Federal Pay Data Collection and California’s Response

The federal Equal Employment Opportunity Commission (EEOC) has gone back and forth on whether employers should be required to complete Component 2 of the EEO-1 report. Component 2 seeks information on employee compensation and hours worked, sorted by job category, federally identified pay bands, gender, race, and ethnicity.

• In 2016, the EEOC announced it would require employers to complete Component 2 of the EEO-1 report.
• In 2017, the EEOC changed course and decided it would no longer seek Component 2 pay data, but the federal courts ordered the EEOC to collect pay data for the 2017 and 2018 filing years.
• In 2020, the EEOC then determined it would not seek approval to collect pay data due to the burden on employers and the questionable utility of the data.

Though the EEOC has not reinstated the requirement to provide pay data in EEO-1 reports, the California Legislature supports the collection and perceived utility of Component 2 pay data. In September 2020, it enacted Senate Bill 973, which requires certain employers to provide this data annually to the DFEH. Affected employers must submit their pay data reports to the DFEH by March 31, 2021, and every year thereafter on the same date.

Who’s Required to Submit Pay Data?

California’s pay data reporting requirements, codified in California Government Code section 12999, apply to employers who:

• have 100 or more employees overall (including employees located within and outside California),
• are already required to file a federal EEO-1 Component 1 report*, and
• have at least one employee in California.

Employers with multiple establishments must submit a pay data report for each establishment along with a consolidated report that includes all covered employees. *Although California allows employers to submit their federal EEO-1 reports to the DFEH in lieu of using California’s pay data form, this option is nonexistent for the time being since the EEOC no longer requires employers to provide Component 2 pay data on their EEO-1 reports.

How to Fill Out California’s Pay Data Report

To complete the pay data report, employers must select one pay period between October 1 and December 31 of the reporting year to serve as the “snapshot period” for the report’s contents.

• Only full- and part-time employees who worked in California or were assigned to a California establishment during the snapshot period must be included in the report.
• The pay data report should also include temporary employees only if the employer must include them in its federal EEO-1 report and is required to withhold federal social security taxes from their wages.
• Teleworking employees should only be included in the pay data report if they are teleworking from California or are normally assigned to the employer’s California establishment, even if they are currently teleworking from a different state.

Like the now-defunct Component 2 of the federal EEO-1 report, California’s pay data form requires employers to report employees’ annual W-2 earnings and hours worked, sorted by job category, pay band, gender, race, and ethnicity.

• In recently issued guidance, the DFEH has advised employers to use the EEOC’s job category, race, and ethnicity classifications when preparing their California pay data reports.
• For pay bands, the DFEH requires employers to use those established by the U.S. Bureau of Labor Statistics’ Occupational Employment Statistics , which is updated periodically.

Key Differences: EEO-1 Component 2 v. California’s Pay Data Law

The key differences between the EEO-1’s Component 2 and California’s pay data form include:

• Gender classification: California recognizes three genders (male, female, and non-binary) and, therefore, requires employers to report pay data based on these categories. Component 2 previously allowed employers to report information for non-binary employees but did not require it.
• Calculation of wages: California’s pay data report requires employers to use Box 5 on an employee’s W-2 (showing Medicare wages and tips) to place the employee in the report’s proper pay band. However, if the employee earns any wages not captured by Box 5, the employer should use the information in Box 1 to place the employee in the correct pay band. Component 2 previously directed employers to use Box 1 wages for all employees.
• Calculation of hours worked: California’s pay data report requires employers to count any paid holidays, paid vacation, or other paid time off that an employee took during the snapshot period as hours worked. Component 2 previously adopted the federal Fair Labor Standards Act’s definition of “hours worked,” such that paid time off was not included in hours worked.

The DFEH has created a pay data reporting page on its website, which now includes access to the online pay reporting portal, a user guide for completing and submitting the pay data report, pay data report templates, and FAQs. Pay data provided to the DFEH will remain confidential and will not be publicly available, except to the extent necessary for an enforcement proceeding.

Best Practices for Completing the California Pay Data Report

With the March 31 deadline for submitting pay data reports fast approaching, employers should ensure all employees who are required to be included in the report have had an opportunity to voluntarily self-identify their gender, race, and ethnicity since this is the preferred method for collecting this information. Many employers already collect this information through a survey or other employment records that the employee completes upon joining the company, typically during the onboarding process.

• If the employee declines to provide this information, employers may resort to other identification methods, such as current employment records, other reliable records or information, or visual observation (in that order).
• Employers who have never asked employees for this demographic information may distribute a survey to employees to collect it, but the survey should clearly state that providing the information is voluntary, the information will not be used in employment decisions, and employees’ managers and supervisors will not review employees’ survey answers.

In selecting a snapshot period, employers should be strategic and consider:

• choosing a pay period with fewer employees since this results in less data to be collected, or
• choosing a pay period where their pay data numbers and demographics look best in comparison to other periods.

The stated purpose of California’s pay data reporting law is to “collect wage data to more efficiently identify wage patterns and allow for targeted enforcement of equal pay or discrimination laws, when appropriate.” Thus, employers should choose their snapshot period carefully to ensure the selected period demonstrates compliance with California’s pay equity law. Of course, employers are well-advised to conduct their own pay equity analysis (and to ensure that the attorney-client privilege protects this analysis) before submitting data to the DFEH.

Finally, employers who anticipate needing additional time to complete their pay data reports should request an extension immediately, but no later than March 30, 2021 (one day before the report is due to the DFEH). Extension requests, referred to as “requests for enforcement deferral period,” should be submitted through the DFEH’s website.