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Broad EEO-1 categories, default total hours worked and use of W-2 gross income all problematic
As the March 31, 2018, deadline to comply with the Equal Employment Opportunity Commission's (EEOC's) new pay reporting requirement approaches, the Society for Human Resource Management (SHRM) testified before Congress on May 23 that the mandate needs to be rescinded because it will result in false-positive pay discrimination results and be burdensome to employers.
Lisa Ponder, SHRM-SCP, J.D., vice president and global HR director for MWH Constructors Inc. (MWHC) in Broomfield, Colo., spoke on behalf of SHRM before the U.S. House of Representatives Education and the Workforce Committee in opposition to the compensation reporting requirement. Under the EEOC's new requirement, every worksite with at least 100 employees (or at least 50 employees for federal contractors) must submit each year not just demographic information but also the W-2 wages and hours worked for all employees, grouped in broad EEO-1 job categories and subdivided into 12 pay bands.
The EEOC is gathering the pay data to help it identify and combat pay discrimination across industries and occupations.
Rep. Mark Takano, D-Calif., said that he supported the update to the EEO-1 form, noting that without accurate pay data, the EEOC won't be able to address the problem of pay discrimination. The pay data it's gathering with the revised EEO-1 form "will help the EEOC assess where discrimination is and help the commission put an end to it."
Todd Cox, director of policy at the NAACP Legal Defense and Educational Fund in Washington, D.C., testified that employer groups should be working to improve the EEOC's pay reporting collection instead of eliminating it.
Senior Professionals Lumped in with Junior Ones
"SHRM is concerned that the revised EEO-1 report will not prove useful in achieving the objective of curtailing unlawful compensation discrimination, while at the same time being administratively burdensome and costly," she said at the hearing, which was examining the EEOC's enforcement priorities.
Instead, it's likely to result in false positives, she asserted. MWHC reports all its engineers in the professional category in the EEO-1 report. Its engineering group includes young people right out of college to senior engineers with more than 30 years of experience. Those who are more senior get paid more than the less experienced. Only 5 percent of Baby Boomer engineers are women, so MWHC has few senior female engineers. But 20 percent of Millennial engineers are women, so the company has more junior female engineers. Reporting the pay for both groups in one job category, as required under the new EEO-1 report, will indicate that the company pays male professionals more than female. The report won't provide room to explain that the pay gap is due to experience.
[SHRM members-only toolkit: Managing Equal Employment Opportunity]
Total Hours Worked
The EEOC's revision requires that employers report actual hours worked by employees based on race/ethnicity and gender in each EEO-1 job category. Most SHRM members do not collect the data of actual hours worked for employees who are classified as exempt from overtime under the Fair Labor Standards Act, Ponder observed in her written testimony. "The burden associated with collecting actual hours worked for exempt employees and the impact this would have on other compliance obligations as well as overall company culture should not be underestimated," she stated.
Under the revised report, employers that do not collect data of actual hours worked are expected to use a default number of hours worked—40 hours per week for full-time exempt employees. But she noted that not all employers adopt a 40-hour workweek. The standard workweek for some may be 35 or 37.5 hours. In addition, in some jurisdictions, the maximum for some professions is established by law below 40 hours per workweek, she said. And many exempt employees regularly work hours that vary from the employer's standard workweek. Using a single default "hours worked" figure will result in anomalous results, she said.
And yet if employers track exempt employees' time rather than relying on the default hours, the cost of complying with the EEO-1 pay reporting requirements will exceed the EEOC's estimate for compliance, an estimate that Camille Olson, an attorney with Seyfarth Shaw in Chicago, described as too low. Testifying on behalf of the U.S. Chamber of Commerce, she said that the EEOC estimated the cost of compliance at $53.5 million per year, while the Chamber ballparked it at $400.8 million annually.
W-2 Gross Income
"Another area of concern with the revised EEO-1 is the collection of W-2 gross income," Ponder said. A host of legitimate, nondiscriminatory reasons—such as shift differentials, bonuses, commissions and overtime compensation—may account for differences in gross income.
For example, two MWHC engineers could have different W-2 gross wages if one was excused from working overtime hours as a reasonable accommodation under the Americans with Disabilities Act, while the other worked all offered overtime hours. "Providing hours worked by both employees does not adequately account for the differences in pay because there is no way to account for the fact that some of the hours of one employee were paid at a premium rate, while the other employee asked to be excused from all overtime hours for a legitimate, nondiscriminatory reason," she stated in written testimony.
"Likewise, two employees with the same job title may have different W-2 gross wage information in a calendar year if one of the employees receives a $25,000 signing bonus that year and the other does not," she observed. The other employee may have received a $25,000 signing bonus in a previous year and therefore be on equal footing, though that's not what the W-2 gross wage information suggests.
However, Ponder raised confidentiality concerns, noting that there was the possibility of a data breach with the EEO-1 reporting system.
"Furthermore, large employers like MWHC currently e-mail their EEO-1 reports to the EEOC for batch uploading," she said. "It goes without saying that this is obviously not a secure way to transmit large amounts of confidential salary and competitive information, yet the EEOC's revision makes no mention of how the agency plans to revise its own protocols to ensure that employers can safely report their compensation information to the government."
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