The New EEO-1 Pay Reporting Burdens Employers

In conjunction with the seventh anniversary of the Lilly Ledbetter Fair Pay Act, the EEOC and Office of Federal Contract Compliance Programs (OFCCP) proposed employers of 100 or more employees additionally report employee pay and hours worked information. The EEOC and OFCCP touts this proposal as a minimal burden for employers that “will help focus public enforcement of our equal pay laws and provide better insight into discriminatory pay practices across industries and occupations.”^[1] They also claim that “[t]his information is shared with other authorized federal agencies in order to avoid duplicate collection of data and reduce the burden placed on employers.” Do not be fooled; the government is not doing employers any favors as these new requirements will require a significant amount of new data and will require some work to ensure compliance.

For a little background, since 1966, the EEO-1 report requires certain employers (employers with more than 100 employees or federal contractors with more than 50 employees) to report employee information by sex, job category and race/ethnicity groups. These employers will “have a legal obligation to provide the [additional pay and hours worked] data; it is not voluntary.”^[2] The EEOC and the OFCCP plan to use the reported data to “improve enforcement.” Although the reporting does not start until September 30, 2017, the information must date back to July 1, 2016, so applicable employers and federal contractors should move quickly.

Despite the EEOC’s claim, reporting the new pay data will be a challenge. Employers are to report total hours worked and W-2 earnings on a pay period between July 1 to September 30, including part-time workers, those who worked less than 12 months and workers with W-2s from multiple employers. This information will be reported within the following 12 pay bands:

Disparities in pay may exist due to subjective factors (other than race and sex), which may open employers up to more EEOC investigations. However, even if pay differences exist, the disparity does not necessarily mean pay discrimination occurred. Differences in pay may exist for any number of reasons, such as skill, working conditions, responsibility, knowledge or a thousand other justifiable reasons. Unfortunately, these differences will not be clearly identified on the form. So the employers that have apparent pay disparities will likely be considered to be discriminating unless and until the employer can establish legitimate reasons for the pay differences. This unstated assumption may cause some employers to disregard merit or the performance of their employees, and level the pay differentials to avoid the hassle and risk of an investigation. This result would be unfortunate and would likely eliminate opportunities for ambitious and hardworking employees. A better approach would be for employers to explain discrepancies in the proper section of the form to preclude potential investigation.

Collecting and reporting the pay information is just the first requirement. What will be more challenging is collecting and reporting the hours worked. For employers who use hourly employees, reporting this information is most likely readily available. But for employers with salaried employees, who do not normally record their hours, this information will take more effort to obtain.

Confidentiality is also a concern. The EEOC claims it will protect the confidentiality of an employer’s wage information “prior to the institution of any Title VII proceeding.” However, as those who have experienced an EEOC investigation or lawsuit can attest, the EEOC’s assurances quickly evaporate in the heat of litigation where there is an assumption of public access to the information. Also, this additional information gives the EEOC leverage to extract settlements on meritless cases. Some employers may choose to pay a fine rather than risk disclosure of their pay data.

In light of these new reporting requirements, employers would be prudent to review the requirements and enact test runs to address any issues before reporting begins. Employers may also consider implementing an hourly recording system for all employees and keeping records of any pay increases or variations to document any pay variation.

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Notes:

^[1] White House fact Sheet (https://www.whitehouse.gov/blog/2016/01/29/taking-action-advance-equal-pay)

^[2] http://www.eeoc.gov/employers/reporting.cfm