New action has been taken to close the pay gap. Today, on the seventh anniversary of signing the Lilly Ledbetter Fair Pay Act, the Equal Employer Opportunity Commission (EEOC) announced that it would submit a major revision to the Employer Information Report (EEO-1) to the Office of Management and Budget (OMB). This revision would require all employers with more than 100 employees to submit their compensation data to the EEOC starting in 2017. President Obama announced the new initiative at a White House ceremony stating that the availability of pay data will open the door for EEOC and the Office of Federal Contract Compliance Programs (OFCCP) to target and address pay disparities.
The proposals’ new EEO-1 form would replace the Department of Labor’s OFCCP pending “Equal Pay Report” regulations that would have only impacted federal contractors and subcontractors.
What are the current requirements?
As of now, federal contractors and subcontractors with 50 or more employees, and employers with more than 100 employees are required to collect and provide information to the EEOC about employees race/ethnicity and sex in each of ten job categories: Executive & Senior-Level Officials and Managers, First/Mid-Level Officials & Managers, Professionals, Technicians, Sales Workers, Administrative Support Workers, Craft Workers, Operatives, Labors and Helpers, and Service Workers.
What data will need to be reported?
Employers with more than 100 employees would be required to report on the W-2 earnings and hours worked for all employees by race/ethnicity and gender beginning September 2017. Federal contractors and subcontractors that employ between 50 and 99 employees will only be required to submit the current EEO-1 form without the additional compensation data.
The proposed EEO-1 report will require compensation data to be categorized in twelve pay bands for each of the EEO-1 job categories. The pay bands are those used by the Bureau of Labor Statistics and would be separated as follows:
| Pay Band 1 | >19,239 |
| Pay Band 2 | $19,240-$24,439 |
| Pay Band 3 | $24,240-$30,679 |
| Pay Band 4 | $30,680-$38,999 |
| Pay Band 5 | $39,000-$49,919 |
| Pay Band 6 | $49,920-$62,919 |
| Pay Band 7 | $62,920-80,079 |
| Pay Band 8 | $80,080-$101,919 |
| Pay Band 9 | $101,920-$128,959 |
| Pay Band 10 | $128,960-$163,799 |
| Pay Band 11 | $163,800-$207,999 |
| Pay Band 12 | <$208,000 |
As an example, an employer would report that it employs ten Caucasian men who are Sales Workers in the second pay band ($19,240-$24,439) or that it employs four African-American women in the Professional job category who are in the seventh pay band ($62,920-$80,079).
Unlike the OFCCP’s proposal, which required year-end W-2 compensation data, the EEOC’s proposal will require W-2 earnings for the previous twelve months from any pay period between July 1st and September 30th. This will include salary, bonuses, commissions, tips, taxable fringe benefits and other forms of reportable earnings. Though the EEOC suggests that this reporting will not be burdensome to employers because HR systems allow W-2 wage reporting by any specified date range, many employers will disagree. The proposal goes on to estimate that the new requirements will cost less than $400 per employer the first year and a few hundred dollars per year after that, another major underestimation of the burden on employers to collect and report this information.
What will the impact be on employers?
This could have a potentially huge effect on employers.
The EEOC has stated that the pay information will be used to “discern potential pay discrimination.” They will attempt to accomplish this by comparing variations across job categories. The major oversight is that the pay bands do not take into account legally accepted variables, such as seniority, level of responsibility and education. Because of this, there will most likely be many false positive results that will require employers to defend their compensation structures.
This information will also allow the EEOC to compare compensation within a location, across the organization and enterprise-wide. In addition, the EEOC said it will use the data to compare employers by industry or metropolitan area.
The proposal also brings unaddressed data privacy concerns for employers. The proposal acknowledges that the EEOC cannot release EEO-1 data and cannot be disclosed in accordance to a Freedom of Information Act. However, EEO-1 data can be used in litigation. The OFCCP states that it will review requests for the report under Exemption 4 of the Freedom of Information Act and the Trade Secrets Act.
Now, more than ever, employers need to be proactive.
This proposal comes as the result of an increased focus on fair pay in the United States. From Hollywood to state policy in California, New York and Massachusetts, this is a hot-button legal topic. All employers would be well advised to conduct proactive pay equality analysis now to highlight any areas of concern before they are required to report data. Employers should also evaluate that their human capital management systems are capable of handling these strenuous reporting requirements. The amount of data requested could be a huge undertaking for large companies and streamlining the reporting will be essential to simplifying the process. Seamless systems that are able to pull pay and demographic information should speed up the proposed reporting. To learn more about EPAY’s truly seamless human capital management system, request a personalized demonstration here.