EEOC Proposes Compensation Report to Accompany EEO-1 Report

On February 1, 2016, the Equal Employment Opportunity Commission (EEOC) proposed revisions to require employers of 100 or more employees to report employees' W-2 earnings and hours worked along with their EEO-1 report beginning in 2017. This proposal is a continuation of the Obama Administration's efforts to uncover and seek remedies for what it believes is unlawful pay discrimination. A summary of the proposal and recommendations for employers are outlined below.

Every year by September 30, employers of at least 100 employees and federal contractors that employ at least 50 employees and have a contract of $50,000 or more must file a report called the EEO-1 report with the Joint Reporting Committee of the EEOC. The report requires employers to identify the total number of employees per location and per EEO-1 category, which are Executive/Senior Level Officials and Managers, First/Mid Level Officials, and Managers, Professionals, Technicians, Sales Workers, Administrative Support Workers, Craft Workers, Operatives, Laborers and Helpers, and Service Workers, by race and by sex.

The EEOC's Proposed Revision of the Employer Information Report (EEO-1) and Comment Request is not the first compensation report required by the federal government. The Office of Federal Contract Compliance Programs (OFCCP), which audits federal contractors, requires contractors to submit compensation information during an audit. It previously required contractors to report employee compensation by EEO-1 category in the Equal Opportunity Survey, which the agency cancelled in 2006.

The EEOC's proposed compensation report would require employers to provide all W-2 compensation by 12 pay bands. The proposed pay bands would be:

W-2 compensation would include wages, salaries, fees, commissions, tips, taxable fringe benefits, elective deferrals, overtime, shift differentials, and nonproduction bonuses like year-end bonuses, hiring and referral bonuses, and profit-sharing cash bonuses. The EEOC's commentary states that using pay bands would be more likely to generate reliable data while being less burdensome for employers. Employers would need to count and report the number of employees in each pay band for each EEO-1 category.

Employers would also have to collect the total number of hours worked by employees in each EEO-1 pay band cell. The EEOC states this is to allow analyses of pay differences while considering aggregate variations in hours. One of the areas where the EEOC seeks employer input concerns reporting hours worked for salaried employees. The EEOC suggests one approach would be for employers to use an estimate of 40 hours per week for full-time salaried workers. A problem with this approach is that it would not account for differences of employees' hours, which are usually not recorded for exempt employees who do not get paid for hours worked above 40 per week. The EEOC notes that it would not require employers to collect data on hours worked for salaried employees if they were not already doing so.

The EEOC states that it will use statistical tests as an initial check of the W-2 data. The proposed revisions provide that the EEOC and the OFCCP plan to develop a software tool that will allow their investigators to conduct an initial analysis by looking at W-2 pay distribution within a single company or establishment and by comparing the company's or establishment's data to aggregate industry or metropolitan area data. This use of statistics would highlight areas of interest for the agency.

The EEOC's proposal does not address privacy concerns previously raised with a similar compensation proposal issued by the OFCCP. The Freedom of Information Act (FOIA) allows others to request government records such as this proposed compensation report. The law is designed to create transparency of government activities and provides limited confidentiality protection to employers. If competitors of a company received a company's EEO-1 report through a FOIA request, they could see the number of employees in each pay band per EEO-1 job category. The pay of sales persons would be readily apparent. It would not be difficult to determine the pay of an individual employee if there were only one person in the EEO-1 category or other unique traits for an employee, such as race or gender. The EEOC's current position is that it does not produce an employer's EEO-1 report in response to a FOIA request unless the requester provides proof of bringing a lawsuit against the employer under Title VII of the Civil Rights Act or Americans with Disabilities Act. The EEOC's implementation of its own standards for FOIA requests is inconsistent at best, however.

The EEOC is accepting public comments on the proposal until March 31, 2016. Employers should exercise their rights to provide comments on the proposal either directly, through employer or industry associations or through legal counsel. Federal contractors are required to do an annual analysis of their compensation and are strongly advised to conduct such analyses under the advice of legal counsel. The attorney-client privilege shields the analysis from production to the OFCCP or in a lawsuit. This EEOC proposal raises the stakes for all companies with at least 100 employees to assess their compensation from a discrimination perspective. If a company has concerns about its compensation, it should begin looking at those issues now so the first analysis is not done when the EEOC or the OFCCP is knocking at the company's door.

If you have any questions about the EEOC's proposed compensation report or a discrimination-focused compensation analysis, please contact Eric Johnson at 602-229-5425/eric.johnson@quarles.com, Will Walden at 312-715-5111/william.walden@quarles.com, or your Quarles & Brady attorney.