California is seeking more information on how employers pay contractors

California will soon have access to more information on how employers are paying contract workers, thanks to legislation that went into effect earlier this year.

The law, SB 1162, is most commonly known as the state’s pay transparency legislation. In addition to requiring most California employers to publish salary ranges for open roles, the law also includes certain mandates for reporting pay data to the state’s Civil Rights Department (CRD).

Since 2020, the state has required companies with 100 or more employees to submit reports detailing pay, broken down by job category, race, sex, and ethnicity. While employers were previously only required to provide pay data for employees working directly for the company, SB 1162 amended the requirement to include contract workers employed by staffing agencies, as well.

Why does California want to know how contractors are paid? TechEquity Collaborative, a public-policy organization and cosponsor of SB 1162, became concerned about contractor pay after the organization conducted a study that revealed pay disparities between contract workers and direct employees in the tech industry, according to Megan Abell, director of advocacy.

The study found that contract workers are paid 25% less than counterparts in the direct workforce, and they are more likely to be people of color, women, or nonbinary, Abell said.

These findings, coupled with New York Times reporting from 2019 that found temp workers and contractors outnumbered full-time employees at Google, “led us to believe that there might be a big pay equality issue regarding contract work,” Abell said.

Staffing firms employed over 1.9 million workers in California as of 2021, she noted. “We felt like it’s really necessary for the state to get a handle on what’s happening with contract work and the existing pay data reporting structure,” she said.

Advocating for equity. The deadline for California employers to submit pay data on contract workers was May 10, but the CRD is allowing some businesses to delay doing so through July 10. The extension is likely intended to give companies more time to secure the data from labor contractors they partner with if it’s not readily available, Lulu Seikaly, a senior corporate attorney with compensation software firm Payscale, told HR Brew.

Regardless of whether an employer is collecting pay data for full-time or contract workers, Seikaly said it’s important for companies to develop a compensation philosophy, and revisit it often, to address disparities. HR can play a vital role in securing buy-in from leadership to do this, she added.

“HR professionals [are] the advocate between the employees and leadership,” Seikaly said. HR can help leaders better understand “why this is important [and] why we have to comply with these laws."