article describes new legislation (SB 642 and SB 464) specifically created to eliminate discriminatory pay practices and reduce wage gaps based on sex, race, and ethnicity.

4. Targets under SDG 16 (Peace, Justice and Strong Institutions)

   • Target 16.6: Develop effective, accountable and transparent institutions at all levels. The California Civil Rights Department (CRD) is identified as the institution responsible for administering pay data reporting, making it an accountable body for enforcing these laws. The laws themselves mandate transparency from employers.
   • Target 16.b: Promote and enforce non-discriminatory laws and policies for sustainable development. The article is a case study of the promotion and enforcement of non-discriminatory pay laws in California.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

Yes, the article explicitly mentions several data points that serve as direct indicators for measuring progress:

• Mandatory Pay Data Reporting: The core of the legislation is the requirement for employers to submit detailed pay data reports. This collected data is the primary tool for measurement.
• Specific Data Points for Measurement: The article states that the required data includes, but is not limited to:
  • Employee job categories (to be classified using the federal Standard Occupational Classification – SOC – system)
  • Pay bands
  • Race/Ethnicity
  • Sex
• Analysis of Pay Disparities: These data points, when collected and analyzed by the California Civil Rights Department (CRD), serve as direct indicators to measure the wage gap between different demographic groups (sex, race, ethnicity) within specific job categories and pay bands. This allows for precise tracking of progress towards pay equity.

4. SDGs, Targets, and Indicators Table

Source: natlawreview.com