- Focus on remote workers. Pay reporting now requires employers to report remote workers who physically work at an establishment, remote workers who reside in California, and remote workers outside of California.
- Penalties for non-compliance. Direct financial penalties are $100 per employee for the first failure to file and $200 per employee for the second failure to file.
- Action items. Employers based outside of California have an obligation to file a report if they have 100 or more employees and just one employee in California.
Pay data reporting season is underway in California, with the state’s reporting portal having opened Feb. 1. Reports are due by May 8, and employers in the Golden State should be aware of some of the changes announced by the California Civil Rights Department (CRD), which is responsible for administering pay data collection.
Resource: Pay Equity Law by State — Are You in Compliance?
The biggest change in 2023 pay reporting is the increased focus on remote employees, according to Jay Patton, shareholder in the Birmingham, Alabama office of law firm Ogletree Deakins. While remote employees were included in prior years, employers are now required to indicate which employees physically work at an establishment, remote workers who reside in California, and remote workers outside of California.
“These new requirements apply to both the payroll employee and the labor contractor employee reports,” Patton said. “Through the new data fields, CRD will be able to get a fuller picture of the employer’s workforce and determine the size of the remote workforce.”
Aymara Ledezma, a partner in the Los Angeles office of Fisher Phillips, said employers should take note of the specific definition of “remote worker” provided in the FAQs. For pay data reporting purposes, this means only employees who are entirely remote and have no expectation to regularly report in person to perform their work.
“The change from allowing reporting ‘unknown’ for certain demographic information increases the burden on employers as they will now need to ensure they collect this information from their labor contractors for purposes of the reports,” she said.
Another change is that the “unknown” race/ethnicity and gender categories may no longer be checked for the 2023 labor contractor employee reports (it was allowed for the inaugural 2022 labor contractor employee reporting cycle).
“CRD made this clear last year, but it is still significant, as the reporting employer must rely on data from their labor contractors to complete this reporting accurately,” Patton said.
Ledezma said that this year employers must also submit both their payroll and labor contractor (if applicable) reports by the deadline, no deferrals allowed.
Non-Compliance Risks
Starting with 2022 pay data reporting, California instituted direct financial penalties for employers who failed to file reports. These penalties are set at $100 per employee for the first failure to file and $200 per employee for the second failure to file, said Patton. From the beginning, CRD was able to recover its costs in any enforcement action, but these new penalties “significantly increase the stakes” for employers required to file these reports.
Patton noted the warning from the CRD that it “is actively pursuing non-filers.” The combination of these penalties and a more robust CRD enforcement stance is a warning to employers to ensure they comply with the new pay data requirements.
“These penalties are also assessable against a labor contractor that has failed to provide required pay data to a client employer in a timely fashion,” Ledezma said.
Action Steps for Employers
To meet the new requirements, Patton said employers should ensure they fully understand and apply the reporting requirements for remote workers.
“These requirements may be a bit confusing, [in particular] with the requirement of reporting on remote workers living inside and outside of California,” he said. Employers need to have a clear breakdown of in-state and out-of-state residency.
Ledezma added that employers also should determine whether they need to file a payroll employee report or a labor contractor employee report.
“Employers based outside of California have an obligation to file a report if they have 100 or more employees and just one employee in California,” she said. Similarly, employers who have used 100 or more labor contractor employees (with at least one in California) are also required to file a report.
In order to meet the filing deadline — which is only three months away — her advice is to “designate an individual or team now to gather the information needed to ensure your reports are filed in a timely manner.”
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