California Equal Pay Act Update Now Counts Bonuses, Stock, and Equity: What SB 642 Means for Employees

For many professionals in technology, finance, and sales, base salary accounts for only part of their total compensation. Annual bonuses, equity grants, and commissions can add tens of thousands of dollars a year, and in some roles they exceed salary altogether. Yet until recently, California’s principal pay equity statute never defined “wages,” which left open the question of whether those forms of pay belonged in an equal pay comparison.

Senate Bill 642 has now resolved that question. Effective January 1, 2026, it amended the California Equal Pay Act to define wages as all forms of pay, so bonuses, equity, commissions, benefits, and allowances now figure into any assessment of whether employees doing similar work are paid equally. The law also extends the deadline to bring a claim and allows employees to recover up to six years of lost pay.

Below, we’ll take a look at what SB 642 changed, how total compensation is evaluated in an equal pay claim, and what employees can do if they believe their pay has fallen behind that of their peers.

What SB 642 Changed in the California Equal Pay Act

The California Equal Pay Act (codified under Labor Code section 1197.5) prohibits employers from paying employees less than colleagues of another sex for substantially similar work. A companion provision applies the same prohibition to pay disparities based on race or ethnicity.

Governor Newsom signed SB 642, also known as the Pay Equity Enforcement Act, on October 8, 2025. Of its several amendments, three pose the greatest consequences for employees:

• a broad statutory definition of wages
• an updated definition of sex that encompasses gender identity and gender expression
• a longer window both to file a claim and to recover lost pay

The revised definition of sex closes a gap in the statute’s original wording. Where the law once compared employees to those of the “opposite sex,” it now refers to “another sex” and ties the definition to the California Government Code, which includes gender identity and gender expression. As a result, the California Equal Pay Act now unambiguously protects nonbinary, transgender, and gender-nonconforming employees, while its protections against pay disparities based on race and ethnicity remain in force.

SB 642 also refined California’s pay transparency rules by requiring that pay ranges in job postings reflect a good faith estimate of what the employer expects to pay at hiring. Because that change primarily concerns job applicants, this post focuses on the equal pay provisions.

Bonuses, Stock, and Equity Now Count Under the California Equal Pay Act

The amended California Equal Pay Act now defines wages to include salary and overtime as well as bonuses, stock, stock options, and profit-sharing and bonus plans. The definition extends further to life insurance, vacation and holiday pay, allowances, travel reimbursements, hotel accommodations, and benefits.

Because the statutory list is expressly non-exhaustive, commissions, incentive payments, retention awards, and other compensation fall within its scope as well. In effect, anything an employer provides as pay can become part of the comparison.

This expanded definition applies only to equal pay claims. It does not alter the meaning of wages for overtime, final pay, and other wage-and-hour claims, and it does not require employers to include bonuses or equity in the pay ranges they post.

What This Looks Like in Practice

In compensation structures that rely heavily on bonuses and equity, the most significant disparities may sit outside base salary, where they are also the hardest to detect.

Consider two directors at the same company, each earning a $220,000 salary. One receives a four-year equity grant valued at $400,000, while the other receives a grant valued at $150,000. A comparison limited to salary would reveal no disparity at all, yet the $250,000 difference in equity is precisely the kind of gap the amended law brings into the analysis.

Smaller differences can be just as consequential over time. A bonus target set 5 percent below a peer’s may seem modest in any single year, but accumulated across five or six bonus cycles, it can amount to a substantial sum.

How Courts Compare Total Pay in California Equal Pay Act Claims

Claims under the California Equal Pay Act generally center around three questions: whether the employee has identified an appropriate comparator, how the two employees’ total compensation compares, and whether the employer can justify any difference.

Identifying an Appropriate Comparator

An employee must show that someone of another sex, race, or ethnicity was paid more for substantially similar work. Courts assess similarity by looking at skill, effort, and responsibility as a composite, along with the conditions under which the work is performed. Job titles are relevant, but the duties each person actually performs are more significant in this assessment.

Of note is the fact that since 2016, California has not required the comparator to work at the same establishment. An employee in Los Angeles may therefore compare their pay with that of a colleague performing similar work in San Francisco, in San Diego, or on a remote team.

Comparing Each Element of Pay

With a comparator identified, every component of compensation becomes relevant, including bonus targets and actual payouts, commission rates and quotas, initial and refresh equity grants, vesting schedules, and eligibility for profit-sharing or retention awards.

The way work is assigned can matter as well. When one salesperson consistently receives stronger territories or larger accounts, the resulting commission gap may reflect those assignment decisions rather than performance, and those decisions can become part of the claim.

What the Employer Must Prove

Once an employee establishes a pay difference for substantially similar work, the burden shifts to the employer. The employer must demonstrate that the difference rests on a seniority system, a merit system, a system measuring quantity or quality of production, or a bona fide factor other than sex, such as education, training, or experience.

California sets a demanding standard for this defense. The employer must show that it applied each factor reasonably and that the factors account for the entire difference in pay. A factor other than sex must also be job-related and consistent with business necessity, and prior salary alone cannot justify a disparity.

Discretionary compensation tends to receive close scrutiny in gender pay gap litigation. Where bonuses or equity awards depend on a manager’s judgment rather than consistent, documented criteria, an employer may find it difficult to explain why two employees doing similar work were paid differently.

Available Remedies

An employee who proves a violation may recover the wages they should have received, together with interest. The statute also provides for liquidated damages in an equal amount, effectively doubling the award, as well as reasonable attorney’s fees and costs.

How Long You Have to File a California Equal Pay Act Claim

Before SB 642, employees had two years to file an equal pay claim, or three years if they could establish that the violation was willful, and recovery was confined to that same period. The amended California Equal Pay Act replaces that structure with a uniform three-year filing period that starts from the last violation, regardless of willfulness, and permits recovery of up to six years of lost wages. How those two periods interact depends on when, under the statute, a violation is considered to occur.

SB 642 specifies that a violation occurs when an employer adopts an unlawful compensation decision or practice, when an employee becomes subject to it, and each time the employee is affected by it, including each time wages, benefits, or other compensation are paid as a result.

For example, suppose an employer set an employee’s bonus target below a colleague’s in 2021. Each bonus later paid under that target constitutes a new violation, so the filing period effectively renews with each payment, and the employee may seek recovery for the full span of the disparity, up to six years.

This framework, often described as a continuing violation, accounts for the way pay disparities tend to surface: frequently years after the original decision, once an employee learns what peers have been earning.

Ultimately, the longer timeline still rewards prompt action. Because the six-year recovery period is measured back from the date a claim is filed, each month of delay can remove a month of recoverable pay from the earliest end of that period. The three-year filing deadline also becomes a firm cutoff once the disparity stops, such as when an employee leaves the company or the employer corrects the gap, since no new violations occur after that point.

Evidence presents a separate concern. Grant agreements, bonus plan documents, and the recollections of managers who set compensation become harder to obtain as time passes and people move on. In California employment litigation, those records often determine whether a pay disparity can be traced to a specific decision, which makes preserving them early especially valuable.

Signs Your Total Compensation May Not Be Equal

Disparities in bonuses and equity tend to be less visible than salary gaps, in part because those figures are seldom shared openly among colleagues. The following patterns may warrant a closer look:

• Colleagues in similar roles have higher annual bonus targets or receive larger payouts for comparable results.
• Your equity grant at hiring was noticeably smaller than grants given to peers who started around the same time.
• You were left out of refresh grants, retention awards, or profit-sharing that similar colleagues received.
• Your commission rate is lower, or you were assigned weaker territories or smaller accounts than peers in the same role.
• A colleague with similar duties holds a different title or job level that carries better bonus or equity terms.
• Your employer cannot explain how bonus or equity decisions are made, or the criteria seem to change from person to person.

Steps to Protect Your Rights

If any of these patterns sound familiar, the following steps can help preserve your options:

• Keep copies of your offer letter, equity grant agreements, vesting schedules, bonus plan documents, and commission plans.
• Save pay stubs, W-2 forms, and annual compensation statements for as many years as you can.
• Request your personnel file and payroll records. California Labor Code sections 1198.5 and 226 give current and former employees the right to inspect or receive copies.
• Ask your employer for the pay scale for your current position, which California law requires employers to provide on request.
• Write down dates, conversations, and decisions related to your pay while the details are fresh.
• Speak with a wage discrimination lawyer before the three-year deadline approaches, especially if the pay decision happened several years ago.

California law also protects your right to discuss your own pay and to ask coworkers about theirs. The California Equal Pay Act prohibits employers from discharging, demoting, or otherwise retaliating against employees who raise equal pay concerns or assist others in doing so. When an employer takes adverse action within 90 days of such a complaint, the law presumes the action was retaliatory, and the employer bears the burden of rebutting that presumption.

Working With a California Employment Law Attorney on Equal Pay Claims

Equal pay claims involving bonuses and equity often depend on a careful reconstruction of compensation, including grant values, vesting terms, bonus formulas, and commission plans, frequently across multiple employees and several years. An experienced California employment law attorney can help assemble that record and identify the comparisons most likely to hold up.

The attorneys at Girard Bengali have experience representing employees in pay discrimination and other workplace claims. Our review begins with a client’s complete compensation history, and from there we work to identify appropriate comparators, anticipate the justifications an employer is likely to offer, and lay out the available options clearly.

If you believe your bonuses, equity, or other compensation have not kept pace with what colleagues earn for similar work, the California Equal Pay Act may offer a path to recovery. We invite you to contact Girard Bengali for a confidential consultation.