In a step likely to create additional burdens on employers, the Equal Employment Opportunity Commission (“EEOC”) has proposed changes to employer reporting requirements that would require most employers to provide significant additional information about employee pay. Employers with 100 or more employees must currently complete the EEO-1 report, which gathers demographic information broken down by job category from private employers. The EEOC proposal would add a new section requiring disclosure of pay information. In addition to using the data to evaluate employers’ pay practices, the EEOC would share the data with the Department of Labor’s Office of Federal Contract Compliance Programs (“OFCCP”), for that agency’s use in its wage discrimination enforcement efforts relating to federal contractors. This proposal is the latest in a string of employment enforcement initiatives spearheaded by the White House that place increased burdens on employers but may promise limited benefits to employees.

New Requirements for Large Employers

All employers of 100 or more employees would be required to provide the new report section, which would summarize pay data in a dozen pay bands broken down by the same demographics and job categories in the current EEO-1 form. The reported pay information would be based on income reported on the Internal Revenue Service W-2 form. Employers would provide a 12-month lookback on W-2 income from any pay period between July and September. The new section would also include information regarding the number of hours worked by employees, but it would not gather any other data that might provide nondiscriminatory explanations for differences in pay.

Wage Discrimination Laws

The EEOC appears to be seeking this information to assist it in enforcing equal pay laws. Specifically, the EEOC is tasked with enforcing the Equal Pay Act, which prohibits sex discrimination in compensation. The EEOC also enforces Title VII, which prohibits discrimination based on race, color, religion, sex, or national origin. Both laws apply to discrimination in wage payments. The EEOC also will be sharing the information with the OFCCP, which enforces laws and executive orders prohibiting wage discrimination by federal contractors. Under these laws, employers cannot pay men and women differently for the same work, and they cannot pay employees differently because of their race, color, religion, or national origin. But employers may legally differentiate pay on the basis of legitimate, nondiscriminatory considerations, such as experience, tenure, seniority, job performance, particular skills, or discipline history.

Existing EEO-1 and Wage Enforcement Efforts

The EEO-1 currently requires that federal contractors with 50 or more employees, and all employers with 100 or more employees, annually report the race, ethnicity, sex, and job category of their employees. The report divides race and ethnicity into seven categories, jobs into 10 categories, and sex into two categories currently. The 10 job categories are:

• executive/senior level officials and managers;
• first/mid-level officials and managers;
• professionals;
• technicians;
• sales workers;
• administrative support workers;
• craft workers;
• operatives;
• laborers and helpers; and
• service workers.

Companies with multiple establishments are required to submit a separate report for each location of the company with 50 or more employees. The EEO-1 report for the headquarters of these multi-establishment companies must incorporate data for each establishment employing fewer than 50 employees. Currently, EEOC investigations into wage discrimination begin with a complaint alleging either disparate treatment of an employee or disparate impact created by a facially neutral policy.

Goals for the New Report Section

According to the EEOC, the two agencies will use the new report data to “assess complaints of discrimination, focus agency investigations, and identify existing pay disparities that may warrant further examination.” The new report section will place a substantial burden on many employers, not only to provide the information initially, but then to participate in investigations triggered by statistical analysis of that information. Given the summary nature of the data to be collected and the omission of information explaining the reasons for pay differences, real questions exist as to whether the data to be collected will support any inference of discrimination.   

Both the EEOC and OFCCP have emphasized that the new data collection should assist employers in their own compliance efforts. Companies have the advantage of examining their wage data in the context of factors impacting wage payment, including experience, tenure, seniority, job performance, particular skills, and discipline history. However, since the agencies do not propose to collect this kind of information in the new report, even companies that engage in appropriate self-monitoring may still be forced to provide pay data that would trigger further inquiry from the EEOC or OFCCP. Such employers will be in a better position to provide quick, thorough, and persuasive responses to the agencies, which may serve to limit the burden of the investigations. But their self-monitoring and compliance efforts are unlikely to prevent investigations from occurring.

Assumptions About Burden on Employers

The EEOC’s estimates regarding the burden on employers created by the new report assume that human resources information systems are already equipped to handle most of the information gathering with minimal one-time changes to their reporting capabilities. Because employers already manage the information necessary to generate a W-2 for each employee, the EEOC estimate assumes it will not be burdensome to generate the same basic information to report income for a different 12-month period (going back 12 months from any pay period in July through September of the year in which the report is due). Similarly, the report would require employers to provide only information they already maintain regarding employees’ hours, on the assumption that because most paychecks reflect a number of hours worked, most employers are tracking hours for most or all of their employees. Employers are tracking the hours of employees who are paid by the hour and not exempt under the Fair Labor Standards Act (“FLSA”), but they rarely track hours for employees who are exempt and paid on a salary basis. Most employers only track the use of paid time off by exempt employees, and payroll systems that do include a number of hours for those employees usually reflect a 40-hour week regardless of how many hours are actually worked. For exempt employees whose hours are not tracked, no potential explanations for differences in their pay would be collected at all.

Action Items

The EEOC is seeking comments on the proposal through April 1, 2016. In addition to feedback on the burden on employers to implement the new report and how to handle hours reporting for exempt employees, the agency has also specifically sought comments to enable it to “[e]valuate whether the proposed collection of information is necessary for the proper performance of the Commission’s functions…” In light of the failure of the EEOC and OFCCP to identify how they will be able to use the collected information to identify discrimination rather than solely differences in pay, large employers may want to focus on this “necessity” inquiry in considering whether to submit comments.

In addition to considering comments, large employers should consider examining their pay practices and infrastructure to determine the additional burden on their EEO-1 reporting, as well as the risk that their data would lead to false-positive statistical suggestions of wage discrimination. This EEO-1 change would dovetail with proposed wage and hour regulations the Department of Labor is expected to implement this summer, which will raise the salary thresholds for certain exemptions from overtime pay under the FLSA. Given the increased scrutiny on wage-related issues, as they await final regulations, all employers should consider implementing proactive measures to identify existing problems in their wage practices.