California’s updated pay equity and pay data laws expand employer liability by increasing the statute of limitations, broadening the definition of “wages” and making it easier for employees to bring claims. At the same time, required pay data reporting can be used by regulators to identify disparities and trigger investigations. Employers should work with experienced employment and labor law attorneys to review compensation practices and reporting processes to reduce compliance risk.
California has long been at the forefront of pay equity legislation, but recent updates significantly raise the stakes for employers. Changes to the state’s Equal Pay Act and pay data reporting requirements expand liability, increase enforcement and make it easier for disparities to be identified and challenged.
Duckor Metzger & Wynne, APLC, shareholders Rose Huelskamp Serrano and Anne K. Wilson discussed California’s pay equity and pay data laws during the firm’s annual Employment & Labor Law webinar. They offered practical, employer-focused guidance on how these changes affect employers in real, operational ways, from compensation structure to recordkeeping and reporting.
1. How Has the Statute of Limitations Changed?
California has expanded the timeframe in which employees can bring pay equity claims under California Labor Code section 1197.5 (the Equal Pay Act).
What’s changed:
- Employees may bring claims within three years of the most recent violation.
- Courts may allow recovery for disparities going back up to six years.
Why this matters:
- Pay decisions made years ago, potentially under different leadership or market conditions, can now create current liability.
- Employers face larger potential damages due to extended lookback periods.
2. What Counts as “Wages” Now?
The definition of “wages” was significantly broadened under the Equal Pay Act to now include:
- Base salary
- Bonuses and commissions
- Equity compensation (e.g., stock options)
- Benefits with measurable value (e.g., vacation pay, certain fringe benefits)
Why this matters:
- Two employees with the same salary may still create a pay equity issue if their total compensation differs without valid justification.
What employers should do:
- Ensure compensation reviews go beyond base pay.
- Evaluate incentive structures, bonus plans and equity awards for consistency.
3. What Does “Employee of Another Sex” Mean for Employers?
The statutory language shifted from “opposite sex” to “another sex.”
Why this matters:
- Broadens the comparison group
- Increases flexibility for employees bringing claims
- Aligns with more inclusive interpretations of gender
What employers should do:
- Be prepared to justify pay differences across a broader range of employee comparisons, not just traditional male/female comparisons.
4. How is Pay Data Reporting Changing?
California’s pay data reporting requirements under California Government Code section 12999 are becoming more detailed and more enforceable.
Key updates include:
- Employers must separately collect and store demographic data.
- Reporting categories will expand from 10 to 23 job classifications (starting in 2027).
- Mandatory penalties for failure to file required reports.
5. Why Does Pay Data Report Changes Create New Risks for Employers?
Historically, pay data reporting was viewed as a compliance exercise. Now, pay data can be used to:
- Identify patterns of disparity
- Trigger agency investigations
- Support class action or representative claims
Why this matters:
- The California Civil Rights Department has authority to review submitted pay data and enforce compliance, including seeking court orders and penalties for noncompliance.
- Employers no longer need a complaint to face scrutiny — data itself can drive enforcement.
6. How are Penalties and Enforcement Changing?
Enforcement is becoming more aggressive and less discretionary. In addition, courts are now required to impose penalties for failure to file pay data reports when requested.
Impact on employers:
- Missing deadlines or submitting incomplete data is more likely to result in financial penalties.
- Employers should treat reporting as a high-risk compliance function.
7. What Should Employers Do Now?
Given these changes, employers should move from reactive to proactive compliance.
DMW Pay Equity and Pay Data Employer Checklist
1. Conduct a pay equity review:
✓Analyze compensation across roles performing substantially similar work
✓Identify and document legitimate factors (e.g., experience, education, performance)
2. Review total compensation, not just salary:
✓ Include bonuses, equity and benefits in comparisons
3. Audit job classifications:
✓ Prepare for expanded reporting categories
✓ Ensure consistency across titles and roles
4. Strengthen documentation practices:
✓ Maintain records of compensation decisions and job descriptions
5. Evaluate pay data reporting processes:
✓ Confirm demographic data is stored separately
✓ Ensure systems can support required reporting formats
6. Train HR and leadership
✓ Ensure those making compensation decisions understand legal requirements
California employers that take a proactive approach will be better positioned to avoid pay equity and pay data compliance and reporting issues or manage them should they arise. The Employment & Labor Law attorneys at DMW regularly counsel employers on these issues and more — contact them to learn how they can help your organization.