Following the Money: EEOC Drastically Expands Employer EEO-1 Reporting Requirements With Addition of Workforce Pay Data Component

Defense Digest, Vol. 23, No. 1, March 2017

by David J. Oberly, Esquire

The EEOC recently released its much-anticipated final revisions to its annual Employer Information Report—more commonly known as the EEO-1 Report—which has been significantly modified to mandate the submission of worker pay data from certain employers. As a result, beginning in March 2018, the EEOC will collect summary employee data based on W-2 earnings, as well as hours worked, from a selection of employers on modified EEO-1 Reports. Employers, especially those with 100 or more workers, are well advised to take a close look at the finalized changes, which not only substantially increase companies’ data reporting burdens, but will also almost inevitably lead to more charges of pay discrimination being pursued by both the EEOC and employees.

The EEOC enforces federal laws prohibiting employment discrimination, including the Equal Pay Act of 1963 and the Civil Rights Act of 1964, which collectively prohibit pay discrimination on the basis of race, ethnicity, gender and other protected classes of individuals. As a result of the EEOC’s new changes to its annual EEO-1 Report, private companies with 100 or more workers will be required to submit pay data with their annual EEO-1 Reports. Employers that do not meet the 100-employee threshold are not affected by the changes and will maintain their current EEO-1 reporting requirements.

The current EEO-1 Report already requires private employers with over 100 employees to submit demographic information concerning the composition of their workforce based on race, ethnicity and gender. The revised EEO-1 Report features two significant additions. The first pertains to summary pay data. Employers must now submit data specifying the number of full- and part-time workers categorized by demographics in twelve separate pay bands for each EEO-1 job category based on W-2 wages. In doing so, employers will report the income provided in Box 1 of their workers’ W-2 forms. The revisions do not, however, make any mandates related to reporting of individual pay, salaries or personally identifiable information. The second new feature of the revised EEO-1 Report pertains to data concerning aggregate hours worked. In this respect, employers will now be required to calculate and report the numbers of hours worked on a yearly basis by all employees who fall within each of the twelve pay bands. For non-exempt employees, for whom the FLSA already requires employers to keep records of hours worked, employers will consult these records to identify the number of hours worked. For exempt employees, however, companies have the option of reporting a proxy of 40 hours per week for each full-time employee or 20 hours for each part-time employee, multiplied by the number of weeks those workers were employed during the EEO-1 reporting period or, alternatively, the actual number of hours worked by the exempt worker.

The deadline for employers’ first revised EEO-1 Report has been set for March 31, 2018. Accordingly, while companies must submit pay data for 2017, the ordinary September 30^th deadline has been extended out six months to allow for additional time to compile the necessary pay data required for the modified form. Therefore, employers will not be required to file an EEO-1 Report in 2017. Future deadlines will fall on March 31 of the year that follows the reporting year.

The EEOC intends to utilize this pay data to assess complaints of discrimination, focus agency investigations and identify existing pay disparities that may warrant further examination. Significantly, for the first time, now the EEOC will have its hands on comprehensive employee pay data, paving the way for the Commission to target and single out “outlier” employers for investigations relating to systemic pay discrimination. In addition, the EEOC has stated its intention to publish “industry-specific reports” that will detail what employees earn on average based on their individualized employment categories.

In implementing these new requirements mandating the submission of company pay data, the EEOC has sent a strong signal that the Commission intends to boost its enforcement efforts in the area of pay discrimination. As a result, employers are well advised to take proactive measures not only to ensure adherence to the new pay data reporting mandates, but also to minimize the risk of falling victim to future investigations, administrative charges or civil lawsuits stemming from claims of unlawful company compensation policies or practices, which are almost certain to spike as a result of the newfound ability of both the EEOC and employees to utilize this abstract, summary pay data to form the basis for allegations of discrimination on the basis of pay.

Employers should begin their preparations for the new EEO-1 reporting requirements well in advance of the early 2018 pay data submission deadline. In particular, employers should take measures to ensure that they are able to collect the necessary data with the current systems they have in place at the present time. If not, employers must acquire any new programs or codes that will become necessary in order to compile and submit the required W-2 wages and hours data that they will need to give to the EEOC beginning in March 2018.

It is also strongly suggested that employers conduct self-audits to target and remedy any potential red flags or other issues before the new reporting requirements begin in order to eliminate any possibility of being faced with an EEOC investigation or enforcement action down the road. At the same time, however, employers must be cognizant of the fact that any internal audits will likely be discoverable in future litigation regarding pay discrepancies. For that reason, audits should be conducted by or with the assistance of outside counsel in order to ensure that any audit details, findings or conclusions are shielded by the attorney-client privilege.

Ideally, employers should engage in an internal audit of company compensation practices within each EEO-1 category and pursuant to the EEOC’s twelve pay bands in order to discern any pay disparities, which will need to be adequately supported by a legitimate, non-discriminatory business rationale. If any evident pay discrepancies are identified that do possess a valid business rationale, the company must ensure that it retains the necessary documentation to adequately support the reasoning underlying the differences in compensation. If any pay practices are identified that cannot be adequately explained, such potentially problematic disparities should be remedied well in advance of when the new reporting period begins.

In addition, as a result of the EEOC’s intention to publish “industry-specific reports” providing the average earnings of the different employment categories, employers whose minority workers earn less than the industry average should consider modifying their salary structure system or, at a minimum, be ready and able to fully justify the method and manner in which salary levels are calculated.

Finally, if feasible, employers should consider developing policies that describe and document the methodology for calculating compensation, especially in the areas of overtime, commissions and bonuses, and any other potentially precarious aspects of Box 1 W-2 wages.

*David is an associate in our Cincinnati, Ohio office who can be reached at 513.372.6817 or djoberly@mdwcg.com.

¤

_{Defense Digest, Vol. 23, No. 1, March 2017. Defense Digest is prepared by Marshall Dennehey Warner Coleman & Goggin to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2017 Marshall Dennehey Warner Coleman & Goggin. All Rights Reserved. This article may not be reprinted without the express written permission of our firm. For reprints, contact tamontemuro@mdwcg.com.}