Under the rules for pay data reporting, what are “labor contractor employees”?

The Pay Data Reporting Act requires a company with 100 or more “labor contractor employees” to report those wages to the state. It’s important to note that the term has a very specific definition. The law defines a “labor contractor employee” as an individual “who performs labor for a client employer within the client employer’s usual course of business.”

For example, if you own a cabinet making company, and your employees installed cabinets in the offices of a large tech company (i.e., a company not involved in the cabinet making industry), your customer (the large tech company) would be the “client employer,” but because it is in the technology business — and your employees are in the cabinet installation business — your employees were not performing work in your customer’s usual course of business, and therefore, they don’t meet the definition of “labor contractor employees.”

In preparing their pay data reports for the state, businesses have commonly misunderstood this requirement. Businesses need report only the wages of other companies’ employees when those employees are performing work in the usual course of the company’s where the services are being performed.

If you are unsure about whether you should disclose wage information of your employees to third parties for pay data reporting purposes, you should always consult legal counsel first in order to avoid any possible privacy issues with your employees.

Read more about “Pay Data Reporting in California” in EEO Reporting Requirements in the HR Library.