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Small Biz Need to Know: California's Equal Pay Act

Governor Jerry Brown signed the California Fair Pay Act into law Tuesday, bringing some of the strongest equal pay protections to the Golden State. An effort to close the wage gap between men and women, the new law will give employers a choice: pay similarly situated employees the same amount regardless of gender, or come up with some really compelling reasons why not.

So what, exactly, are the burdens the new law places on small businesses? And how can business owners best prepare?

Equal Pay for Substantially Similar Work

Generally, SB 358 establishes a new standard of equal pay for "substantially similar work" (replacing "equal work") and requires employers to demonstrate that any pay gap between workers is due to factors like seniority or skill level and not gender. Specifically, the statute will "prohibit an employer from paying any of its employees at wage rates less than those paid to employees of the opposite sex for substantially similar work, when viewed as a composite of skill, effort, and responsibility."

Additionally, the new law will:

[R]equire the employer to affirmatively demonstrate that a wage differential is based upon one or more specified factors, including a seniority system, a merit system, a system that measures earnings by quantity or quality of production, or a bona fide factor other than sex, as specified. The bill would also require the employer to demonstrate that each factor relied upon is applied reasonably, and that the one or more factors relied upon account for the entire differential.

That's a lot of management and reporting requirements, just to get away with paying female employees less.

Whistleblower Protections

Additionally, the bill would protect workers from retribution for sharing salary information and "prohibit an employer from prohibiting an employee from disclosing the employee's own wages, discussing the wages of others, inquiring about another employee's wages, or aiding or encouraging any other employee to exercise his or her rights under these provisions."

California employers have until January 1 to be compliant with the Fair Pay Act, which also imposes a three-year record-keeping requirement to ensure employers are adhering to the statute. If you want to make sure your small business is ready when the Fair pay Act goes into effect, you may want to talk to an experienced employment attorney soon.

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