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Revisions to EEO-1 Report will complicate, rather than improve, pay equity enforcement, experts say

October 19th, 2016  |  Cynthia L. Hackerott

“An unnecessary adventure that won’t further compliance,” is how attorney John C. Fox described the EEOC’s finalized changes that will add the collection of summary pay data to the  EEO-1 Report, adding that it will come at a cost to employers.

Fox, a former OFCCP official and current president of Fox, Wang & Morgan P.C. in Los Gatos, California, along with Dara DeHaven, a shareholder in the Atlanta, Georgia office of Ogletree, Deakins, Nash, Smoak and Stewart, P.C., and Mickey Silberman, a Principal in the Denver, Colorado, office of Jackson Lewis P.C., recently provided their insights on the new reporting requirements in separate interviews with Employment Law Daily. All three attorneys agreed that, contrary to the EEOC’s assertion, the new data collection will not be of much use in the EEOC’s investigation of individual complaints. The attorneys also discussed the problems with the OFCCP’s intention to use the data as an audit selection tool. They differed on how helpful the EEOC’s plan to help with software modifications will be. In addition, they explained how confidentiality and data security concerns have not been adequately addressed by the agencies. Finally, they advised what employers should be doing now that the additional reporting requirements are finalized, and provided their thoughts on the extent to which the upcoming election might impact this development.

The first deadline for the new 2017 EEO-1 Report will be March 31, 2018. On its website, the EEOC has a landing page with a sample of the new form and revised instruction booklet, and well as a Q&A and other information. Details on the reporting requirements, as previously reported in Employment Law Daily, are available here.

No Federal Register notice on finalized changes. The Office of Management and Budget (OMB) approved the changes to the form on September 29, 2016, and that approval expires on September 30, 2019. On October 3, 2016 an EEOC spokesperson confirmed to Employment Law Daily that there will not be a Federal Register notice regarding the finalized changes. As a result, “[the] EEOC’s explanation of what it has done is not told in any one writing,” Fox observed, which means the public is left to “sew together” the documents that the agency has posted on its landing page regarding the 2017 Report.

Some additional information on the EEOC’s action, is contained in the Commission’s supporting statement for this new information collection, which was submitted to the OMB on September 28, 2016 and is available at on the RegInfo.gov website.

The EEOC published its original proposal in the Federal Register on February 1, 2016 (81 FR 5113- 5121), and the comment period for that original proposal closed on April 1, 2016. A revised proposal was published in the Federal  Register on July 14,  2016 (81 FR 45479-45497), and the public comment period closed on August 15, 2016. The OFCCP has abandoned its own, earlier compensation data survey proposal (see, 79 FR 46562-46606; corrections published on August 20, 2014 at 79 FR 49260-49261) and will instead utilize the EEOC’s proposal for EEO-1 pay data collection.

Requirements. Federal regulations require that all employers in the private sector with 100 or more employees, and some federal contractors with 50 or more employees, annually file the EEO-1 Report, with the Joint Reporting Committee (a joint committee consisting of the EEOC and the OFCCP).  The portion of the report that the EEOC’s refers to “Component 1” requires covered private sector employers to provide workforce profiles by race, ethnicity, sex, and job category. Component 1 has not changed.

New compensation data collection. The new requirements, which the Commission refers to as  “Component 2,” add aggregate data on pay ranges and hours worked to the form, in addition to the Component 1 data. The new information will be reported for each of the 10 EEO-1 job categories and by each of 12 pay bands. The 10 EEO-1 job categories have not changed with this revision. Employers will count the number of employees they have in each pay band for each job category. If no employees are in a job category or pay band, employers will leave the cell blank. Reporting of specific salaries of each individual employee will not be required.

Covered employers will be required to tally and report the number of hours worked that year by all the employees accounted for in each pay band. Hours worked data is being collected so that the EEOC and the OFCCP can account for part-time and partial year employment when they analyze EEO-1 pay data. To identify the pay band on the revised EEO-1 in which to count an employee, employers will rely on the pay reported for income tax purposes that year in Box 1 of the W-2 form.

After tallying the total number of employees in each pay band by job category, employers will enter this data in the appropriate columns of the EEO-1 Report based on the sex and ethnicity or race of the employees.

Coverage. Federal contractors with 50-99 employees will not be required to report pay data but will continue to report ethnicity, race, and sex by job category. Consistent with current practice, non-contractor employers with 1-99 employees and federal contractors with 1-49 employees will not be required to file the EEO-1 Report.

Date changes. The due date of the 2017 report has been moved from September 30, 2017 to March 31, 2018, to simplify employer reporting by allowing employers to use existing W-2 pay reports, which are calculated based on the calendar year. Employers will use Box 1 of Form W-2 (W-2 income) as the measure of pay for Component 2 of the EEO-1 Report.  By definition, W-2, Box 1 includes income that is received between January 1st and December 31st of the relevant calendar year.

Each employer may choose any pay period during the three-month “workforce snapshot period” to count its full and part-time employees for the EEO-1 report. For reporting years 2016 and before, the “workforce snapshot period” was July 1 to September 30. The final rule will change the “workforce snapshot” to a pay period between October 1st and December 31st of the reporting year, starting with the EEO-1 Report for 2017.

EEOC’s plan to help with software modifications. On page 2 of the supporting statement, the EEOC states that it “plans to coordinate with HRIS developers to enhance their understanding of the new filing requirements and explore how those requirements may be made easier through software modification and updates.”  Although the attorneys had differing views on how helpful to employers this EEOC plan might be, they all noted the variety of software systems used by employers makes the task of developing software more complex than the agency thought it would be.

“To EEOC’s credit, the comment likely is an implicit recognition that the issue of coordinating the collection and merging of data sets from different systems is a far larger issue than EEOC originally recognized,” Silberman observed. “It also appears to contradict EEOC’s own statement in the revised proposal that ‘creating software solutions for the EEO–1, Components 1 and 2, may not be as complex or novel as some comments suggested.’ (81 FR 45487).”

“It would have been better had EEOC consulted with these experts beforehand to fully appreciate the significant burden and expense to employers,” he continued. “Nonetheless, consulting with experts is always a good idea and, if in fact EEOC does it—and does it effectively—it can be helpful for EEOC, the systems vendors and employers.”

“It is too early to evaluate how helpful the EEOC’s plan to offer unspecified assistance to HRIS developers might be,” DeHaven said. “Most employers face significant challenges in coordinating HRIS and payroll systems so that they are compatible and can accurately and efficiently report the data needed to fill out the new, expanded reports. This is particularly true when the employer works with outside vendors. Employers use many different commercial and in-house software programs and combinations of software programs so technology solutions will be varied.”

Similarly, Fox said there simply is not a “one size fits all” solution. The EEOC’s plan will be of limited value, he predicts, because the agency doesn’t really understand the technical issues employers face. Moreover, because there are so many different HRIS systems out there (a fact that the agency doesn’t seem to grasp), the EEOC would need to consult with multiple experts to provide any kind of meaningful guidance. There are “lots of different systems with lots of different costs,” he noted, and some employers will have to write code to bridge between multiple data systems, and budget accordingly.

Will the new data assist in EEOC individual charge investigations? On pages 2-3 of the supporting statement (and in the agency’s “Small Business Fact Sheet”), the EEOC discusses how it might use this new data collection in conducting investigations of charges. On page 8, the Commission states it “will be positioned to utilize pay data in its investigations in 2019, after the first pay data collection has been thoroughly reviewed for accuracy.” The attorneys explained that the new data collection alone cannot inform the investigation of individual complaints.

“It is hard to understand how the aggregate compensation data and aggregate hours worked data collected on the new form can be relevant to an individual charge of discrimination,” DeHaven said. “Nonetheless, given the EEOC’s persistent claim that the ‘new data will improve investigations of possible pay discrimination,’ employers should prepare for numerous follow up inquiries regarding compensation data from the EEOC during investigations.”

“The agencies throughout this process have been clear they will use the pay data to conduct industry peer comparisons by geographic area to identify and target employers for systemic pay investigations,” Silberman noted. “Unfortunately, false positives will be a common outcome of analyses on the pay data collection, which will lead to investigations of employers not deserving of such scrutiny. Going in to such investigations, the burden will effectively shift to employers to defend their pay practices and prove that disparities are defensible.”

“No one thought that it was likely or possible that this new data collection would be helpful to resolving individual complaints,” Fox said. The data collected will be bulk, gross data, and not definite enough to tell whether there is a problem on an individual level, he notes. For individual complaint investigations, the EEOC has had the authority for over 50 years to get the pay data they want, he pointed out.

Although the EEOC doesn’t say so, Fox suspects that what the EEOC really wants to do with this new data collection is to develop Commissioner’s charges for failure to hire cases. “They want to get into the Commissioner’s charge business,” he said, noting that Commissioner’s charges have a broad geographical scope.

Further, the focus of this data collection is misplaced, the attorneys say. In his previous comments to Employment Law Daily on the EEOC’s original proposal, Fox explained that analyzing W-2 data in pay bands, rather than “rates of pay” is contrary to both what the National Academy of Sciences recommended in its 2012 report on how to collect pay data from employers and the requirements of Title VII law. Moreover, the applicable law requires the EEOC and OFCCP to analyze discrete pay decisions, and not current pay.

Silberman expressed similar concerns in his previous interview with Employment Law Daily on the EEOC’s revised proposal, and also noted at that time that the EEOC rejected the recommendation, made by many stakeholders who commented on the original proposal, to drop  the requirement to submit W-2 earnings data and work hours and instead change it to a requirement to submit data by annualized base salary or hourly pay rate.

“The agency has done nothing to address concerns that the focus of the data collection is misplaced,” DeHaven said. “The final form is the same as the originally proposed form and requires employers to produce information that is not useful for any recognized legal analysis of compensation disparity under Title VII, the Equal Pay Act, or Executive Order 11246.”

Even though the data won’t really help pay equity investigations, it will still have some utility, Fox noted. It could be used by researchers/professors conducting academic studies about broad demographic changes. “That will be its most important legacy,” according to Fox.

How will the OFCCP use this information? Despite it deficiencies as an investigatory tool, the agencies have stated that the OFCCP will use this new data collection as a selection tool for compliance reviews, based, apparently, on the belief that the new data collection can be used to identify “indicators” of pay discrimination.

In an previous interview with Employment Law Daily regarding the U.S. Government Accountability Office’s (GAO) September 22, 2016 report on OFCCP enforcement, Fox said that, “[b]ottoming OFCCP audit selection decisions on compensation data broadly reported by EEO-1 category, without refinement for job title and shift information, is another colossally failed architectural design.”

“In OFCCP investigations, the agency may perceive it has very broad license to investigate based on ‘indicators’ in the EEO-1 pay data,” Silberman suggests. “This will affect the dynamic of such investigations—a guilty until proven innocent phenomenon—and it is why we are urging employers to conduct proactive pay analyses so they will be ready to defend themselves in these investigations.”

Moreover, DeHaven explained that there are significant differences in the compensation data that the OFCCP usually requests in investigations compared to what will be required in the revised EEO-1 report. “The OFCCP already routinely requests employee-level compensation for all employees when the agency schedules a compliance review for a federal contractor,” she notes. “Although federal contractors may provide the data by EEO-1 job categories, they may use a different reporting date and typically do not provide the Box 1, W-2 wages that are reported on the new EEO-1 forms. Thus, OFCCP may be getting two sets of data and be faced with comparing apples to oranges. This [result] can lead to numerous follow up inquires for additional data.”

Confidentiality and data security concerns. The Commission maintains, in the materials posted on its landing page for the 2017 EEO-1 Report, that is has “robust cybersecurity and privacy programs,” and “the hosting service for the EEO-1 data collection system provides a defense-in-depth security program with many layers of security utilizing different physical and software components in order to provide a high level of protection.”

In addition, the EEOC points out that Section 709(e) of Title VII (42 U.S.C. §2000e-8(e)), forbids the EEOC or any EEOC officer or employee from making public any information, including EEO-1 data, before a Title VII proceeding is instituted that involves that information. The OFCCP holds contractor data that it receives from the Joint Reporting Committee confidential to the maximum extent permitted by law, in accordance with Freedom of Information Act Exemption 4 and the Trade Secrets Act, the agencies state. Moreover, the EEOC does not publish individual EEO-1 Reports; rather, the Commission only publishes aggregated EEO-1 data.

Nevertheless, many of the confidentiality and data security concerns expressed by commentators in response to the EEOC’s initial and revised proposals, have not been adequately addressed, according to the attorneys.

“The EEOC and the OFCCP both declare that they will protect the confidentiality of the data to the maximum extend  by law, and the EEOC appears to have taken significant steps to protect the security of the data when the EEO-1 form is submitted via the online portal,” DeHaven said. “However,” she continued, “both the EEOC and the OFCCP routinely request additional copies of the form during investigations and the confidentiality and security of the data is not clear in those investigations. In fact, the OFCCP’s audit letter specifically informs contractors that the agency may also share the information submitted by the contractor during an audit with other enforcement agencies within DOL, as well as with other federal civil rights enforcement agencies with which the OFCCP has an information sharing agreement. Furthermore, once the form is prepared, employers can anticipate that the form will routinely be requested during discovery in employment-related litigation.”

In his earlier comments to Employment Law Daily on the EEOC’s original proposal, Fox explained that the agencies have not sought and obtained legislation to protect corporate pay data in OFCCP’s possession from public disclosure, or adequately addressed concerns about data hacking.

Along similar lines, Silberman also voiced concerns about data security breaches and public disclosure in his previous interview with Employment Law Daily regarding the EEOC’s revised proposal, and pointed out that under some circumstances, such as in rural areas, the EEOC publishing aggregate pay data by industry and geography may identify particular employers and, even, employees.

What can employers do about data security and confidentiality? Given the data security and privacy concerns, what can employers do to help make the data they submit to the Joint Reporting Committee as secure as possible?

“Beyond encrypting data before hitting ‘send,’ there is little employers can do once that data is in the hands of the government,” Silberman said. “EEOC simply chose not to address altogether the confidentiality concerns arising from its choice to publish aggregated employer pay data and there is little employers can do as they comply with the EEO-1 reporting rules.”

“Employers should  clearly designate EEO-1 reports as confidential when submitting the form to the EEOC or OFCCP as part of an audit or charge investigation,” DeHaven recommends.

Preparing for the new reporting requirements. “Employers should be preparing now to make sure that they and any vendors they work with understand the data that will be needed to prepare the reports and that they have systems in place to  report it,” DeHaven advised.

Silberman recommended that employers take the following three steps: “(1) build teams from IT, HR, Compensation and Legal to prepare for pay data reporting; (2) conduct a test-run of the reporting process prior to 2018 to identify and address any issues; and, (3) conduct privileged proactive pay analyses and address unexplained pay disparities prior to first data submission.”

Because employers don’t already have software that will allow them to hit a button that will assemble the Component 2 data, Fox suggests employers hand Section D of the sample form over to their IT personnel and ask them “to create software bridge code that will produce a report that looks and smells and tastes like Section D.” For most employers, though, the software requirements won’t be a big deal, Fox observed, noting that employers vendors such as ADP or Paychex will create the code for their clients.

Upcoming election outcome and beyond. “Because reporting is delayed until March 31, 2018, there is no immediate rush to reform or revise now your corporate EEO-1 reporting systems,” Fox said. “Rather, the smart betting is to wait patiently to see what happens November 8 with the Presidential election. If Trump gets into office this won’t survive a month.”

Nevertheless, Silberman and DeHaven both caution that the broader issue of pay equity will not go away after the election.

“Regardless of the outcome of the election, the Department of Labor will no doubt continue to focus on combatting pay disparities based on race, gender, and ethnicity,” DeHaven said. “Employers should consider conducting a compensation audit or otherwise carefully review and analyze their current pay practices to ensure that they can defend  claims of compensation discrimination.”

“The broader and emerging emphasis on pay equity is not going away any time soon,” Silberman said. “In addition to increased societal pressure to close the ‘pay gap’ and a quickly growing list of states that recently passed aggressive fair pay laws, both candidates say they support equal pay and rolling back the EEO-1 revisions may be more politically difficult than it appears, so I expect there will be little appetite, regardless who our next president is, to make further changes to the new requirements anytime on the foreseeable future.”

Is pay equity currently the most pressing civil rights challenge in employment? Still, according to Fox, the pay equity issue, despite its apparent political efficacy, is not the most pressing problem in the equal employment opportunity area. Rather, the most pressing problem is the continuing decline in the workforce participation rate and employment rates of Blacks/African-Americans and people with disabilities. “This is not a Democratic or Republican thing,” Fox points out stating that there has been “jaw dropping data” from the U.S. Bureau of Labor Statistics (BLS), across administrations showing the continued decline in workforce participation among these two demographic groups. Forty years ago, the workforce participation rate for Blacks was almost 80 percent, while it is now around only 65 percent, and is expected to continue decreasing. Moreover, the unemployment rate for black workers is almost double that of whites (8.3 percent for Blacks compared to 4.4 percent for Whites, as of September 2016). The workforce participation rate for individuals with disabilities has actually decreased since the passage of the ADA in 1990, when it was just over 25 percent; currently, it’s just below 20 percent. Moreover, in 2015, 17.5 percent of persons with a disability were employed while 65 percent of those without a disability were employed. The unemployment rate in 2015 for workers with disabilities was more than twice that of workers without disabilities (10.7 percent compared to 5.1 percent).