The increasing trend toward pay transparency: EEOC announces changes to EEO-1 report

On September 29, 2016 the Equal Employment Opportunity Commission (EEOC) announced final changes to amend the annual EEO-1 report. Beginning in 2018, not only will applicable employers have to submit demographic information, but employee W-2 wages and hours worked data as well. Employers will not be required to report any individually identifiable wage information, only aggregate data.

In case you are not familiar, the EEO-1 report is a compliance survey mandated by regulations enforcing Title VII of the Civil Rights Act. Title VII requires most private employers with over 100 employees to file the annual report, currently containing employment data categorized by race/ethnicity, gender and job category. The reported information is also available to the Office of Federal Contract Compliance Programs (OFCCP), which pursuant to Executive Order 11246, mandates the same reporting by federal contractors with over 50 employees. More information on which employers are required to file annual EEO-1 reports may be found here.

The proposed changes were announced in January 2016, as part of President Obama’s stance on “equal pay for all workers and to further empower working families.” The White House explained that the EEOC’s proposal would cover more than 63 million employees and “will help focus public enforcement of our equal pay laws and provide better insight into discriminatory pay practices across industries and occupations.” The full White House press statement can be found here, as well as the original proposed rule, published on February 1, 2016, here.

What impact will this have on employers?

The use of only W-2 wages will likely not provide an accurate comparison of employees’ total compensation

The impact on employers could be significant:

  • For the first time, the EEOC/OFCCP will have unprovoked access to W-2 pay data, allowing the agencies to target employers of potential pay discrimination.
  • Data collection and reporting burdens will be substantially increased. Many employers utilize separate vendors for time and attendance vs. payroll and will now be faced with the challenge of combining this information into one report.
  • Pay discrimination claims may rise. Armed with the data collected through the new EEO-1 Report, the EEOC is expected to target pay disparities that cause wage gaps for women and minorities by testing employer data and investigating pay practices of those employers whose data suggests indefensible pay disparities. In other words, gender and race/national origin discrimination lawsuits, particularly EEOC-led class action lawsuits, will likely increase.

Opponents have argued that the use of only W-2 wages will likely not serve the intended purpose as it will not provide an accurate comparison of employees’ total compensation (that is, take into consideration an employee’s previous work experience, education, location, performance, level of responsibility, etc.) and may subject employers to investigations that are not merited. What will come remains to be seen.

When do the new EEO-1 requirements go into effect?

The first amended EEO-1 report is to be filed in the first quarter of 2018. This means that rather than filing the EEO-1 report by September 30, 2017, which has been the deadline in the past, employers will have until March 31, 2018 to file their next EEO-1 report, which will include the new data.

Following this initial report, in subsequent years the new deadline for filing the EEO-1 report will be March 31. This affords employers the convenience of only having to pull pay data once per year for both tax purposes and the EEO-1 report.

Regardless of the March 2018 deadline, employers should begin to prepare now to ensure that their organizations are not at risk.

How should employers prepare?

US. employees are unclear in their understanding of the efforts employers make to ensure pay equity

First and foremost, ensure that your organization has complied with the EEO-1 filing requirement. Many smaller organizations may not be familiar with this requirement — and neglecting to file could hold your organization at risk for discrimination claims, lawsuits, fines and even imprisonment as a result of failure to file.

Second, begin to conduct a proactive evaluation of your compensation programs to ensure compliance with pay equity laws, including the Equal Pay Act and any other applicable federal and/or state laws regarding pay discrimination. The timing for this announcement may be advantageous — as most employers should already be evaluating their programs due to the new Fair Labor Standards Act (FLSA) regulations, which go into effect on December 1, 2016. For more information on the new FLSA regulations see our previous blog. Preparation for the new EEO-1 includes a number of items, including, but not limited to:

  • Ensuring that jobs are correctly classified according the EEOC Guidelines;
  • Comparing and linking existing pay bands to the pay bands included in the new form. This includes ensuring consistent job architecture to explain differences in job levels and documentation of the skills, responsibilities and working conditions that may impact job leveling and assignment of jobs to salary grades and pay levels;
  • Determining how to report hours worked for exempt employees; and
  • Confirming that formal policies are in place explaining how income, including bonuses and other supplemental pay reported on the W-2, is determined.

It is important to note that these types of analyses should always be conducted in conjunction with legal counsel to ensure the review has attorney-client privilege, as the results may be requested in any future agency investigation.

Third, and perhaps the most burdensome for many employers, ensure that your HRIS and payroll systems can handle the increased reporting requirements. Employers need to ensure that vendors are up to date on the requirements and have a venue for you to capture this data as easily as possible.

Fourth, employers should develop and implement a communication strategy regarding rewards and the employee value proposition to ensure that employees are aware of your organization’s fair compensation strategies. We know from our most recent Talent Management & Rewards and Global Workforce Studies (which can be found here) that U.S. employees are unclear in their understanding of the efforts employers make to ensure pay equity.

pay-transparency

Finally, in the event that employees pursue litigation, organizations who have not already should consider Employment Practices Liability Insurance (EPLI). EPLI, among other benefits, is designed to help companies mitigate the defense costs and other financial losses associated with discrimination lawsuits.

For those that already purchase the coverage, this is also an opportune time to evaluate the breadth of coverage, as well as limits and retention to ensure the appropriate level of protection for your organization, as EPLI is not “one size fits all.” In addition to Title VII discrimination claims, EPLI policies provide coverage for back pay and liquidated damages owed pursuant to the Equal Pay Act, so now is the time to ensure that you have the applicable coverage in place.

More information about the revised EEO-1 report, including the new form, a Fact Sheet for Small Business, and a question and answer document are available on EEOC’s website at www.eeoc.gov. Additionally, free webinars will be held by the EEOC on October 20, 2016 and October 26, 2016. Check www.eeoc.gov for details.

Additional sources: SHRM, Jackson Lewis

About Sara Ritter

Sara Ritter, M.A, SPHR, SHRM-SCP is a Senior Human Resources Consultant with the Willis Human Capital Practice. Sar…
Categories: Compensation, Health and Group Benefits | Tags: , , , , ,

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