On July 13, 2016, the Equal Employment Opportunity Commission (EEOC) announced revisions to the agency’s February 2016 proposal to revise the current Employer Information Report (EEO-1) to add a new Component 2. The current EEO-1 form, which requires covered employers to report on the gender, race, and ethnicity of its employees, will be designated as Component 1 (demographic data). Under the revised proposal, Component 2 will have two sections and will require covered employers to report aggregate W-2 wages and hours worked in 12 pay bands for each of the 10 EEO-1 job categories and 14 gender, race, and ethnicity categories on the current form. The revised rule provides for a 30-day comment period to address the proposed revisions. The comment period ends on August 15, 2016. The EEOC is also submitting the revised proposal to U.S. Office of Management and Budget (OMB) for review and approval.

In announcing the revisions, EEOC continued to emphasize its long-held positions that (1) persistent pay gaps continue to exist in the U.S. workforce correlated with sex, race, and ethnicity; (2) workplace discrimination is an important contributing factor to these pay disparities; and (3) implementing the proposed EEO-1 pay data collection will improve the EEOC’s ability to efficiently and effectively structure its investigation of pay discrimination charges. The EEOC made it clear that the agency intends to use the Component 2 data in the early stages of investigations to identify statistically significant disparities in pay. In addition, the EEOC expects to use the aggregated EEO-1 data, along with census data, and potentially other data sources, to periodically publish reports on pay disparities by race, sex, industry, occupational groupings, and Metropolitan Statistical Area (MSA).

The rule expands on the discussion regarding privacy and confidentiality protections for Component 2 data and attempts to reassure employers that the agency will vigorously guard confidentiality of the data, citing to Title VII confidentiality requirements and criminal penalties applicable to the EEOC. Further, the Office of Federal Contract Compliance Programs (OFCCP) will protect the confidentiality of EEO-1 pay and hours-worked data to the maximum extent possible consistent with Freedom of Information Act (FOIA). Nonetheless, employers are still concerned that, once the data is submitted, there will be no guarantee that data will not be disclosed inadvertently, intentionally, or otherwise. Furthermore, although the rule attempts to allay employers’ confidentiality fears, plaintiffs’ attorneys who get hold of the data (much like current EEO-1 reports), could use the data in civil litigation.

What’s New?

1. New Filing Deadline and Workforce Snapshot Period—March, 2018

The revised rule proposes to change the EEO-1 filing deadline to March 31 of the year that follows the reporting year. The rule also proposes to change the “workforce snapshot” to a pay period between October 1 and December 31 of the reporting year, starting with the EEO-1 report for 2017. Under the proposed changes to the reporting schedule, EEO-1 reports for 2017 data would be due on March 31, 2018. The reporting schedule for 2016 data remains unchanged. Thus, employers must comply with the current September 30, 2016, filing requirement for the currently approved EEO-1 and must continue to use the July 1 through September 30 workforce snapshot period for that report.

The February proposal retained the current September 30 EEO-1 filing deadline for the 2017 report and subsequent reports, and required employers to document their employees’ W-2 earnings for a 12-month period starting on October 1 and ending next report on September 30. The new reporting deadline addresses the concern many employers expressed on the burdens of reporting W-2 data for two partial calendar years (i.e., October 1 to September 30), which they do not currently maintain. Employers also objected that they would have insufficient time to budget, develop, and implement new software and reporting systems if the 2017 EEO-1 report were to be due on September 30, 2017. In announcing the new filing deadline the EEOC noted that changing the filing deadline will give employers subject to Component 2 six more months to prepare their recordkeeping systems for the 2017 report, and it will give them 1.5 years without filing an EEO-1 report (September 30, 2016 to March 31). This change will align the EEO-1 with federal obligations to calculate and report W-2 earnings as of December 31.

2. W-2 Data Clarified

In the February proposal, the EEOC did not specify which box on the W-2 employers should use when reporting W-2 wages. The EEOC now specifies that employers will report on income provided in Box 1 of the W-2 form.

3. Reporting Hours Worked for Exempt Employees Clarified

With regard to exempt employees, the EEOC suggested in the February proposal that one approach to determining their hours worked given that their hours are not tracked would be for employers to use an estimate of 40 hours per week for full-time salaried workers. Those who objected to using the 40-hours per week proxy commented that it was not reflective of workplace realities for many full-time exempt employees. Some employers also expressed concern that, since the 40-hour estimate would be incorrect in many instances, they would be required to submit and certify inaccurate information to the federal government. The new proposal clarifies that the EEO-1 instructions will give employers the option to: (1) report a proxy of 40 hours per week for full-time exempt employees and 20 hours per week for part-time exempt employees, multiplied by the number of weeks the individuals were employed, or (2) provide actual hours of work by exempt employees during the EEO-1 reporting year if the employer already maintains accurate records of this information. With these new instructions in place, the EEOC asserts that “employers using the proxies can certify with confidence that they completed their EEO-1 reports accurately and in accordance with the instructions.” Nonetheless, determining hours worked for salaried, exempt employees is a significant issue.

What Stays the Same?

1. Who Will Report Pay and Hours Data on the Revised EEO-1 report? Same Employee Threshold

The EEOC retained the same employee thresholds as in the February proposal. Accordingly, employers with 100 or more employees will be subject to Components 1 and 2 of the EEO-1 report starting with reporting year 2017. Federal contractors with 50-99 employees will not experience a change in their EEO-1 reporting requirements as a result of this proposal; they will not file Component 2 and will continue to file only Component1. Consistent with current practice, federal contractors with 1 to 49 employees and private employers with 1 to 99 employees will be exempt from filing the EEO-1 report. They will not be required to file Component 1 nor Component 2.

2. What Pay Data to Report: W-2 Wages, Not Base Pay

EEOC’s new proposal continues to require employers to report W-2 wages in the existing 10 broad EEO-1 classifications and 12 pay bands. In retaining this requirement, the EEOC stated that “W-2 income is a well-defined, familiar, and universally-available measure of pay; for the EEOC and OFCCP, it is useful data for exploring potential pay discrimination.”

Employer representatives have argued that the addition of the proposed pay data to the annual EEO-1 report provides little useful information to the EEOC, OFCCP or other agencies because aggregate W-2 compensation data is misleading and the 10 EEO-1 job categories in the report are too broad to allow for meaningful comparisons of compensation data. The EEOC recognized that employers objected to using W-2 income as not indicative of discrimination because it may reflect employee choice more than employer discretion and that the EEOC cannot differentiate the two in an aggregate pay data collection. For example, employees may choose to participate in overtime or to work shifts that provide pay differentials. Other employees may simply work faster or better than others and thus receive higher payments for piecework, commissions, or production.

Significantly, W-2 compensation does not take into account factors that have long been recognized as nondiscriminatory by Title VII of the Civil Rights Act, the Equal Pay Act, and Executive Order 11246 and which are relied upon by most employers in making compensation decisions such as education, previous experience, skill level, seniority, performance ratings, competitive job markets for some positions, location, and working conditions. The amount of wages that members of each EEO-1 job group receives also provides little useful information regarding compensation practices because employers properly include employees with many different functions and job titles in the same broad EEO-1 category. For example, the EEO-1 instruction booklet provides that accountants, lawyers, computer programmers, and dieticians, along with many others with special certifications (such as human resources managers) are included in the same professional EEO-1 category.

Nonetheless, the EEOC contends that W-2 compensation is not an unsuitable measure for a pay data collection by an agency that enforces anti-discrimination laws because supplemental pay is a critical component of compensation and it can be influenced by discrimination and employer policy or decision as well as employee choice and performance.

3. What Data to Report: Hours Worked

The revised proposal continues to require employers to report the number of hours worked for exempt and nonexempt employees. The EEOC asserts that collecting hours worked is of central importance because this data will enable the EEOC and OFCCP to account for part-time and partial-year work and to assess potential pay disparities in the context of this information. The data may also be used when investigating charges that employees were assigned fewer hours or denied overtime work or premium hours for a discriminatory reason. The hours worked by employees are reported by job category, subdivided into pay band cells, to account for periods when employees were not employed or were engaged in part-time work. Although not a new requirement, the EEOC clarified that it is adopting the Fair Labor Standards Act’s definition for “hours worked” “because it is familiar to employers, designed in conjunction with pay, and applies to all employers subject to the EEO-1.”

4. How to Report Data in Component 2: Same 12 Pay Bands and 10 EEO-1 Job Categories

In the revised proposal, employers will continue to report W-2 income and hours-worked data in the 12 pay bands used by the U.S. Department of Labor’s Bureau of Labor Statistics (BLS) Occupational Employment Statistics (OES), for each of the 10 EEO-1 job categories. The proposed pay bands are as follows:

  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

Many employers have expressed concern that the pay bands are too broad, do not reflect pay bands actually used by employers completing reports, and would not produce reliable data because the employees within each pay band may have different levels of experience or hold different jobs within an organization. In response, the EEOC simply asserts that the data will somehow be useful for “identifying patterns or correlations that can inform the early stages of the investigative process.” Significantly, the EEOC acknowledges that it “does not intend or expect that this data will identify specific, similarly situated comparators or that it will establish pay discrimination as a legal matter.”

Conclusion

The EEOC’s revised proposal continues and reinforces the agency’s focus on combatting pay disparities based on gender, race, and ethnicity. Although the revised proposal lessens the burden on employers by extending the deadline for the first report to March 31, 2018, and by eliminating the need to report W-2 wages over two partial calendar years, the new reporting requirements remain time consuming, costly, and burdensome to employers. With access to this new data, the EEOC is sending a strong signal that it will increase its enforcement efforts. Employers should carefully review and analyze their current pay practices to ensure they are able to defend against claims of pay inequality.

The EEOC has provided more information about the proposal on a resource page, “What You Should Know about EEOC's Proposal to Collect Pay Data.” The revised proposal was published in the Federal Register on July 14.