EEOC Digs In with Its EEO-1 Pay Data Proposal

By Allen Smith, J.D. Jul 18, 2016
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​​​Pay data is intended to help the EEOC identify pay discrimination.

​A newly proposed deadline of March 31, 2018, for EEO-1 reports to include pay data isn't as far off as it sounds. Human resource information systems (HRIS) and payroll must be integrated, or new systems created, by Jan. 1, 2017—less than six months from now—to capture calendar year 2017 data, if the proposal is finalized, according to Dara DeHaven, an attorney with Ogletree Deakins in Atlanta.

The Equal Employment Opportunity Commission (EEOC) plans to finalize a regulation by the end of President Barack Obama's administration for collecting compensation data from employers, said Clare Draper, an attorney with Alston & Bird in Atlanta.

On July 14, the EEOC reissued its proposal, originally released in January, to add pay data to the EEO-1 employer information report with few changes other than the deadline for the first report—now March 31, 2018, instead of the original deadline of Sept. 30, 2017. The new proposal, like the original, recommends the use of W-2s for reporting pay data, despite vigorous objections from the employer community.

Initial Stages of Investigation

Federal contractors with 50 or more employees and private employers with 100 or more employees file the EEO-1 report. The 2016 EEO-1 reporting deadline remains Sept. 30, 2016. Then there will be a year and a half gap between the 2016 EEO-1 report and the 2017 report. Going forward from March 31, 2018, each year EEO-1 reports will be due in March to coordinate with employers' end-of-year income reporting obligations.

Hours for nonexempt employees will need to be recorded for the entire year by pay band. For exempt employees, the EEOC has suggested employers use either actual hours worked or an estimate of 40 hours per week for full-time exempt employees and 20 hours for part-time exempt employees, multiplied by the number of weeks the individuals were employed during the EEO-1 reporting year. The "workforce snapshot" period—when employers count the total number of employees for that year's EEO-1 report—will be moved back to the fourth quarter of 2017.

The point of having pay data in the report is so the EEOC can identify possible pay discrimination.

"When W-2 income and hours-worked data is added to the EEO-1 report, the EEOC's EEO-1 analytic software tool will be expanded to allow for the examination of pay disparities based on job category, pay bands, and gender, ethnicity, or race," the agency said. 

Use of W-2s Criticized

The EEOC will look at box 1 on W-2s as reported in 12 pay bands within 10 job categories. That approach may sound "granular," remarked Allan King, an attorney with Littler in Austin, Texas, but he said the job categories are too broad for there to be meaningful comparisons within them. For example, professionals may include doctors, engineers and accountants. Averaging their compensation together will not create an accurate comparison, he said.

The EEOC noted that some commenters on its original notice said W-2 income would not indicate discrimination because it may reflect employee choice. There may be elective participation in overtime, or working certain shifts may lead to pay differentials. And some employees work faster or better than others. Commenters had recommended looking at base pay instead. But in its July notice, the EEOC said that "W-2 income is a well-defined, familiar and universally available measure of pay; for the EEOC and OFCCP [Office of Federal Contract Compliance Programs], it is useful data for exploring potential pay discrimination."

Management attorneys disagreed. "The EEOC was unduly dismissive of significant concerns about how this data is going to result in appropriate comparisons leading to false accusations of pay inequity," said Alissa Horvitz and Joshua Roffman, attorneys with Roffman Horvitz in McLean, Va., in an e-mail. "We are not aware of any company at all that uses W-2 amounts in its internal equity analyses."

Furthermore, W-2 wages do not take into account factors that have long been recognized as nondiscriminatory, such as education, previous experience, skill level, seniority, performance ratings and location, said DeHaven.

"The significant decision in the revised proposal is to stick with W-2 earnings rather than base pay or base pay rate," wrote Mickey Silberman and Christopher Chrisbens, attorneys with Jackson Lewis in Denver, in an e-mail. "In light of this decision, the choice of W-2 box 1 instead of box 5 is much less meaningful. However, it is curious that EEOC chose box 1 over box 5, as box 5 provides a broader inclusion of compensation than does box 1, such as deferred compensation and fringe benefits excluded from box 1. Apparently, the EEOC is not interested in all supplemental income."

Oversimplified Approach

All in all, management attorneys criticized the EEOC's approach as being oversimplified.

"Compensation is very complicated, and in almost every one of the audits that we have encountered, explanations for pay data differences are not maintained in neat databases. Explanations for pay differences require lengthy investigations into salary histories, an understanding of the differences in job responsibilities, and many variables that are not being captured by a W-2 figure, such as education, relevant work history, nonrelevant work history, career interruptions, performance and so forth," Horvitz and Roffman said.

"The newest proposed rule also fails to acknowledge that there are valid differences among industries as to how compensation is determined and instead attempts to impose an artificial cookie-cutter approach to the compensation process," said Cheryl Behymer, an attorney with Fisher Phillips in Columbia, S.C.

The EEOC nevertheless expressed confidence that it will be able to minimize the risk of false positives and false negatives when reviewing the pay data to identify possible discrimination. Horvitz and Roffman disagreed, saying that the submission of pay data "will require significant employer time and resources to prepare these reports each year and will result in a number of false positives with little benefit toward promoting actual pay equity."​

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