On July 14, 2016, the U.S. Equal Employment Opportunity Commission (EEOC) published a notice in the Federal Register, Vol. 81, No. 135, at 45479, amending its proposed EEO-1 compensation and hours-worked annual filing requirements initially published on Feb. 1, 2016.  To read the McGuireWoods alert on the initial proposed requirements, click here.

While the burdens on employers have been reduced, they have not been eliminated. Moreover, the EEOC discusses employers’ objections regarding the cost and utility of providing the requested information in the new EEO-1 format, but does not resolve them. For example, the proposal would still impose substantial new paperwork obligations on employers. Further, the new filing requirements would still likely result in certain employers being targeted for extensive pay audits and class claims based on economic dynamics that have nothing to do with alleged pay discrimination.

Therefore, employers should consider filing or sponsoring comments regarding the updated EEO-1 form proposal to the Office of Management and Budget (OMB) by the new Aug. 15, 2016 deadline.

Who Would Have to File the Pay Reports?

In spite of many comments suggesting that the employee coverage threshold be raised, the revised proposal still mandates that each employer with 100 or more employees file both the current demographic data EEO-1 reports (Component 1) and the new compensation and hours-worked data (Component 2). Federal contractors and first-tier subcontractors with 50 to 99 employees will continue to file Component 1 reports, but will not be required to file Component 2 reports.

When Must Employers Calculate and File Pay and Hours-Worked Data Under the Revised Regulation?

EEOC responded to the many employer complaints about having to produce W-2 wage data for the 12 months preceding an EEO-1 workforce “snapshot” date of between July 1 and Sept. 30, for the EEO-1 filing deadline of Sept. 30 of the applicable year. Complaining commenters noted this would be a duplicative burden when they also have to calculate and report calendar year data for annual W-2 tax reporting. In response, the EEOC’s new proposed regulation:

  1. Changes the EEO-1 filing deadline for 2017 to March 31, 2018. The 2016 EEO-1 reporting date remains Sept. 30, 2016, but there is no change in the data that is currently required to be filed.
  2. Allows employers to pick a workforce “snapshot” date between Oct. 1 and Dec. 31 of the reporting year, beginning with the EEO-1 report for 2017. The first EEO-1 submission to include pay and hours-worked data will be due March 31, 2018, for the 2017 reporting year. The “snapshot” date for the 2016 report must still be between July 1 and Sept. 30, 2016.
  3. Directs employers to submit W-2 earning and hours-worked data for the prior calendar year when it files its EEO-1 report by March 31. This allows employers to use the same W-2 data that they report for tax purposes and avoid calculating W-2 data twice a year, as required in the original proposed regulation.

What Pay Data Have to Be Filed?

The EEOC’s original Feb. 1 proposal is unchanged with respect to the types of data that must be reported.  All W-2 earnings (not just base pay) must be reported. This includes, for example, overtime pay, bonuses and commissions. After considering comments that the data requirements and pay bands should be changed, EEOC retained the requirement that covered employers must report the number of employees — by EEO-1 occupation category, race and gender — who fall into each of 12 pay bands designated by EEOC:

  • $19,239 and under               
  • $19,240 - $24,439               
  • $24,440 - $30,679               
  • $30,680 - $38,999               
  • $39,000 - $49,919               
  • $49,920 - $62,919               
  • $62,920 - $80,079               
  • $80,080 - $101,919               
  • $101,920 - $128,959               
  • $128,960 - $163,799               
  • $163,800 - $207,999               
  • $208,000 and over

Beginning with the report for calendar year 2017, employers must identify the number of employees to be reported in each pay band based on the new “snapshot” date and the W-2 wages paid to the employees in the snapshot for the calendar year in which the compensation was paid and the hours were worked.  For example, the “snapshot” date for the 2017 EEO-1 report will be a date, picked by the employer, between Oct. 1 and Dec. 31, 2017.  The pay data for employees in the 2017 snapshot would be their W-2 earnings for calendar year 2017.

What Hours-Worked Data Are Required to Be Filed?

  1. Nonexempt employees:  For employees covered by the Fair Labor Standards Act (FLSA), covered employers are required to report actual hours worked (including overtime hours) during the reporting year. For 2017, for example, all hours worked during calendar 2017 would be reported by March 31, 2018.
  2. Salaried exempt employees:  Employers have two options for employees who are exempt from the FLSA:
  • Report 40 hours per week for each full-time exempt employee and 20 hours per week for each part-time exempt employee, or
  • Report actual hours worked for each exempt employee.
  1. Partial-year employees:  If an employee leaves during the calendar year, the calculations for that individual should be based on the time the employee was working for the employer and the W-2 earnings actually received by the employee during the calendar year.

Will the Reported Data Be Useful?

EEOC discussed comments that the proposed pay and hours-worked data will not be useful to the EEOC or other enforcement agencies and will produce both false positives and false negatives that will in fact mislead the agencies in identifying potential discrimination.

The EEOC’s response is that the data will be useful for identifying targets for investigation and allowing employers to compare their compliance progress with published industry norms developed from the submissions. EEOC claimed that its statistical analysis shows that potential problems of false negatives and false positives can be avoided or minimized. EEOC also addressed concerns about its use of “synthetic” data in evaluating the utility of the reports, asserting that in spite of the term “synthetic,” the studies were based on actual data and valid.

How Did EEOC Address Concerns About Its Burden Estimates?

Many commenters objected that the EEOC greatly underestimated the burden of complying with the proposed data collection and reporting requirements. EEOC acknowledged that it had not taken into account that many employers are required to calculate and report on multiple locations in addition to filing a consolidated report. In addition, EEOC admitted that it underestimated the number and cost of employee and HRIS resources that will be required for compliance.  The EEOC published increased burden estimates in its new proposal, but the amounts are still below those calculated by many commenters.  Further, the increased burden is deemed acceptable by EEOC.

Did EEOC Resolve Concerns About Confidentiality of the Data Submitted?

Many commenters expressed concerns that the required compensation and hours-worked data are considered highly confidential and may not be protected from disclosure. EEOC’s response addresses these concerns by citing the statutory confidentiality provision in Title VII as protecting these data from disclosure.  According to EEOC, not only is EEOC required to preserve confidentiality, but if the EEOC shares the employers’ report data with other federal agencies or contractors, those recipients are bound by formal agreements to comply with the confidentiality requirements of Title VII.

Notably, federal contractors and subcontractors receive no such assurance. EEOC states that because OFCCP receives the EEO-1 report data pursuant to its own authority under Executive Order 11246, OFCCP is not bound by the confidentiality requirements of Title VII.  Regarding federal contractors’ and subcontractors’ concerns, EEOC only states:

OFCCP will notify contractors of any FOIA request for their EEO-1 pay and hours-worked data. If a contractor objects to disclosure, OFCCP will not disclose the data if OFCCP determines that the contractor’s objection is valid.”  

EEOC rejected comments suggesting that the confidentiality requirements of Title VII be applied to OFCCP.

What Should Employers Do in Light of the Changes in the Final Regulation?

  • Employers should evaluate whether the changes in the new regulation — in particular (1) the revised “snapshot” date, (2) the use of annual W-2 report data, (3) the new March 31 EEO-1 filing deadline, and (4) the ability to use 40-hour and 20-hour estimates for hours worked by full-time and part-time exempt employees — are sufficient to resolve their concerns.
  • Employers, in particular federal contractors and subcontractors, concerned about unresolved issues — such as the remaining burdens, risks of unfounded OFCCP compliance reviews resulting from false positives, and confidentiality of their pay and hours-worked data — should consider filing or sponsoring comments to persuade the OMB to reject the EEOC’s proposal (or require a more comprehensive study and justification of the burdens and alleged potential benefits of the reporting requirements before any approval). Any objections and comments must be filed with OMB by Aug. 15, 2016.