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California’s New Pay Reporting Law- Why SHRM Opposes It & How It Impacts Businesses

by John Pensom, CEO & Co-Founder

 

Surprisingly (or some might say, predictably), SHRM were the key voice on-record staunchly opposed to California’s new Pay Reporting law.

The reason for this - as I can surmise after reading the legislation and floor analyses - is that they wanted to wait for a perfect bill to be tabled.

Apparently, SHRM requires a utopic, perfect bill which would deliver a magical legislative solution to address the imperfect pay inequities that employees of many companies face.

While there are some merits to the SHRM argument related to job evaluation, surely the SHRM position should have been a “yes, but….” versus a “no, because…”?

Bill SB973 however, takes a definitive step outside of the echo-chamber.

Signed on September 30, 2020 by California Governor Gavin Newsom, Bill SB973 respectfully notes SHRM’s opposition, then downloads Federal walk-backs and makes this state business - in the form of a new Pay Reporting law.

What Does this Mean?

There are several key items in this new law (adapted from the legislation):

1

Starting March 31, 2020, and on or before March 31 each year thereafter, a private employer with 100 or more employees and who is required to file an annual Employer Information Report (EEO-1 Report) under federal law, this law requires companies to submit a report to the [California] Department of Fair Employment and Housing (DFEH) with pay data for specified job categories broken down by race, ethnicity, and sex.

2

Requires that the pay data report be broken down by specified job categories and include the number of employees by race, ethnicity and sex with annual earnings separated in pay bands used by the United States Bureau of Labor Statistics.

3

Requires that, for purposes of establishing the number of employees in each pay band, the employer create a "snapshot" that counts all the individuals in each job category employed during a single pay period of the employer's choice between October 1 and December 31 of the reporting year.

4

Requires employers with multiple establishments to submit a report for each establishment and a consolidated report.

5

Permits an employer to make clarifying remarks regarding any of the information provided.

   

The catch, however, is that preparing these reports accurately can be time-consuming, manual and complex.


Pay Equity Reporting is Manual and Complex

Here’s a few considerations. Even though you may be running a new cloud-based HRIS or HCM platform, the native reporting capabilities:

  • probably won’t have the exact data sources you need to create these reports and
  • won’t support the new reporting configuration and calculations you will need to comply with this law.

Bottom line, your HR team member running this report will likely need to:

  • Download data from multiple HR systems, tables or sources into a spreadsheet
  • Connect and align these data fields (which can be highly complex)
  • Build out the right calculations and metrics for your Report based on the types of segmentation and analysis being required
  • Validate
  • Secure
  • Achieve signoff and submit the report to the DFEH
  • Rinse and repeat whenever you need it next

And of course, there’s always the risk of that HR team member finding another job (imagine the irony of them leaving you high and dry in mid-March because they realize they are 20% underpaid!).

Yet again, this results in increasing the effort you spend in low value, complex activities such as preparing and integrating your HR data, versus having that data at your team's fingertips so you can drive better outcomes for your organization.

Purposeful Pay Equity Reporting

Consider this, the purpose of submitting GAAP-based Financial Statements is not the submission of the statements themselves. It’s so a company can have a standard and consistent method to understand corporate financial health (profit, loss, growth, sustainability).

Translate that logic directly to Bill SB973.

Most importantly, for your employees, your company, your shareholders and your communities you live and work in, the outcome of this “Report” shouldn’t solely be meeting a “Legislative Requirement”, it should be to identify and address inequities that your data is illuminating.

And while I can’t imagine that SHRM would actually want to suppress making broad-based progress on pay equity, they aren’t accountable to company shareholders, community stakeholders and employee constituents.

This is on you. Not SHRM.

Go Further In Your Pay Analysis

Your corporate conscience might mean you will want to, and need to, go further in your analysis.

Like connecting your under-represented employee pay data to top performer turnover. To progression. Productivity. Market-based pay-ratios or benchmarks. By ethnicity, sex and race. Location. Line of Business. And any other lens relevant to you, your operations and the culture you are building.

If you’d like to know how we can make this “100x faster and 1,000x better” for you over an in-house build (not my words but those from a CHRO we do business with) please check out our Diversity, Equity & Inclusion Analytics Edition.

Topics: CHRO HR Reporting HR Data #california