The Equal Employment Opportunity Commission (EEOC) has a longstanding interest in collecting pay data from employers. In 2016 the EEOC announced that it would require large companies to report pay data based on W-2 tax records on an extension to the EEO-1 form, referred to as “Component 2.”

After reviewing EEOC’s decision, the Office of Management and Budget stayed the collection of pay data in 2017. Then, on March 4, 2019, in National Women’s Law Center, et al., v. Office of Management and Budget, et al., Civil Action No. 17-cv-2458 (D.D.C.), the D.C. District Court reinstated pay data collection. As a result, companies with 100 or more employees have until September 30th of this year to file EEO-1 Component 2 forms for both calendar years 2017 and 2018.  The EEOC data-collection contractor’s website began accepting submissions on July 15th.

The annual submission of the old EEO-1 form (now renamed “Component 1”) may, at this point seem routine, but your company may be surprised to discover how much additional time and data preparation are required to fulfill the new EEO-1 filing requirements. It is therefore recommended to get started right away to ensure an accurate and timely submission.

What makes completing the new EEO-1 form so challenging?  One answer is the substantial volume of data that the EEOC has requested. Whereas the old form only required employment counts for each EEO-1 job, sex, and race/ethnicity group, the new form further divides each EEO-1 job into 12 pay bands, effectively increasing the number of reporting cells from 140 to 1,680.  Besides employment, the new form also requires that total annual hours worked be reported for each of these 1,680 expanded categories.  With two calendar years of required reporting due by September 30th, this raises the total number of potential data elements to 6,720.

But the challenges go well beyond the quantity of data requested.  The new EEO-1 form organizes employees based on their W-2 earnings rather than their base salary.  Yet, most HRIS systems are not well integrated with payroll systems that generate W-2 data. Moreover, calculating annual hours worked will require additional information from either payroll or timekeeping systems. All told, companies will have to extract distinct data elements from multiple data systems and then bring all of this information together.

How should companies go about this daunting task? Developing a detailed plan can help you get from a starting point of disparate data elements spread across multiple data systems to an accurate and properly formatted EEO-1 form submission.  As discussed below, it may also present your company with the opportunity to examine its pay practices more formally.  While each company’s data is organized differently, a high-level plan typically would include the following five steps:

First, for both 2017 and 2018, you will need to select a pay period between October 1 and December 31 and retain the full list of employees, including active employees as well as those on leave. Only for these employees will annual pay and hours information be extracted and submitted to the EEOC.

Second, you will need to gather the required data fields from their respective data systems.  From your HRIS system this would typically include demographic, EEO-1 job codes, exempt status, and full-time/part-time status.  From your payroll system you will need to extract annual W-2 earnings recorded in Box 1 as well as actual annual hours worked for each non-exempt employee.  The distinction between hours worked (requested) and hours paid (not requested) as defined under the FLSA is crucial. The hours worked requirement excludes hours for such activities as vacation time, sick leave, and holidays. Actual hours worked for exempt employees are rarely recorded.  Therefore, exempt employees’ hours must be estimated. EEOC guidelines state that full-time exempt employees’ annual hours are calculated as 40 hours per week times the annual number of weeks employed, while part-time employees are assumed to work 20 hours per week.

Third, you will need to bring all the data elements together for each employee.  Accurate identification of employees across payroll and time-keeping systems is usually accomplished via an employee identifier.  This process is often imperfect on the first attempt so careful data checking is required to ensure that each employee found in one data table has exactly one corresponding record in every other table.

Fourth, each employee must be assigned to one of the twelve pay bands defined by the EEOC based on his or her annual Box 1 W-2 earnings.  These bands range from $19,239 and under to $208,000 and over.  A full list of the 12 pay bands is shown below:

Fifth, both the number of employees and the total annual hours worked must be tallied for each cell defined by EEO job, pay band, gender, and race/ethnicity group. These aggregated data form the basis of your EEO-1 submission.

How exactly will the EEOC use your company’s data?  Unfortunately, the EEOC has not answered this question.  However, a previous EEOC pay pilot study suggested that statistical testing of equal representation across pay bands (the “Mann-Whitney” test) was likely.  Back in 2016, the EEOC also suggested that it would use Component 2 data to gain insights about pay disparities by occupation and industry and better target investigations.  Federal contractor employers may also receive renewed attention and auditing from the OFCCP.

No matter what kind of analysis the EEOC/OFCCP ends up pursuing, it should be noted that aggregated EEO-1 data do not include the level of detail that is present in standard pay equity analyses.  For example, a more formal pay equity analysis would typically include employee-level data, use a pay-rate measure such as a full-time equivalent salary, group employees into detailed job categories where workers are similarly-situated, and statistically control for other legitimate factors that influence pay such as job tenure. Yet none of this can be done with the EEO-1 Component 2 data.

It is therefore quite possible that companies who fully comply with Title VII of the Civil Rights Act and the Equal Pay Act will nevertheless be flagged for potential violations. This could lead to follow-up requests for additional data from your company.

Preparation is therefore key. We recommend that your company conduct an internal pay equity audit in conjunction with outside council ahead of your EEO-1 submission.  The need to gather new pay data, while burdensome, provides a timely opportunity to better assess current pay practices.

 

Authored by, Joshua Mitchell, a Senior Economist at Welch Consulting’s Los Angeles Office. He may be reached at jmitchell@welchcon.com.