February 2, 2016
On February 1, 2016, the U.S. Equal Employment Opportunity Commission (EEOC) published a Federal Register notice, which proposes to amend the annual EEO-1 filing requirement and, for the first time, require employers to submit burdensome pay data in addition to the demographic information already solicited on the form. The proposal would impose substantial new paperwork obligations on employers. Further, the new filing requirements would likely result in certain employers being targeted for extensive pay audits and class claims based on economic dynamics that have nothing to do with alleged pay discrimination. Employers should consider sponsoring comments to the EEOC, which are due by April 1, 2016.
Who Would Have to File the Pay Reports and When?
If approved, the proposed annual pay data submission would be mandated for each employer with 100 or more employees and would begin with the 2017 EEO-1 cycle (i.e., filed by September 30, 2017).
What Pay Data Would Have to Be Filed?
Under the EEOC proposal, covered employers would be required to report the number of employees − by EEO-1 occupation category, race and gender − who fall into each of 12 artificial pay bands proposed by EEOC:
Employers would identify the number of employees to be reported in each pay band based on the W-2 wages paid to employees for a 12-month period looking back from a pay period picked by the employer between July 1 and September 30 of the reporting year. The new EEO-1 report would also require submission of data on total hours worked during the same period. However, EEOC is soliciting comments from employers on the reporting of total hours worked for salaried employees, noting that it does not intend to require employers to track such information.
EEOC’s proposed EEO-1 reporting format to collect pay data can be viewed here.
Although not entirely clear from the EEOC’s notice, it appears that the EEO-1 pay reports would be required for each establishment of 50 or more employees. It is not clear whether the data would also be required on a consolidated report that captures the enterprise’s entire workforce. However, presumably, this would not be required, as enterprise-wide data fails to account for geographic differences in labor markets and combines the distinct workforces of different subsidiaries of large corporate enterprises.
Even as to the establishment-level reports, EEOC’s proposal does not address the confounding factor that the EEO-1 instructions require parent corporations to submit EEO-1 reports for all majority-owned subsidiaries. Thus, this reporting structure often obscures the fact that the reports for large corporate enterprises incorporate establishment reports of facilities operated by several different employers.
Would There Be Any Coordination with OFCCP’s Pending “Equal Pay Report” Proposal?
EEOC proposes that it would share the EEO-1 pay reports submitted by employers with the Office of Federal Contracts Compliance Programs (OFCCP) and suggests in the notice that, if the EEOC proposal is finalized, OFCCP will rescind its pending regulatory proposal to collect similar data.
How Would the Reported Data Be Used?
EEOC indicates that neither it nor the OFCCP has developed a specific analytical framework for using the pay data to be compiled. In the notice, EEOC notes that it plans to work with the OFCCP to “develop a software tool that will allow their investigators to conduct initial analysis by looking at W-2 pay distribution within a single firm or establishment, and by comparing the firm’s or establishment’s data to aggregate industry or metropolitan-area data.”
EEOC points to a report of a pilot study by Sage Computing that the agency commissioned to evaluate possible reporting formats and use of the data. According to EEOC, “[t]he Pilot Study considered a variety of statistical approaches that could be used to detect pay differences between groups and then tested these approaches by applying them to synthetic data.”
The discussion of “synthetic” data is quite alarming, because it essentially means that the researchers made up their own data and did not study any actual, “real world” data from employers. Neither EEOC’s notice nor the Sage report even mentioned a prior comprehensive study of similar data that Abt Associates conducted on behalf of OFCCP. Abt Associates concluded that pay data (nearly identical to that specified in EEOC’s proposal) which was collected from thousands of employers on the OFCCP’s now-rescinded Equal Opportunity (EO) Survey did not provide any meaningful basis for identifying employers likely to be engaged in pay discrimination. Unlike the EEOC’s study, the Abt Associates’ study relied on actual data reported by employers and on the results of thousands of OFCCP pay audits.
EEOC Burden Estimates
From an employer’s perspective, the burden estimates of government data collections are notoriously understated, and EEOC’s burden estimates in its notice will no doubt leave employers with the same impression. EEOC historically has estimated the burden on employers as 3.4 hours per EEO-1 establishment report. In the new proposal, EEOC asserts that, due to electronic filing of reports and HRIS data systems, employers can develop any number of establishment reports in the same time that it could develop one report in the past. Thus, EEOC now estimates the burden as 3.4 hours per employer, regardless of the number of establishment reports the employer must file. EEOC further estimates eight hours of initial programming time per employer to set up the new queries necessary to compile the pay data and hours worked for reporting.
What’s the Expected Impact on Federal Contractors and Subcontractors?
In its own regulatory proposal, OFCCP stated that it intends to use pay data reports to target federal contractors and subcontractors for burdensome pay audits. In recent years, OFCCP has been subjecting federal contractors to approximately 4,000 audits focused on pay data and practices. Unless OFCCP obtains an increased budget to conduct additional audits in 2018, the agency’s access to new pay data would unlikely result in more pay audits. Instead, the impact will likely be on the method in which contractor-establishments are targeted for pay audits. (It is unclear how OFCCP would use the establishment-level EEO-1 reports to target employers with functional affirmative action programs for audits, if at all).
It is also likely that use of the data organized in EEOC’s proposed artificial pay bands and broad occupational categories will expose certain contractors unfairly to lengthy pay audits based on compensation factors that have nothing to do with pay discrimination. Further, employers should not expect OFCCP to disclose its targeting algorithm so they can evaluate the risk of audit.
What’s the Expected Impact on Non-Contractors?
EEOC indicates that, if the proposal is approved, it would use the collected pay data during charge investigations and to conduct studies of industry trends. Less clear is whether the agency intends to rely on data analyses as the basis for a self-initiated systemic investigation program.
Under Title VII, such an initiative would require an EEOC commissioner to file a charge providing “the date, place and circumstances of the alleged unlawful employment practice.” To base such a “Commissioner’s Charge” on analyses of data to be collected under EEOC’s proposal would appear to be entirely unjustified in the absence of a comprehensive study that demonstrates a significant correlation between the analytic approach and the likelihood of systemic discrimination. However, EEOC’s current view of these issues is unclear.
As noted, EEOC’s recent Sage Computing pilot study does not demonstrate the needed empirical connection. In addition, the new pay data to be compiled in EEO-1s would appear to be particularly ill-suited as the basis for directed investigations under the federal Equal Pay Act, because the broad EEO-1 occupation categories do not align with the Equal Pay Act’s requirement that comparisons be made only between jobs that are “substantially equal.”
What Should Employers Do Now?
Employers should consider sponsoring comments to persuade the EEOC to place the pay data reporting proposal on hold until a more comprehensive study can be completed (or at least scale back the required reporting timetable in recognition of the significant burdens that any such reporting would impose).
Copies of the EEOC’s Federal Register notice and Questions and Answers sheet are available online.
Comments must be filed on or before April 1, 2016. EEOC will also convene a public hearing at an unspecified date in the future, but individuals requesting an opportunity to present views on the proposed collection during the hearing must provide a written request to EEOC within 21 days of its notice publication in the Federal Register (i.e., February 22, 2016).
For further information or questions about the information contained in this legal alert, please contact the authors, your McGuireWoods contact, or a member of the firm’s affirmative action team or labor and employment group.