DFEH Issues New Guidance and a Template Report to Comply With California’s Pay Data Collection and Reporting Requirements: Are You Ready?

California’s Department of Fair Employment and Housing (DFEH) has issued new guidance in the form of frequently asked questions on the state’s pay data collection and reporting requirements. To help employers get ready to comply, on February 1, 2021, DFEH released a template pay data report form and guide for submitting reports through the portal. DFEH’s pay data submission portal will be available by February 16, 2021. Once the portal is live, employers must use the online portal to submit their pay data reports.

As a refresher, Senate Bill 973 requires private employers of 100 or more employees (with at least one employee in California) to submit a pay data report to DFEH by no later than March 31, 2021, and annually thereafter. DFEH’s guidance clarifies several key issues for employers, including the scope of coverage.

Do you count employees outside of California for purposes of determining whether your company has to report pay data?

Specifically, employers must count employees who work “inside and outside of California” for purposes of determining whether an employer has 100 or more employees and is therefore required to submit a pay data report. However, employers are only required to include “employees assigned to California establishments and/or working within California” in its pay data report. Employers may also include other employees located outside of California.

What about employees who work remotely?

With many workers still remote during the pandemic, the guidance also clarified that employees who telework from a residence in California but who are assigned to an establishment outside of California must be included in the pay data report. In addition, employees who telework from a residence outside of California, but who are assigned to an establishment in California, must also be included in the pay data report: “An employer’s report must include establishments outside of California if any employee at that establishment is working from California during the Snapshot Period.” DFEH’s guidance provides the following example:

If an employer has 100 employees assigned to an establishment in Oregon (five of whom are teleworking from California during the Snapshot Period) and 100 employees assigned to an establishment in Arizona (five of whom are teleworking from California during the Snapshot Period), the employer would submit a report with: (1) establishment-level data for the Oregon establishment that covers either the five employees teleworking from California or all 100 employees at the establishment; and (2) establishment-level data for the Arizona establishment that covers either the five employees teleworking from California or all 100 employees at the establishment.

What are some of the differences in reporting from the EEO-1 Component 2 form?

Through its guidance, DFEH also explained that employers should report job categorization, race and ethnicity consistent with the Equal Employment Opportunity Commission’s (EEOC) instructions for federal EEO-1 reporting. However, unlike the EEO-1 form, which only contains male and female categories for reporting an employee’s sex, California recognizes female, male and nonbinary categories. DFEH requires employers to report nonbinary employees in the same manner as male and female employees. Voluntary employee self-identification remains the preferred method of identifying race, ethnicity and sex information.

DFEH’s guidance also instructed that employees’ pay should be reported from W-2 Box 5 rather than W-2 Box 1. And, unlike the federal EEO-1 Component 2 pay data collection, in which paid leave was excluded when calculating hours worked, DFEH is requiring employers to include time during which the employee was on any form of paid time off. In addition, DFEH has a more complicated requirement for calculating hours worked for exempt employees than simply assuming a 40-hour workweek. In addition, DFEH’s guidance confirms that for organizations that have been through a merger, acquisition or spinoff, the employer is not required to combine pay and hours-worked data from both companies before and after the acquisition or merger but may do so. However, employers must be consistent with how pay data is reported and should explain their approach in the open box to add clarifying remarks.

For employers with multiple establishments, the same establishments should be used as on their EEO-1 reports. Notably, however, DFEH does not permit employers to submit a report akin to the EEO-1 Type 6 report for establishments with fewer than 50 employees. Instead, multiestablishment employers should report all establishments separately, including those with fewer than 50 employees. In addition, multiestablishment employers do not report consolidated data.

More to Come

We anticipate that more guidance will come in the form of final implementing regulations before the March 31, 2021, deadline. In the meantime, covered employers should work with legal counsel to conduct privileged audits to proactively identify any pay disparities and determine whether legitimate nondiscriminatory business reasons for any discrepancies exist, or whether remedial measures are warranted, prior to collecting and reporting pay data to California.

Upcoming Webinar

Please join us on February 12 as we host an interactive panel to discuss DFEH’s guidance and other recent developments at the federal and state levels regarding efforts to collect pay data for enforcement activities, including for federal contractors. In addition, the panel will address how pay equity audits can be done in conjunction with pay data reporting. Visit our registration page for more information and to participate in this engaging opportunity.