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The New Proposal to Expand EEO-1 Reports to Include Pay Data: What You Need to Know

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Large employers should anticipate major changes in what employee information they are required to track and report to the federal government. On January 29, 2016, the Obama administration announced a proposed rule that would revise the long-standing Employee Information Report, or EEO-1, to require disclosure of compensation paid to, and the hours worked by, employees grouped by gender, race, and ethnicity.

The EEO-1 is an annual compliance survey conducted by the U.S. Equal Employment Opportunity Commission (“EEOC”), which is used to collect workforce data. Currently, the EEO-1 report only collects data about employees’ race, ethnicity, gender, and job category. The new provisions will apply to all employers with 100 or more employees, covering an estimated 63 million workers. Federal contractors who employ 50 to 99 employees and have a prime contract, or first-tier subcontract, amounting to $50,000 or more, will still be required to file the current EEO-1 report.

The proposed EEO-1 addendum is meant to bring about transparency in employment practices. The EEOC, which is tasked with enforcing the federal laws prohibiting employment discrimination, and the Office of Federal Contract Compliance Programs (“OFCCP”), will use the EEO-1 pay data to gain insight into potential pay disparities, with a focus on the gender gap in pay, as well as to strengthen enforcement efforts. The EEOC also plans to publish aggregated data, permitting employers to conduct self-analysis of their pay practices to facilitate voluntary compliance. If the proposed rule becomes final, as expected, it would go into effect beginning 2017, making the first EEO-1 pay data due by September 30, 2017.

Employers that have, or anticipate having, 100 or more employees should begin developing the infrastructure and procedures for collecting and preparing pay data now. Although some employers may already be collecting this data for their own use, others are not and will need time to build a tracking program.

The EEOC attempted to address concerns about increased burdens associated with the proposed rule by selecting total W-2 earnings as the measure of pay to be reported, stating that employers and contractors already compile this information for tax purposes. See 81 Fed. Reg. 5,113, 5,121 (Feb. 1, 2016). Based on the compensation identified in their W-2 data, employees will be reported under one of the 12 pay bands for the 10 EEO-1 job categories already used in the current form. Id. at 5,117. However, W-2s contain wages earned in a calendar year, not the October 1 through September 30 fiscal year snapshot required for EEO-1 reports, meaning employers will need to collect and report W-2 data specifically for the EEO-1 addendum. This may impose significant costs and burdens, particularly for employers that do not have robust human resources information systems and information technology specialists.

The EEOC states the new reporting requirements with respect to hours worked will impose only a minimal burden on employers, but has not yet determined in what form it will collect this information. Accordingly, there is no proposal regarding how hours will be reported for salaried employees––who generally do not track specific hours worked. In addition, the proposed rule fails to address how employers should count the hours of part-time employees and employees who work less than the full reporting period, including those who are hired mid-year or are absent due to leave.

If finalized, the rule could increase employers’ risk of being the subject of an EEOC civil rights action. The EEOC may determine that the numerical pay data set forth in the EEO-1 form provides a sufficient basis for disparate treatment claims, without the benefit of information such as human capital qualifications and subjective factors, including work history, tenure, and performance. The EEOC acknowledges collecting this additional information would “reduce ambiguity and help assess the existence of potential discrimination,” but omitted these categories from the proposed rule finding “they also raise significant confidentiality and burden concerns.” 80 Fed. Reg. at 5,117.

As regulations continue to expand, employers must stay abreast of the changing regulatory requirements. The EEO-1 pay data addendum is just the latest initiative to encourage pay transparency, decrease pay discrimination, and ensure fair compensation. The proposal was announced on the seventh anniversary of the enactment of the Lilly Ledbetter Fair Pay Act, which expanded the time period in which an employer has to bring a claim for discriminatory compensation decisions. And, just weeks before the proposed rule was announced, the OFCCP published a Final Rule, which amends OFCCP regulations to prohibit federal contractors from discharging or discriminating against employees or applicants who inquire about, discuss, or disclose their own compensation or the compensation of other employees or applicants. See 80 Fed. Reg. 54,934, 54,977 (Sept. 11, 2015) (to be codified at 41 CFR pt. 60-1).

Given the continuing emphasis on pay transparency, employers should consider conducting an internal analysis or audit of their pay policies and practices. In doing so, employers should focus on identifying any red flags that would potentially attract the attention of the EEOC and/or the OFCCP in analyzing the pay data that would be required by the EEO-1 addendum, so that employers can address any issues before the rule goes into effect. Employers must also take precautions to protect information generated in connection with any internal audit. Recommended actions include involving in-house or outside counsel at the outset, using discretion in sharing sensitive information (particularly with any third party), and limiting participation in the audit.

Employers may submit comments about the proposed addendum to the EEO-1 to the EEOC online at regulations.gov.
This article was prepared expressly for OutSolve, LLC by Crystal Jamison, Associate at Andrews Kurth.

Copyright © 2016. Andrews Kurth. This communication has been prepared by Andrews Kurth for informational purposes and does not constitute legal advice. A past performance or prior result is no guarantee of a similar future result in another case or matter. This information is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. Attorney Advertising.

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