On January 29, 2016, the Equal Employment Opportunity Commission announced the upcoming release of a proposed rule revising the Employer Information Report (EEO-1) to collect pay data from certain employers. Our partners at Constangy, Brooks, Smith & Prophete, LLP, have provided information explaining the proposed revision along with steps employers can take to prepare for the change.
By Constangy, Brooks, Smith & Prophete, LLP, February 1, 2016
On the seventh anniversary of President Obama’s signing into law the Lilly Ledbetter Fair Pay Act, the President announced that not enough progress has been made to ensure that women and men are paid equally.
In a ceremony Friday at the White House, the President said that “we knew” in 2009 that “our work wasn’t done.” He noted that, although women make up approximately 50 percent of the U.S. workforce, they are paid only about 79 cents for each dollar that men earn. The gap is even greater when African-American and Latina women are compared with white men.
Studies showing these dramatic pay gaps are based on comparisons of all women in the workforce with all men in the workforce (or women and men of particular racial or ethnic backgrounds), and do not control for position held, educational background or training, length of time in the workforce or career interruptions, or any other factors that might affect pay. Thus, it is not clear how much of the gender pay gap is based on discrimination, as opposed to these other factors.
Lilly Ledbetter, the inspiration for the 2009 equal pay law, introduced the President at Friday’s ceremony, and told a group that included Secretary of Labor Thomas Perez and EEOC Chair Jenny Yang – as well as feminist and tennis great Billie Jean King – that “President Obama has not rested on his Ledbetter laurels.”
Accordingly, the Equal Employment Opportunity Commission on Friday released a proposed rule that will require employers with more than 100 employees to include pay data by race, ethnicity, and sex in their annual EEO-1 reports. The EEOC will use this data to identify employers with pay disparities that might be a result of discrimination.
The proposed rule, which was published today in the Federal Register, would take effect beginning with the EEO-1 reports that come due on September 30, 2017. (There will be no change for September 30, 2016.) Under the proposal, employers would be required to include W-2 earnings information for a single pay period between July 1 and September 30, the same reporting “window” that applies now to other EEO-1 information.
The EEOC says that it settled on W-2 earnings because they are more complete than the alternatives, and include overtime, severance, bonuses, taxable fringe benefits, and the like.
The proposal would categorize employees into 12 pay bands across the EEO-1 categories. According to the EEOC, use of pay bands will be less burdensome for employers and will also provide more meaningful pay data to the EEOC. In addition to number of employees (by race, ethnicity, and sex) in each pay band, the employers will be required to state the number of hours worked. The agency has requested input from employers on how to state or calculate number of hours worked for “salaried” employees and suggests that employers assume they work 40 hours a week.
(Presumably, the problem is really with “exempt” rather than “salaried” employees; salaried employees can be nonexempt and, if so, the employer already has to track their hours.)
The EEOC also proposes to require that all EEO-1s be filed electronically starting in 2017. The agency noted that, currently, only three employers are continuing to file paper reports.
As federal contractors know, the Office of Federal Contract Compliance Programs issued a proposed rule in 2014 that would have required disclosure of pay data on EEO-1 reports by federal contractors with 100 employees or more. The EEOC rule, if adopted, would replace the OFCCP proposal.
Comments on the EEOC’s proposed rule will be accepted through April 1, 2016.
In the Friday ceremony, President Obama advocated again for passage of the federal Paycheck Fairness Act, which thus far has not succeeded. Meanwhile, states (most notably California, and Massachusetts may soon follow) aren’t waiting for Congress, but are enacting their own equal pay legislation. It’s not too early for employers to begin auditing their pay practices with the help of employment counsel. At a minimum, these audits should include the following:
*Identify any disparities that appear to be based on race, sex, or ethnicity. Look at employees in the same job, but because the trend seems to be “comparable worth” rather than “equal pay for equal work,” it’s a good idea to also compare employees who perform arguably “similar” work.
*Where an apparent disparity has a valid explanation, make sure you have gathered the documentation necessary to explain it to the EEOC or other government agency – or a plaintiff’s lawyer.
*Where an apparent disparity does not have a valid explanation, work on correcting the disparity and determine how to explain the correction to the affected employee.
ThinkHR will continue to monitor and report on developments in this area.