Whether setting pay for a new hire or adjusting compensation for a current employee, employers must navigate a range of legal considerations. In this episode of California Employment News, Weintraub employment attorneys Meagan Bainbridge and Nikki Mahmoudi share key reminders to help employers stay compliant with California’s complex wage and hour laws.
Watch this episode on the Weintraub YouTube channel.
Hello, everyone. Thank you for joining us for this installment of the California Employment News, an informative video and podcast resource offered by the Labor and Employment Group at Weintraub To. My name is Meagan Bainbridge, and I’m a shareholder in the Firm’s group. Today, I’m joined by my colleague, Nikki Mahmoudi, and we’re talking about what are important considerations for employers when deciding what to pay an employee.
In California, deciding an employee’s pay requires careful consideration of various factors, including the legal requirements and, of course, business needs and best practices. First, employer should determine their business needs and decide who it is that they need to hire and come up with a job description consistent with those needs. Employer should then review the job description developed for the position and correctly classify the employee as exempt or non-exempt. If you’re not sure what that is, in our archives, there’s many podcasts and video resources talking about what the difference is between an exempt and a non-exempt employee is. If it is an exempt position, employer should then ensure that the position meets the exempt salary requirements. If non-exempt, then employer should require, at a minimum, that that position meets the state’s minimum wage requirements.
Once the pay is determined, employer should ensure that they are complying with California’s Pay Transparency Laws, which, among other things, requires the following: Pay Scale Disclosures and job postings. As of January first, 2023, employers with 15 or more employees must include the pay scale, which includes either a salary or an hourly wage range. In all job postings, including remote positions that could be filled with California residents. This information must be included in the job posting itself. You can’t just include a link or a QR code that will take them to another page. You must also to provide a pay scale to current employees. Employers are required to provide current employees with a pay scale for any position upon request. Finally, there’s a prohibition against salary history inquiries. It’s illegal to ask a job applicant about their salary history in determining whether to make an offer to an applicant and what that offer is. Employers may inquire as to a particular applicant’s salary expectations. It just can’t be linked with the previous pay. Nikki, what else should employers consider when setting an employee’s pay?
Let’s talk a little bit about fair pay. Under Labor Code Section 1197. 5, which can apply to public and private employers, an employer will not pay any of its employees at wage rates less than the rates paid to employees of the opposite sex, another race, or ethnicity for substantially similar work when viewed as a composite of skill, effort, and responsibility and performed under similar working conditions. Except where the employer demonstrates the wage differential is based upon one or more of the following factors which we’re going to talk about, which must be applied reasonably. Different factors that we’re going to discuss must account for the entire wage differential. Those include a seniority system, a merit system, a system that measures earnings by quantity or quality of production, a bonafide factor other than sex, race, or ethnicity, such as education, training, or experience. Now, this bonafide factor only applies if the employer demonstrates that it’s not based on or derived from a sex, race, or ethnicity-based differential in compensation, is job-related with respect to the position in question, and is consistent with a business necessity. When we’re talking about business necessities, it’s defined as an overriding legitimate business purpose such that the factor applied upon effectively fulfills the business purpose it is supposed to serve.
Now, the bonafide defense does not apply if the employee demonstrates that an alternative business practice exists that would serve the same business purpose without producing the wage differential. A few things to keep in mind. An employee’s prior salary cannot justify a disparity in compensation. That doesn’t mean an employer cannot make a compensation decision based on a current employee’s salary. It just means that an employee can do so, so long as any wage differential resulting from that compensation decision is justified by one or more of the factors we discussed. Now, keep in mind with Labor Code Section 1197. 5, it requires employers to maintain records of wages and wage rates, job classifications, and other terms of conditions of employment for a period of three years. Typically, though, our recommendation is to maintain records for at least four years to comply with other labor code obligations. Also, employers cannot discharge or in any manner discriminate or retaliate against an employee by reason any action they take to invoke or assist in any manner the enforcement of labor code Section 1197. 5. Employers also cannot prohibit employee from disclosing their own wages, discussing the wages of others, inquiring about another employee’s wages or aiding or encouraging other employees to exercise their rights under that labor code section.
At the same time, there’s no obligation that employees have to disclose their wages. So as an employer, you want to make sure you have policies in place enforcing this, and you also want to make sure that managers and supervisors are properly trained. Megan, is there anything else employers should keep in mind?
Yeah, similar to what you were just saying, just a couple expansions on that. First, I just want to remind everyone that the Fair Employment and Housing Act, FHA, does prohibit discrimination of applicants and employees based on employers with five or more employees, at least, based on any protected category. That would include race, religion, gender, that thing. This includes paying employees differently based on a protected category. So unlike the Fair Pay Act, FHA requires the employee to prove a discriminatory intent. That said, it’s important to be able to substantiate any differences in pay for an employee performing the same job as another employee. If you don’t have one, the assumption will be that it was done for a discriminatory reason. Second, similar to what you just said under the Fair Pay Act, Nikki, employers cannot limit employees’ discussion their wages and workplace environment with other employees. California law, as well as the National Labor Relations Act, the NLRA, protects employees and allows them to discuss their wages and their working conditions with other employees. So policies that require employees to keep their wages confidential are unenforceable and likely in violation of several laws on their face.
Nikki, any last thoughts for employers who are studying their employees’ pay?
Yeah, a few more things. It’s always good to perform a pay audit every so often to identify any potentially material and/or sex, race, or ethnicity-based pay differences within the workforce. Employers will want to make sure to review the type of work performed rather than just the specific job title. Also, employers will want to make sure to have policies in place prohibiting any pay discrimination. For those individuals involved in the making of compensation decisions, you’ll want to provide training to make sure your employees understand what factors are permissible in setting wages and salaries.
Thanks, Nikki. That’s it for now. You can continue to find our video series and podcast through theleblog. Com or on Weintraub Tobin’s YouTube channel or on your favorite podcast channel. Thank you everyone for joining us, and we look forward to reconnecting with you on the next edition of California Employment News. We’ll see you next time.
