On September 30, 2020, California Governor Gavin Newsom signed into law a pay data reporting requirement for employers that assigns responsibility for collecting such data to the California Department of Fair Employment and Housing (DFEH). To assist employers with this filing requirement, the DFEH recently established a web page and published answers to a a series of frequently asked questions (FAQs) that address several topics related to the upcoming filings, which are due no later than March 31, 2021. The DFEH published its FAQs in four waves, publishing the first on November 2, 2020, and the most recent on February 1, 2021. The FAQs answer several important questions, including: which employers are subject to the filing requirement; how employees in and out of California are treated for purposes of determining filing jurisdiction; and which employees must and may be included in these filings.
In addition to the FAQs, the web page includes a pay reporting portal, a guide to using the portal, a template to submit data, and an example of a CSV submission. According to the DFEH, the pay reporting portal will be available on February 16, 2021.
While employers wait for the DFEH to open the pay data reporting portal, here is a summary of several key issues employers with connections to California may have regarding the pay data reporting requirements. This article discusses only the FAQs released to date. As such, the answers below are subject to change if the DFEH releases additional or different guidance as the filing process proceeds.
Question 1. How is jurisdiction determined?
Answer 1. The DFEH makes it clear that employers with any employees in California must carefully assess whether they are required to file California pay data reports. Employers with even one California-based employee can be required to file these pay data reports. Under the pay data reporting requirement, employers must first count all employees wherever they are located to determine if they meet the 100-employee threshold. Second, employers must determine if they have one or more employees located in California (which is explained further below). If an employer has 100 or more employees and at least 1 employee based in California, then the employer must complete the pay data reporting process by March 31, 2021.
When determining the 100-employee threshold, the new law requires an employer to look not only at the chosen “snapshot period” (i.e., “a single pay period between October 1 and December 31 of the Reporting Year”), but also consider whether it “employed 100 or more individuals on a regular basis during the Reporting Year.”
The FAQs define “regular basis” as “the nature of a business that is recurring, rather than constant.” For instance, an employer in a seasonal industry (e.g., a summer camp) may be required to file pay data reports if it regularly employed 100 or more employees during its season. This portion of the FAQs relies on the definition of “regular basis” found in California Code of Regulations Section 11008(d)(1)(A).
In determining whether it must file these pay data reports, the new law requires an employer to count all part-time employees and full-time employees as part of its total employee headcount. In addition, the employer must include, as part of its headcount, temporary workers provided by staffing agencies and independent contractors if these workers are “on an employer’s payroll, including a part-time individual, whom the employer is required to include in an EEO-1 Report and for whom the employer is required to withhold federal social security taxes from that individual’s wages.” This tracks the definition of “employee” found in Government Code Section 12999(m)(1).
In determining jurisdiction, California adopts the U.S. Equal Employment Opportunity Commission’s (EEOC) EEO-1 “single enterprise” test, which, according to the EEO-1 instruction booklet and the DEFH FAQ’s, requires an employer with fewer than 100 employees to file reports if the employer is “owned or affiliated with another company, or there is centralized ownership, control or management (such as central control of personnel policies and labor relations) so that the group legally constitutes a single enterprise, and the entire enterprise employs a total of 100 or more employees.”
Q2. What reports must be filed?
A2. The FAQs provide that “multiple-establishment employers must report all of their establishment-level data in a single report.” However, “[m]ultiple-establishment employers do not report consolidated data” because they “must report on all … establishments, including those with fewer than 50 employees, in the same manner” as required under Government Code section 12999. For purposes of California pay data reporting, a multiple-establishment employer’s headquarters is a distinct establishment reported in the same manner as other establishments.” The DFEH’s portal, user guide, and template identify the required information for pay data reports.
Q3. Are employers required to include employees outside California in the pay data reports?
A3. According to the FAQs, employers must file a report for all “California employees” (defined more thoroughly below) and “may” include non-California employees. The DFEH noted that some employers may prefer to include employees outside California because it “may be less burdensome for employers … in light of federal EEO-1 reporting.” This answers one of the critical questions about whether California requires pay data reporting of employees outside California. Although there are a couple of qualifications, the FAQs show that California is not aggressively reaching outside the state for pay data reporting. While each employer must make its own decision, it seems unlikely that many employers will voluntarily report pay data for the optional non-California employees.
Q4. Which employees are considered California employees and must be included in the pay data reports?
A4. Collectively, the FAQs identify three groups of employees that should be considered California employees for pay day reporting purposes: (1) employees working at a California establishment (including employees assigned to a California establishment but working at a client location outside California); (2) remote workers who live in California and are assigned to an establishment outside California; and (3) remote workers who live outside California and who are assigned to a California establishment. Under this arrangement, California requires employers to report an increased number of remote workers by using the place of assignment to include out–of-state workers, but then disregards the place of assignment when including remote workers who live in California but are assigned outside California. The FAQs also state that if a single-establishment employer has employees located outside California, then all such employees must be included in the single-establishment pay data report.
Q5. Are teleworkers considered California employees for purposes of the pay data reports?
A5. The FAQs look at two groups of teleworkers: (1) those who live in California and “who are assigned to a single establishment outside of California,” and (2) those who live outside California and who are assigned to a California establishment. For both categories, the FAQs state that the teleworkers should be included in the California pay data reports. The FAQs also indicate that teleworkers who live outside California and who are assigned to a California establishment should be reported with the California establishment to which they are assigned.
Q6. Where do pay and hours come from?
A6. Unlike the EEO-1 Component 2 pay data reports filed in 2017 and 2018, the California pay data reports rely on Box 5 of the Form W-2 to determine employee pay. The EEO-1 Component 2 reports used Box 1 to determine employee compensation. While the FAQs do not explain the reason for using Box 5 of the Form W-2, this box includes additional items of compensation that are not included in Box 1 and may be the largest compensation amount on an employee’s Form W-2.
Q7. Which pay bands will the pay data reports use?
A7. Though California’s minimum wage exceeds the federal minimum, the DFEH states that employers’ pay data reports should use the same bands as under the prior Component 2 EEO-1 reporting, which are:
$19,239 and under
$208,000 and over
Q8. How should employers report employees’ race, ethnicity, and sex?
A8. With regard to race and ethnicity, the DFEH states that “employers should follow the EEOC’s instructions … available in the EEO-1 Instruction Booklet.” For purposes of reporting employees’ sex, under California’s Gender Recognition Act of 2017, the state “officially recognizes three genders: female, male, and non-binary. Accordingly, the FAQs instruct employers to “report employees’ sex according to these three categories,” preferably based on employee self-identification. Further, the FAQs make clear that “[u]nlike the EEO-1 Component 2 data collection from 2017 and 2018, DFEH requires employers to report non-binary employees in the same manner as male and female employees.”
Q9. How are employees’ total hours worked calculated?
A9. For nonexempt employees, the FAQs state that “employers should utilize timesheets (or other records) to calculate the actual hours worked,” in addition to hours when employees were on paid time off that was paid by the employer (e.g., vacation, sick time, or holiday time).
For exempt employees, the FAQs reiterate that employers can utilize timesheets or other records. However, most employers will not keep timesheets or other records reflecting hours worked for exempt employees. According to the FAQs, in the absence of timesheets, “employers should calculate each exempt employee’s total hours worked by multiplying the total number of days actually worked during the Reporting Year plus the total number of days on any form of paid leave for which the employee was paid by the employer …, by the average number of hours worked per day.” [Emphasis in original.] This is similar to the “proxy hours” concept used with the EEO-1 Component 2 data collection.
Of note, the DFEH requires employers to include paid time off (where the EEOC requires employers to exclude paid time off) because such time is included on employees’ Form W-2s.
Q10. Will a federal EEO-1 report submitted to DFEH satisfy an employer’s pay data reporting obligation in California?
A10. According to the FAQs, “[y]es, but only if the EEO-1 [r]eport ‘contain[s] the same or substantially similar pay data information required’ by Government Code section 12999.” Employers may want to note that EEO-1 reports filed for reporting year 2020 will not satisfy this standard because the EEO-1 survey is not currently collecting pay data.
The DFEH released the California Pay Data Reporting Portal – User Guide , Excel file template, and .CSV template on February 1, 2021. The user guide provides employers with a comprehensive resource explaining the structure for the pay data reports and a review of the data required for reports. The guide also details the three options for employers to submit data through the portal once it goes live. Employers may submit reports by uploading an Excel file, uploading a .CSV file, or manually entering information into a form on the portal. The DFEH will not accept reports by email or hard copy. Section 1.3 of the user guide notes “Key Similarities and Differences with the EEO-1 survey,” providing a review for employers needing to comply with both federal and California reporting requirements. Further, DFEH provides step-by-step instructions for pay data reporting, in addition to examples of pay data reports for single- and multiple-establishment employers within the Excel template and user guide.