Will Reporting EEO-1 Pay Data Help Close the Wage Gap?

 

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NEW ORLEANS—Employers have many incentives to pay their workers fairly: to attract and retain top talent, promote an inclusive work culture and comply with employment laws. But will mandatory reporting requirements actually help employers close the wage gap for women and people of color?

Panelists debated the effectiveness of pay-data reporting mandates during a Nov. 7 session of the American Bar Association's 13th Annual Labor and Employment Law Conference.

This year, many businesses with at least 100 employees had to report EEO‑1 Component 2 pay data—broken down by job category, race, sex and ethnicity—for 2017 and 2018 to the Equal Employment Opportunity Commission (EEOC). Although the reporting deadline has passed, the portal remains open because a court ordered the agency to continue collecting data until a certain percentage of employers comply.

"From a management perspective, I think that a lot of employers are trying to do the right thing related to pay," said Scott Kelly, an attorney with Ogletree Deakins in Birmingham, Ala. But he thinks the EEO‑1 pay-data requirement in its current form "is a bit of a distraction from that effort." Employers say the data they have to report isn't reflective of their compensation system.

Olamide Adetunji, an attorney with the Service Employees International Union in Washington, D.C., said she doesn't mind if the EEOC collects imperfect data for now. She thinks the federal government has good reason to incentivize employers to collect pay data and follow through on making any needed changes to address discrepancies. The EEO‑1 pay-data collection is a good starting point, she said, noting that the process may be flawed the first time data are collected, but she thinks the issues could be smoothed out on the second or third try.

"At the end of the day, there's still this culture of secrecy around what employees are earning," she said, noting that employers are in the best position to provide transparency.

The EEOC recently announced that it doesn't intend to collect the pay data in the future because, it concluded, the burden imposed on employers to gather the information outweighs the usefulness of the data for the agency. Employers should note, however, that courts could intervene and compel the EEOC to gather pay data despite the agency's announcement.

Is There a Better Method?

Panelists agreed that closing the pay gap is important, but they disagreed on how pay data should be collected and analyzed.

The EEOC opted to collect pay data through the EEO‑1 survey because employers were familiar with the process. Covered employers are required each year to submit EEO-1 Component 1 data listing employees by job category, race, ethnicity and sex. For the first time this year, employers also had to report Component 2 wage information from Box 1 of the W‑2 form and total hours worked for all employees by race, ethnicity and sex within 12 proposed pay bands.

Josh Mitchell, Ph.D., an economist with Welch Consulting in Los Angeles, noted that the EEOC described Component 2 data as information employers already collect in the ordinary course of business. But in reality, he said, the EEOC is asking for information from different databases. Some data may be housed in the human resource information system, and other data may be stored in a payroll processing system that is managed by a third-party service provider.

Merging and sorting the data "isn't so easy," he said.

Conference attendees discussed whether it would be better for employers to submit to the government the results of their own internal pay audits or a statement certifying that they have completed a meaningful audit and taken appropriate remedial steps.

"I don't understand why we would trust companies to police themselves in this area," said Anne Shaver, an employee-side attorney with Lieff, Cabraser, Heimann & Bernstein in San Francisco. If the federal government is interested in ensuring that companies are conducting pay audits and correcting disparities, then it has to certify the data independently, she said.

Kelly noted, however, that employers would likely be submitting that information under penalty of perjury.

[SHRM members-only toolkit: Managing Pay Equity]

Shaver added that pay equity isn't just about "equal pay for equal work."

Employers should also be looking at the unadjusted median pay gap for all women and employees of color, she said, because they may hold more lower-paying jobs, and employers should want to see them moving up in the organization.

What's Next?

Although the EEOC doesn't plan to continue collecting EEO‑1 Component 2 data, Congress members are considering the Paycheck Fairness Act, which includes a pay-data reporting requirement. The bill has been introduced many times over the last decade and hasn't been approved, but that could change.

State legislatures could also pass pay-data reporting mandates. California lawmakers failed to pass SB 171 this year but could do so next year. The bill would require companies to send pay data to the state and face investigations and penalties if they don't comply.

"As we know, California tends to be a leader in this area," Shaver said. She thinks if the Golden State passes this type of bill, other states will follow. 

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