California’s Civil Rights Division (CRD) has released updated guidance and resources to reflect recent changes to the pay data reporting requirements for employers with 100 or more employees. The changes were a result of the enactment of Senate Bill 1162. ADP® is in the process of updating your payroll system to generate a fileable version of the employee pay data report. The fileable version is expected to be available in mid-April 2023.
ADP will not be providing a fileable Labor Contractor Employee Report. Clients who are required to file a Labor Contractor Employee Report should request all necessary data from their vendors who provide their contract labor employees. Workforce Now will allow clients to run a non-fileable employee detail report that can be filtered by Worker Category and Worker Classification. This will provide details for employees categorized as Contractors or 1099. Clients may find this information useful in preparing to file a Labor Contractor Employee Report.
The Details
Background
The following chart summarizes the changes to pay data reporting rules made by Senate Bill 1162, which took effect Jan. 1, 2023.
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Pay Data Reporting
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Prior to Jan. 1, 2023
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Beginning Jan. 1, 2023
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A private employer that has 100 or more employees and is required to file an annual Employer Information Report (EEO-1) under federal law must submit a pay data report to the state on or before March 31 each year.
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A private employer that has 100 or more employees must submit a pay data report covering the prior calendar year to the state on or before the second Wednesday of May each year,beginning May 10, 2023, regardless of whether they are required to submit an EEO-1.
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A private employer that has 100 or more employees hired through labor contractors within the prior calendar year must submit a separate pay data report to the state covering those employees. The private employer must also disclose on the pay data report the ownership names of all labor contractors used to supply employees. A labor contractor must supply all necessary pay data to the private employer.
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The pay data report must include the following information:
- The number of employees by race, ethnicity and sex in each of the following job categories:
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In the addition to what was required before Jan. 1, 2023, the pay data report must include the median and mean hourly rate for each combination of race, ethnicity and sex within each job category.
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For employers with multiple establishments, the employer must submit a report for each establishment.
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A multiple-establishment employer does not submit separate reports for each establishment. Based on the recent guidance (see below), this change means a multiple-establishment employer submits a single report that contains all establishments.
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An employer can comply with the requirement if they submit a copy of their EEO-1 Report, containing the same or substantially similar pay data information required.
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Employers can no longer comply by submitting a copy of their EEO-1 Report in lieu of a CA pay data report.
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Employers may be responsible for the costs associated with the state’s efforts to enforce compliance.
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Employers that fail to file the required report may be fined up to $100 per employee, and up to $200 per employee for a subsequent failure to file. Employers may also be responsible for the costs incurred with the state’s efforts to enforce compliance.
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Updated Guidance and Resources
The state has now updated answers to frequently asked questions (FAQs), its user guide and templates to reflect the changes. For example, in the updated FAQs, the state addresses how employers should calculate individual hourly rates, mean hourly rates and median hourly rates, providing the following information.
How do I calculate an employee’s hourly rate?
Employers must calculate each employee’s individual hourly rate before calculating the mean and median hourly rates. The hourly rate is derived from an employee’s total annual earnings for the entire Reporting Year, as shown on the Internal Revenue Service Form W-2 Box 5. To calculate the hourly rate, divide the employee’s W-2 Box 5 income by the number of hours the employee worked.
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Example:An employee’s W-2 Box 5 income is $100,000 and they worked 2,080 hours.
To calculate the employee’s hourly rate:
Divide $100,000 by 2,080 to get:$48.08.
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If an employee has wages not reported in Internal Revenue Service Form W-2 Box 5, as may be the case for an H-2A visa holder, for example, use W-2 Box 1 for that employee’s total annual earnings and divide that amount by the number of hours the employee worked.
How do I calculate the mean hourly rate?
Employers report the mean hourly rate for each grouping of employees with the same establishment, job category, race/ethnicity, and sex combination. The mean hourly rate is calculated by adding the individual hourly rates for each employee in the group, then dividing that sum by the number of employees in the group.
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Example:Employee A and Employee B are the only two employees grouped in the same establishment, job category, race/ethnicity, and sex combination.
Employee A’s hourly rate: $20.00
Employee B’s hourly rate: $21.00
To calculate the mean hourly rate for the group:
Add Employee A and Employee B's hourly rates ($41.00), and divide by the number of employees (2) to get:$20.50.
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If there is only one employee grouped in the same establishment, job category, race/ethnicity, and sex combination, that employee’s hourly rate is reported as the mean hourly rate.
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Example:Employee A is the only employee in their same establishment, job category, race/ethnicity, and sex combination. Their employer would report Employee A’s hourly rate ($20.00) as the mean hourly rate.
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How do I calculate the median hourly rate?
Employers are required to report the median hourly rate for each grouping of employees with the same establishment, job category, race/ethnicity, and sex combination. The median hourly rate is calculated by ordering the hourly wages of each employee in the group from smallest to largest and selecting the middle number.
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Example:Employees A, B and C are the only three employees grouped in the same establishment, job category, race/ethnicity, and sex combination:
Employee A’s hourly rate: $20.00
Employee B’s hourly rate: $21.00
Employee C’s hourly rate: $22.00
To calculate the median hourly rate for the group:
Arrange all three employees' hourly rates in order from smallest to largest ($20.00, $21.00, $22.00), and take the middle number to get:$21.00.
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If there is only one employee grouped in the same establishment, job category, race/ethnicity, and sex combination, that employee’s hourly rate is reported as the median hourly rate.
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Example:Employee A is the only employee in their same establishment, job category, race/ethnicity, and sex combination. Their employer would report Employee A’s hourly rate ($20.00) as the median hourly rate.
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If the number of employees in the same establishment, job category, race/ethnicity, and sex combination is an even number, the median hourly rate is calculated by arranging the hourly wages of each employee in the group from smallest to largest and taking the mean of the two middle numbers. If there are only two employees in the same category, the median hourly rate would be the same as the mean of their two hourly rates.
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Example:Employees A through D are all in the same establishment, job category, race/ethnicity, and sex combination.
Employee A’s hourly rate: $20.00
Employee B’s hourly rate: $21.00
Employee C’s hourly rate: $22.00
Employee D’s hourly rate: $23.00
To calculate the median hourly rate:
Find the mean (the average) of the two middle numbers. In this case, you would add $21.00 and $22.00 ($43.00) and divide by two to get:$21.50.
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The guidance also clarifies that employers with multiple establishments must submit a single report that includes each establishment.
Does Senate Bill 1162 mean that multiple-establishment employers have to submit a separate report for each establishment?
No. The California pay data reports are purposefully designed to consolidate all of an employer’s relevant data. For that reason, Senate Bill 1162 conformed Government Code section 12999 to the system built by the CRD. A multiple-establishment employer submits a single Payroll Employee Report and/or a single Labor Contractor Employee Report, depending on which of these reports the employers is required to file.
The guidance also makes clear that when reporting to the CRD, employers must include their employees assigned to California establishments and/or working within California. Unlike in years past, employers may not report employees who are working outside of California and are assigned to an establishment outside of California.
Next steps
If you are a covered employer:
- Read the updated FAQs and user guide.
- ADP is in the process of updating your payroll system to generate a fileable version of the employee pay data report. The fileable version is expected to be available in mid-April 2023.
- Once available, download the fileable report, review it, and upload the report to the CRD portal.
- Certify the final report and submit it using the CRD portal by May 10, 2023.
- ADP will not be providing a fileable Labor Contractor Employee Report. Clients who are required to file a Labor Contractor Employee Report should request all necessary data from their vendors who provide their contract labor employees. Workforce Now will allow clients to run a non-fileable employee detail report that can be filtered by Worker Category and Worker Classification. This will provide details for employees categorized as Contractors or 1099. Clients may find this information useful in preparing to file a Labor Contractor Employee Report.
Please contact your ADP Service Representation if you have questions.