EEOC’s proposed reporting requirements would mandate that employers submit annual reports detailing compensation information by ethnicity, race, and sex.
On February 1, the US Equal Employment Opportunity Commission (EEOC), in coordination with the Office of Federal Contract Compliance Programs (OFCCP), published proposed guidelines that would require all US employers (not just federal contractors) with 100 or more employees to include compensation information on EEO-1 Reports. The proposal represents a substantial expansion of the information that is currently required to be included in EEO-1 Reports, and will almost certainly result in increased government scrutiny for many employers.
Under the EEOC’s proposal, beginning in 2017, employers with 100 or more employees would be required to include two categories of information in their EEO-1 Reports. First, employers would continue to submit ethnicity, race, and sex data by job category, as is currently required. Second, employers would be required to submit data regarding employees’ W-2 earnings and hours worked.
With respect to earnings data, the EEOC proposes that, for each of the 10 EEO-1 job categories (Executive/Senior Level Officials and Managers; First/Mid Level Officials and Managers; Professionals; Technicians; Sales Workers; Administrative Support Workers; Craft Workers; Operatives; Laborers and Helpers; and Service Workers), employers must include the number of employees by ethnicity, race, and sex that fall in the below pay bands:
For purposes of determining the appropriate pay band, the EEOC proposes using employees’ total W-2 earnings for a 12-month period looking back from a pay period between July 1 and September 30. For example, an employer could aggregate W-2 data for the 12 months preceding the second pay period in July of the reporting year. The EEOC maintains that W-2 earnings are the most useful measure of pay because, in addition to base pay, they reflect other taxable income such as commissions, tips, fringe benefits, and bonuses.
The proposal purports to account for employees who work part time or less than a full 12 months by requiring that employers also report total hours worked by the employees included in each pay band. For example, an employer would state on the EEO-1 Report that African-American men who are in the job category Craft Worker in the second pay band ($19,240 - $24,439) worked a total of 10,000 hours.
The EEOC has stated that, consistent with federal law, it will keep all company-specific EEO-1 data confidential unless and until a Title VII proceeding is instituted that implicates the data. Likewise, the OFCCP will keep any EEO-1 data that it receives confidential to the maximum extent permitted by law in accordance with Freedom of Information Act (FOIA) Exemption 4 and the Trade Secrets Act. However, the EEOC has stated that it intends to aggregate the collected EEO-1 data across employers and share the information publicly.
The comment period for the proposed reporting requirements closes on April 1, 2016.
In addition to requiring employers to turn over sensitive earnings data, the EEOC’s proposal, if effectuated, would shine a spotlight on pay equity issues and thereby increase the government scrutiny faced by employers. The EEOC has acknowledged as much, stating “EEOC and OFCCP will use this data to more effectively focus agency investigations, assess complaints of discrimination, and identify existing pay disparities that may warrant further examination.”
The EEOC has also stated that it and the OFCCP plan to develop statistical software to analyze EEO-1 data, as well as guidance to be used by their staff when reviewing such data. To that end, the EEOC has suggested the types of statistical analyses that it may utilize in performing these assessments and stated that, consistent with existing case law, it will likely treat results of 2.0 or more standard deviations as statistically significant and therefore indicative of discriminatory pay practices.
The agency has not, however, proposed any means for considering non-discriminatory factors that may explain pay differentials or analyzing why certain employees are in “higher level” positions. For example, while the EEOC’s communications regarding the proposed requirements recognize that pay disparities may be explained by differences in factors such as education, career, and experience, it does not appear that data reflecting this information will be collected. Thus, even the most basic factors that may impact pay (such as an employee’s experience and differences in the types of jobs falling within a job category) will not be captured in the EEOC’s analyses, which could lead to misleading statistical results.
Employers will have the opportunity to submit comments regarding the proposed reporting requirements until April 1, 2016, and may use this opportunity to discuss issues such as the burden associated with the proposal and limitations of the proposed pay reporting methodology.
Considering that the EEOC’s reporting requirements could be implemented largely as proposed, employers should assess the proposed rules’ potential implications for their businesses. This could include conducting an internal analysis, on a privileged basis, that hypothetically assesses what the data would show if a company submitted an EEO-1 Report (including the proposed compensation information) now. In addition, employers should consider conducting pay equity analyses to identify the non-discriminatory factors that may explain pay differences, and make any pay adjustments accordingly. Furthermore, because some pay differences may be the result of differences in representation based on job type or level of a position, employers should ensure that they are tracking applicant data on interest and availability for positions.
Techniques for performing these analyses and ensuring that data supporting the non-discriminatory explanations is being captured will be discussed in detail during an upcoming Morgan Lewis pay equity webinar.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
Lisa Stephanian Burton
Christopher K. Ramsey
Melinda S. Riechert
Grace E. Speights