HIGHLIGHTS:

  • The U.S. Equal Employment Opportunity Commission (EEOC) has released a proposed rule that would require all private employers with more than 100 employees, as well as all federal contractors and first-tier subcontractors with 50 or more employees, to include compensation data by race, ethnicity and sex in their annual EEO-1 reports.
  • The proposed rule is a significant step toward enforcing the Obama Administration's stated mission to close the gender wage gap.
  • The proposed new regulations pose a variety of problems for employers, not the least of which is the expected administrative burden of developing new compensation software systems and formats.

Earlier this month, seven years after President Obama's historic signing into law of the Lilly Ledbetter Fair Pay Act, the U.S. Equal Employment Opportunity Commission (EEOC) took a significant step toward enforcing the Obama Administration's stated mission to close the gender wage gap through the federal Equal Pay Act and other federal and state equal pay laws focused on pay equity in the workplace. The Commission announced and released a proposed rule that would require all private employers with more than 100 employees, as well as all federal contractors and first-tier subcontractors with 50 or more employees, to include compensation data by race, ethnicity and sex in their annual EEO-1 reports.

The Proposed Rule

The proposed rule was published in the Federal Register on Feb. 1, 2016, for a 60-day comment period ending on April 1, 2016. Moreover, because the changes will amend the EEO-1 report, the EEOC will hold a public hearing at a time and date to be determined. If ultimately approved, the new rule would take effect with the EEO-1 reports due on or before Sept. 30, 2017. There would be no change for the upcoming EEO-1 reports due by Sept. 30, 2016.

As currently written, the proposed changes will require covered employers to report W-2 compensation data and hours worked for all employees across the already existing 10 EEO-1 job groups, and then into 12 pay bands – the same pay bands used by the U.S. Bureau of Labor Statistics in its Occupational Employment Statistics (OES) survey. The 12 proposed pay bands are below:

  1. $19,239 and under
  2. $19,240 - $24,439
  3. $24,440 - $30,679
  4. $30,680 - $38,999
  5. $39,000 - $49,919
  6. $49,920 - $62,919
  7. $62,920 - $80,079
  8. $80,080 - $101,919
  9. $101,920 - $128,959
  10. $128,960 - $163,799
  11. $163,800 - $207,999
  12. $208,000 and over

The proposed rule would provide company-wide compensation data for the EEOC and the Office of Federal Contract Compliance Programs (OFCCP) to, according to EEOC Chair Jenny R. Yang, "focus agency investigations, assess complaints of discrimination, and identify existing pay disparities that may warrant further examination." Likewise, Secretary of Labor Thomas E. Perez emphasized that "[the agency] expect[s] that reporting this data will help employers to evaluate their own pay practices to prevent pay discrimination in their workplaces. The data collection also gives the Labor Department a more powerful tool to do its enforcement work."

As noted in the proposed rule, the EEOC and OFCCP plan to develop statistical tools that would be available to staff members on their computers to utilize the EEO-1 pay data for identifying pay disparities warranting agency follow-up and potential investigation.

Potential Trouble for Employers

The proposed new regulations pose a variety of problems for employers, not the least of which is the expected administrative burden of developing new compensation software systems and formats that will allow for the reporting of W-2 compensation data in the EEOC's requested format – by job group and within the new 12 pay bands. Employers are also uneasy about the confidentiality of their disclosed compensation data and the practical difficulty of tracking and reporting hours for "exempt" employees.

Significant trepidation also exists around the broad nature of both the EEO-1's existing 10 job groups and W-2 compensation data. For example, a director of finance and a director of community relations may both have director titles, but vastly different levels of experience, education and other key factors may be required for the two jobs. There may also be significant pay differences based on seniority, competitive marketplace factors, location and other material variables. Reporting W-2 compensation data in broad strokes – by generic EEO-1 job categories and 12 pay bands – may not be very meaningful when the goal is exposing pay discrimination.

What Employers Should Do to Prepare

First and foremost, employers are encouraged to submit comments within the designated public comment period (due on or before April 1, 2016) in order to help shape the final regulation in a manner more mindful of the concerns noted herein. Comments can be submitted to the locations noted below:

  • Online
  • Via hard copy to: Bernadette Wilson, Acting Executive Officer, Executive Secretariat, Equal Employment Opportunity Commission, 131 M. Street NE, Washington, DC 20507
  • Via fax (6 pages or less) at: 202-663-4114

Second, and most important, there is ample time for employers to self-audit their pay practices prior to handing pay data over to the EEOC or OFCCP. However, any comprehensive proactive pay audit should be conducted only in a cautious, calculated manner, following all required steps to assure its coverage under the attorney-client privilege so that its conclusions are protected from disclosure. Employers should also be prepared to take action to rectify any discrepancies that cannot be explained by legitimate, job-related factors. It is extremely risky from a liability standpoint for an employer to conduct an unsupervised, unprivileged compensation self-audit, ... and then fail to take appropriate action to address any findings.