Proposed Equal Pay Report Seeks Submission of W-2 Compensation
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Proposed Equal Pay Report Seeks Submission of W-2 Compensation

By Allen Smith  8/6/2014
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An Office of Federal Contract Compliance Programs (OFCCP) proposed rule, issued Aug. 6, 2014, calls on federal contractors to report on employees’ compensation by the information in their W-2 forms, a proposal that Alissa Horvitz, an attorney at Littler in Washington, D.C., said “makes no sense.”

W-2 form compensation won’t provide an apples-to-apples comparison among employees, she explained. For example, it is unhelpful to compare pay for an employee who started on Oct. 1 to someone in the same position who worked all year, she said.

The proposed rule is in response to a presidential memorandum on April 8 that instructed the secretary of labor to propose a rule on collecting summary compensation data from federal contractors and subcontractors.

Under the proposal, covered federal contractors and subcontractors—ones with more than 100 employees—would have to submit electronically the total:

  • Number of workers within a specific EEO-1 job category by race, ethnicity and sex.
  • W-2 wages defined as the total individual W-2 wages for all workers in the job category by race, ethnicity and sex.
  • Hours worked, defined as the number of hours worked by all employees in the job category by race, ethnicity and sex.

“It’s very important that employers comment on this” proposed regulation, Horvitz said. “The more they identify what they are doing proactively to examine pay, the more helpful” their comments will be. The OFCCP is approaching this issue as though employers are not doing anything, she said. But in her experience, her clients are looking at pay by race and gender critically, examining the reasons for pay disparities. 

To comment on the proposed rule, visit Comments must be received by Nov. 6, 2014.

OFCCP Targets Pay Gaps

The data will help the OFCCP focus enforcement resources on contractors whose data suggest pay violations, and is part of a strategy to address pay gaps between minorities and white men.

“Although laws protecting workers from pay discrimination have been in effect for more than 50 years, pay discrimination still exists,” the OFCCP stated. “Pay discrimination is a real problem that continues to plague American working families. For example, looking at annual earnings reveals large gaps, where women working full-time earn approximately 77 cents on the dollar compared with men. According to the latest Bureau of Labor Statistics (BLS) data, the weekly median earnings of women are about 82 percent of that for men.”

Wage gaps persist among racial groups, the OFCCP added. “At the end of 2013, median weekly earnings for African-American men working at full-time jobs were $646 per week, only 72.1 percent of the median for white men ($896)."

For Hispanic men, the wage gap is “approximately 67 cents when compared to non-Hispanic white men.”

And, the OFCCP added, “the wage gap is significantly greater for many women of color. BLS data reveals that African-American women make approximately 68 cents, Latinas make approximately 59 cents and Asian-American women make approximately 87 cents for every dollar earned by a non-Hispanic white man.”

While “occupational segregation,” as the OFCCP puts it, is an important contributing factor to the gender pay gap, women earn less than men within occupations, the agency added. A study of newly trained doctors, after taking into consideration the effects of specialty, practice setting and work hours, found that women earned nearly $17,000 less than men. “Despite differences in the types of jobs women and men typically perform, women earn less than men in occupations commonly filled by men, such as managers, software developers and CEOs. Women even earn less than men in those occupations commonly filled by women such as teachers, nurses and receptionists,” the OFCCP stated.

And Bloomberg has identified a particularly large pay gap in the financial sector, the agency noted.

Although women may reduce their schedule or take time out of the workforce because of family responsibilities, “There is research suggesting that discrimination and not just choices can lead to women with children earning less,” the OFCCP said. “At the current rate of progress, researchers estimate it will take until 2057 to close the gender pay gap.”

Use of W-2 Criticized

But Horvitz listed a host of reasons she thinks the W-2 is a poor tool for comparing compensation.

The W-2 amount will differ partly on benefits choices that employees make. So, someone with a family of five who opts to include their whole family on an employer health insurance plan will have W-2 compensation affected by this choice. Is that person’s W-2 to be compared with that of a single worker who just elects health care coverage for herself?

W-2s also reflect bonus distributions that are dependent on productivity. Horvitz noted that performance-based bonuses would not be discriminatory.

The government also wants to compare people who are in the same EEO-1 category. But positions that are quite different from each other sometimes are lumped into the same EEO-1 category. Suppose there are mostly female equipment operators working for a male first-line supervisor. All would be in the same EEO-1 category, but Horvitz noted their pay naturally would be different. What does it really tell the government that their pay is different, she wondered.

What about seasonal employees being compared with year-round employees? Or those with seniority bidding for different, more lucrative schedules than less senior employees? How are telecommuters’ hours to be captured?

Horvitz said she thought the new proposal, if adopted, would favor employers with 12-month employees and low turnover.

When asked what might be an appropriate alternative to the W-2, Horvitz remarked that she didn’t think a “one-size-fits-all” approach with compensation would ever work. “Too many employers have different means of paying employees. It’s such an individualized assessment.”

Allen Smith, J.D., is the manager of workplace law content for SHRM. Follow him @SHRMlegaleditor.

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