Don't HR Alone #49 - More than 100 Employees? You have work to do before 2018!

EEOC wants employers with 100 or more employees to submit wage info starting March 2018

The Equal Employment Opportunity Commission (EEOC) on Sept. 29 released an updated EEO-1 reporting form, which will require covered employers to provide employee pay data beginning in March 2018.

The controversial additions to the form are intended to improve EEOC investigations into pay discrimination based on gender, race and ethnicity.

"This is a significant development and marks the first time pay information will be reported on the EEO-1 filing," said Dara DeHaven, an attorney with Ogletree Deakins in Atlanta. "With access to this new data [set], the EEOC is sending a strong signal that it will increase its enforcement efforts."

Collecting the additional data will create significant administrative burdens for employers, said Mickey Silberman, an attorney with Jackson Lewis in Denver. He also said the data will be collected based on employee W-2 information, which won't provide an accurate comparison of employees' total compensation.

Covered Employers

With some exceptions, private employers with 100 or more employees and federal contractors with 50 or more employees must complete an EEO-1 report each year.

Covered employers already provide demographic information on the form regarding the gender, race and ethnicity of employees by job category. The revised form now also asks for data about employees' pay as reflected in box 1 of their W-2 forms.

The changes to the form will not affect 2016 reports, which must be filed by Sept. 30. The new information must be provided in the 2017 form, and to give employers time to collect that data, the deadline for 2017 will be extended by six months to March 31, 2018.

Federal contractors with 50-99 employees get a break; they will not have to provide the pay data, although they will still have to report demographic data.

Burdensome Data Collection

"Collecting pay data is a significant step forward in addressing discriminatory pay practices," said EEOC Chair Jenny Yang.

"This information will assist employers in evaluating their pay practices to prevent pay discrimination and strengthen enforcement of our federal anti-discrimination laws," she said in a press statement.

However, employers and management attorneys have opposed the changes because they say the data that will be collected won't serve the agency's intended purpose.

"Collecting pay data in the highly aggregated manner proposed will not help identify unlawful pay discrimination," said Janese Murray on behalf of the Society for Human Resource Management at a March 16 agency hearing on the matter. Murray is the vice president of diversity and inclusion at Exelon Corp., a Fortune 150 energy firm based in Chicago.

"Over time, pay is increasingly influenced by an employee's chosen career path—previous jobs, experience, education, performance and geographic locations, along with level of responsibility," she said.

Silberman said that employers will "undoubtedly be exposed to burdensome investigations based on false positives."

"Comparing people with respect to their pay is complicated," he explained, "and relying on W-2 earnings may show a pay disparity when in fact none exists."

As an example, he said a male employee may exercise the option to purchase stocks in one year while a female employee exercises the option in another year. Because stock options aren't taxed until they're exercised, the pay data for these employees will look different on their W-2 forms even if they had the same options.

Furthermore, human resource information systems (HRIS) that contain demographic data about employees' race and gender generally don't communicate with payroll or time-keeping systems, Silberman said. Therefore, employers may face a costly and significant burden in collecting and compiling the data.

Prepare Now

"Employers should consider conducting self-audits, preferably under attorney-client privilege, to determine in advance whether there appear to be any pay disparities that are difficult to explain through the application of legitimate business factors such as tenure or job-related education," said Cheryl Behymer, an attorney with Fisher Phillips in Columbia, S.C.

"These self-audits allow the employer to consider in advance how to address any pay disparities if it believes the disparities should be addressed through an equity adjustment," she said.

In an e-mail to SHRM Online, DeHaven recommended the following steps employers should take now to get ready for filing the new report and defending their pay decisions:

Assess existing HRIS and payroll systems to ensure that they can generate the necessary reports.
Meet with outside vendors to make sure they understand the new requirements.
Identify or develop policies that explain how employees earn overtime, bonuses, commissions and other components of W-2 box 1 wages.
Put systems in place to readily retrieve data regarding benefits choices employees make, because these choices can significantly affect W-2 income.
Identify job titles in each of the 10 EE0-1 job categories and analyze job descriptions to ensure they are accurate and will support pay decisions that reflect different job responsibilities.
Identify any existing pay bands that your company uses and map them to the new pay bands on the EEO-1 form.
Determine how to report hours worked for exempt employees.