On January 29, 2016, the U.S. Equal Employment Opportunity Commission (EEOC) announced proposed revisions to the Employer Information Report (EEO-1) that will require collection of pay data from employers with more than 100 employees, including federal contractors, to begin in 2017.
Information Sought by the EEOC Regarding Pay in the Workplace is Expanding
Under Title VII of the Civil Rights Act of 1964, employers are required to make and keep records relevant to the determination of whether an unlawful employment practice has been or is in the process of being committed. Every year by September 30, certain federal contractors with 50 to 99 employees and other private employers with at least 100 employees report their employee demographics to the EEOC by job category, sex, race, and ethnicity. In the past, the EEOC regulations have not required employers to submit data on the amount of wages received or hours worked. However, under the new proposals, employers, including federal contractors, with 100 or more employees will be required to submit data about pay and hours worked in addition to the data they are already submitting.
For each of the EEO-1 job categories, the proposed regulations will require employers to further categorize the current demographic information of its employees into one of twelve "pay bands," with the low band starting at $19,239 and the high band at $208,000. These pay bands will be measured by actual W-2 amounts for a 3-month period of any given calendar year, running between July 1 and September 30. The exact dollar figure paid to each employee will not be required to be reported. Under the new regulations, employers will also be required to submit the total amount of individual hours worked by each of their employees. Click here to see the proposed EEO-1 Form.
Despite the somewhat simple-sounding approach announced in these regulations, these rules run the risk of making EEO-1 reporting much more complicated and costly. They also carry legal liability concerns for employers who will begin preparing to submit this new data to the EEOC.
Employers Will Carry the Burdens of Increased Operating Costs and Misconstrued Data
Increased Collection and Reporting Burdens
Employers are already aware that employee compensation analysis can be complicated, but the new proposed pay data reporting requirements may result in an administrative nightmare for employers. For example, as explained by the proposed regulations, "an employer might report on the EEO-1 that it employs three African American women as professionals in the highest pay band." Although this reporting obligation might seem straightforward at first, it presents several complicated reporting implications for employers. First, many employers might not have the information and resources readily available to collect data at this level of detail. By 2017, employers will need to train human resources personnel or other staff on the new reporting requirements, and will need to begin a method of documenting and storing information surrounding W-2 wages paid to employees. This means that employers will need to ensure the retention of W-2 wage data, as that data is tied to the demographics of individual employees.
Second, employers will need to begin keeping records of the amount of hours their employees work. Though these records might already be readily available for hourly job classifications, employers must now also begin tying those hours worked into the demographic and wage information of all employees. This could also mean additional operating costs for employers. Though the proposed regulations state that the EEOC is not suggesting employers must now begin documenting salaried employees' hours, the regulations do state that the EEOC will require the submission of some type of figure or estimate on salaried employees' hours. The EEOC is inviting comments and suggestions from employers on the best method for this to be done. The regulations suggest perhaps an "estimate" of 40 hour work weeks for salaried employees.
The Potential for Increased Employer Liability
Another concern for employers under these additional reporting requirements is that employers will be at an increased risk that their companies will be subjected to increased scrutiny through investigations and enforcement actions. The proposed regulations make the assumption that employee pay data reported on the new EEO-1 form can be meaningfully analyzed, despite not taking into account the various objective and subjective variables in each employee's take-home pay. The EEO-1 categories will not factually analyze similarly-situated positions—they will not take into account actual positions, job requirements, or individual employee performances—and therefore, the EEOC might not be able to perform the meaningful analysis it seems to envision. Regardless, the pay band data will give the EEOC an excuse to get its foot in the door to conduct compensation audits, which can be very expensive and time consuming for employers, or to otherwise target perceived discrimination. Even if the EEOC does not use this pay data to target employers, it might use the pay data as a resource in existing investigations.
What Can Employers Do Going Forward?
Employers with 100 or more employees should begin considering how they might document W-2 wages and hours worked by employees to comply with the proposed implementation of these regulations by September 2017. Given this proposed regulation, and with the OFCCP ramping up its efforts to investigate systemic pay discrimination claims against federal contractors, employers need to conduct an in-depth analysis of their compensation practices to ensure they can defend pay decisions in audits and investigations.
Employers may comment on the proposed regulations that were published in the Federal Register on February 1, 2016. The deadline to submit comments to the proposed rule is April 1, 2016.