New Pay Equity Rules & Reporting Requirements Employers Should Not Ignore

Pay equity and pay transparency continue to be legislative priorities in California. Over the past several years, the Legislature has repeatedly expanded California’s Equal Pay Act (Lab. Code §§ 1197.5, 432.3) and imposed increasingly detailed pay data reporting requirements on employers. The latest legislation continues this trend and further increases compliance obligations and potential litigation exposure.

Two new laws further expanded employer obligations and increased potential litigation exposure. First, Senate Bill (“SB”) 642 expanded California’s Equal Pay Act and pay transparency requirements. Second, SB 464 expanded pay data reporting obligations and imposed new compliance and enforcement mechanisms.

Both laws took effect in January 1, 2026, with some provisions taking effect on January 1, 2027.

Expanded Pay Scale Disclosure Requirements and New Statute of Limitations Rules

California’s Equal Pay Act (the “Act”) prohibits employers from paying employees less than others of a different sex, race or ethnicity for substantially similar work. It also requires employers to provide the pay scale upon reasonable request to applicants or current employees. For employers with 15 or more employees, they must also include the pay scale in all job postings.

Senate Bill 642 amended the Act by defining “pay scale” as a “good faith estimate of the salary or hourly wage range that the employer reasonably expects to pay for the position upon hire.” Employers must ensure that job postings and disclosures reflect actual compensation practices.

SB 642 defines “wages” and “wage rates” as “all forms of pay,” including, but not limited to:

salary, overtime pay, bonuses, stock, stock options, profit sharing and bonus plans, life insurance, vacation and holiday pay, cleaning or gasoline allowances, hotel accommodations, reimbursement for travel expenses, and benefits.

Therefore, before publishing pay scales, employers must evaluate total compensation, not just base pay, to ensure no pay disparity exists.

Lastly, the bill increases the statute of limitations on when civil actions can commence for violations of the Act to three-years and allows recovery for up to six years of ongoing violations. This significantly expands the scope of potential damages. The bill clarifies that a civil claim accrues when any of the following occur: (a) an alleged unlawful compensation decision or practice is adopted; (b) an individual becomes subject to it; or (c) the individual is affected by it, including each time wages, benefits, or other compensation are paid in whole or in part as a result. This is a somewhat vague definition for when a claim accrues. This framework means that a claim may arise not only when a compensation decision is initially made, but also when an employee becomes subject to that decision or each time compensation is paid pursuant to it. As a practical matter, this means that pay decisions made years earlier may continue to create exposure if compensation practices remain in place, underscoring the importance for employers to regularly review compensation structures and correct disparities before they compound over time.

Thus, using broad or inaccurate pay ranges can trigger compliance violations and liability. Repeated violations will be treated as a single continuing offense, so employers should act promptly to ensure compliance and limit the risk of facing discrimination claims under the Act.

New Pay Data Rules and Penalties for Noncompliance 

California employers with 100 or more employees, including those hired through labor contractors, must submit an Annual Pay Data Report to the Civil Rights Department (“CRD”). There were several key changes under SB 464, such as how demographic data must be collected and stored separately from personnel files, whether gathered directly or via contractors. However, the most noteworthy change under SB 464 is the imposition of penalties for noncompliance. If an employer fails to file the report when requested, a court must, upon request by the CRD, impose a civil penalty of $100 per employee for a first violation and $200 per employee for subsequent violations. For example, an employer with 150 employees that fails to file the requested report could face a civil penalty of $15,000 for a first violation and $30,000 for a subsequent violation. This also means that if the CRD requests penalties, it is mandatory for the Court to thereafter impose penalties. Depending on how many employees a company has, these penalties can be very significant all for simply not meeting the requirement to submit an annual report. These penalties are to encourage all employers to properly report the demographics of their businesses, further demonstrating the Legislature’s goal for greater pay transparency.

Additionally, beginning in January 1, 2027, pay data reporting requirements increase the number of job categories that employers must report on to more accurately measure the occupations that workers are employed in. Specifically, SB 464 expands the job categories to include, among others:

• Business and financial operations occupations.

• Health care support occupations.

• Food preparation and serving-related occupations.

• Building and ground cleaning and maintenance occupations.

• Construction and extraction occupations.

• Transportation and material moving occupations.

Conclusion

SB 642 and 464 expand California’s pay equity and transparency rules, and increase the penalties and exposure for noncompliance. In light of this, employers should:

1. Evaluate total compensation, including salaries, bonuses, stocks, allowances, and other benefits, to identify and correct any pay disparities. This does not mean that all positions must be paid exactly the same, but just that there should be legitimate, defensible reasons for any deviations in pay.

2. Review and update pay scales to ensure all job postings and disclosures reflect good faith compensation ranges. For example, if you end up paying a salary outside the range you initially published, that should be updated for future postings.

3. Adopt compliant pay data collection practices by collecting and storing demographic pay data separately from personnel files. It is important to calendar your deadline to submit an Annual Pay Data Report and have a plan for meeting this obligation.

If you have any questions regarding how to improve your pay data, equity, and transparency policies or practices, Cook Brown, LLP is here to help. Contact us to get started.