On January 29, 2016, the Equal Employment Opportunity Commission (“EEOC”) announced proposed, controversial changes to the pay data currently required to be submitted by large employers (defined as employers with more than 100 employees) and federal contractors. Large employers are currently required to complete annual Employer Information Reports (“EEO-1”) identifying employees’ race, ethnicity and gender within various job categories.  The proposed new rule would also require employers to disclose pay ranges and hours worked by all employees.  Specifically, employers would be required to report pay data included within individual employee’s W-2 forms submitted to the Internal Revenue Service and hours worked currently tracked for purposes of compliance with the Fair Labor Standards Act.

The proposed new rule was announced on the seventh anniversary of the Lilly Ledbetter Fair Pay Act. The stated purpose of the new rule is to assist the EEOC in “identifying possible pay discrimination and assist employers in promoting equal pay in their workplaces.”  This represents a continued emphasis by the Obama Administration to address equal pay issues.  This issue is at the forefront of EEOC policy, as the agency appears to be shifting from strictly investigating claims filed by employees to actively seeking out information from employers even if no employees have complained about a particular employer’s pay policies.

The proposed new rule will a have potential significant impact on employers. First, the added regulation will place greater administrative burdens on employers to track and gather the relevant new data required to be submitted annually to the EEOC.  This administrative burden will result in increased manpower and other costs to be absorbed solely by employers.  Second, while it is not clear how the EEOC intends to use this new pay data, it is possible the data could be used to enhance the EEOC’s ability to open investigations or bring lawsuits for perceived pay discrimination.  In other words, this new pay data rule could provide the EEOC with greater ammunition to attack employers for alleged discriminatory pay practices.  This is concerning as pay data cannot be reviewed in a vacuum.  Rather, when reviewing pay data one must consider differences in employees’ education, experience, job performance and seniority.  The new data submitted under the proposed revised EEO-1 requirements would not take these various factors into account and could result in statistical bias.

At this point, the new rule remains only a proposal and is not currently binding. The EEOC has published a deadline of April 1, 2016 to submit comments related to the proposal.  Nonetheless, it appears unlikely that there will be significant changes to the proposed new reporting requirements.  The EEOC anticipates gathering the requested information by EEO-1 reports to be filed starting in September 2017.

In anticipation of the implications of the proposed new rule, employers should enact procedures to gather the required data now rather than be forced to rush moving forward. Further, employers should strongly consider conducting a privileged internal audit of the information gathered so as to analyze any potential perceived pay discrepancy concerns.  If such concerns are located, employers should be prepared to determine if the difference in pay rates can be explained as a result of non-discriminatory factors (e.g., education, experience, job performance and seniority as referenced above).  If employers have concerns about how best to prepare for the new pay data rule, it is recommended to contact counsel to prepare a plan in order to ensure compliance with this new administrative burden.