Stricter pay transparency and pay equity obligations are set to take effect for certain California employers beginning January 1, 2026. Under the California Fair Pay Act, both public and private employers are prohibited from paying an employee less than someone of a different sex, race, or ethnicity when both perform work that is “substantially similar.” For employers with 15 or more employees, the law further requires the employer to include the pay scale information for a position in any job posting. Currently, the law defines a “pay scale” as “the salary or hourly wage range that the employer reasonably expects to pay for the position.”
Senate Bill 642 amends this definition to mean “a good faith estimate of the salary or hourly wage range that the employer reasonably expects to pay for the position upon hire.” Beginning January 1, 2026, this means that job postings must include accurate, good-faith pay ranges that reflect what the employer truly expects to pay for the specific role and location, eliminating overly broad salary bands.
Moreover, SB 642 amends the California Equal Pay Act to add a new definition to “wages” and “wage rate.” Not only will salary, overtime pay, and bonuses be considered wages, but employers can also include “stock, stock options, profit sharing and bonus plans, life insurance, vacation and holiday pay, cleaning or gasoline allowances, hotel accommodations, reimbursement for travel expenses, and benefits” when computing the total compensation an employee could reasonably be expected to earn.
SB 642 also extends the relief recovery period for violations. The employee will be “entitled to obtain relief for the entire period of time the violation occurred, up to six (6) years.” Previously the lookback period was three to four years before a lawsuit commenced.
Finally, the definition of “sex” is expanded to align with the definition under the Fair Employment and Housing Act, which also covers gender identity and gender expression.
Key Takeaways from Employers
As pay equity and pay transparency laws continue to evolve-especially in California, HR teams must shift from reactive compliance to strategic compensation management. Even employers without a physical presence in California are fully responsible for complying with the state’s pay transparency requirements if they have employees working remotely in the state or actively recruit for candidates in California. Here are some practical steps employers can take to reduce risk and create a more equitable workforce.
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Update job descriptions regularly to reflect the actual work being performed. Clear and accurate job descriptions are foundational for evaluating “substantially similar work” and justifying pay practices.
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Conduct pay equity audits regularly. Employers should continuously review compensation across job families, departments and states to identify any pay disparities early and correct them before they evolve into compliance issues.
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Integrate pay equity and transparency into your broader compensation strategy. Employers should also align job descriptions, salary ranges, and compensation philosophy with legal requirements to create consistency.
Employers Council Can Help!
Strengthening your compensation strategy today sets the foundation for long-term compliance, fairness and organizational trust. Employers Council offers Pay Equity audits designed to support you every step of the way – from detailed job evaluations and advanced data analysis using comprehensive salary regression to legal review that helps assess and explain pay differences. We also provide tailored legal guidance to ensure you remain compliant with federal and state laws while staying aligned with your organization’s unique business and workforce needs.
For more information on California employment law support, Employers Council members can contact our California Legal Services team at CAinfo@employerscouncil.org. For more information on Employers Council’s pay equity services, please contact us at aaps@employerscouncil.org.
This article reflects insights from Megan Fry, Sr. Affirmative Action Specialist and Brittanie Young, Human Resources Consultant, both with Employers Council, who collaborated on its development.