Employers with an eye to the regulatory horizon are aware that the Equal Employment Opportunity Commission (EEOC) has proposed expanding its annual Employer Information Report (EEO-1) to include data on employees’ pay.

The existing EEO-1 requires private employers with 100 or more employees to report the number of employees within 10 job categories by seven race and ethnicity categories, as well as by sex. 

The proposed changes will further refine reporting to include employee counts as well as total hours worked by 12 pay bands.

As with many government directives, there is more to the EEOC’s proposed change than meets the eye. To expose the hidden dangers, I have compiled the top five things that employers need to consider:

  1. The EEOC wants to collect 12 months of W-2 information for every full-time and part-time employee. This means employers would be responsible for tabulating all components of employee compensation, from wages and salaries to commissions, tips, taxable fringe benefits, and bonuses. 
  2. The requested compensation and total hours data cover a 12-month period looking back from a pay period between July 1 and September 30. However, this lookback period does not conveniently match employers’ W-2 reporting. As a result, employers must anticipate that data collection for the new EEO-1 might be costly and time-consuming to complete.
  3. The proposed compensation data will allow the EEOC to systematically flag employers that the EEOC considers likely to have existing disparities. This is a paradigm shift in how the EEOC goes about identifying employers that might be out of compliance with federal discrimination laws. The EEOC will be able to focus its investigation and enforcement efforts using employer data as opposed to relying on employees to bring allegations of discrimination. 
  4. The main technique the EEOC will use to analyze employers’ pay data, categorical data analysis, will not control for key determinants of compensation, such as time with the company, prior experience, education, and performance reviews. This makes employers vulnerable to being falsely accused of discriminating when a difference in pay between groups actually has a more reasonable alternative explanation.
  5. Finally, some good news: By doing their own analysis beforehand, employers will see whether and where their reported pay data cross the statistical threshold into what the EEOC defines as “discrimination.” Being forewarned of any possible disparities in compensation allows an employer to determine the best path to take with the help of counsel. For example, if the disparity is real, the employer can increase earnings to erase the difference. However, if the disparity is an illusion created by the statistical technique used by the EEOC, the employer can line up the appropriate evidence to rebut an erroneous discrimination claim made by the EEOC.

Dr. Elizabeth Newlon, NERA Economic Consulting