Late last month, the Equal Employment Opportunity Commission (“EEOC”) announced that it will begin collecting employee pay data from many private employers and federal contractors. Beginning with the EEO-1 reports due March 31, 2018, private employers and federal contractors with 100 or more employees must report “summary pay data” as part of annual EEO-1 reporting.  The changes to pay data only apply to private employers and federal contractors with 100+ employees. Employers, including federal contractors, with 100 or more employees would submit data about pay. Federal contractors with 50-99 employees would not report pay data but would continue to report ethnicity, race and sex by job category.

While the EEOC intends the changes to the EEO-1 to address “persistent wage gaps” – a heavily debated issue during the presidential campaign and key agenda item for the Obama Administration – employers attempting to comply with the changes may encounter problems with compiling and reporting the required pay data.
 
In the revised EEO-1 reports, employers must provide “summary” pay data. The EEOC is not collecting data on individual employees’ salaries or wages. Instead, employers must report the total number of full and part-time employees by demographic categories in each of 12 pay bands listed for each EEO-1 job category based on W-2 wages. For example, an employee with $35,000 in W-2 wages would be included in the $30,680 - $38,999 pay band. Further, the employer must tally and report the number of hours worked that year by all employees accounted for in each pay band.
 
While this seems simple enough, there are some problems with the EEO-1 reports in practice.
 
Under the Fair Labor Standards Act (“FLSA”), employers already are required to keep records of hours worked for non-exempt employees. Tallying the hours worked by these employees should be easy because the employer can refer to existing records. However, the FLSA does not require employers to record the hours worked for exempt employees. To address this problem, the EEOC will allow employers to report 20 hours per week for each part-time employee and 40 hours per week for each full-time employee, or they may report actual number of hours worked by exempt employees. Making this choice will depend on how close to reality the traditional 20 or 40 hours is for your exempt employees.
 
Another more general problem with the changes in the EEO-1 is that summary pay data is a reliable indicator of pay discrimination. The EEOC decided to collect pay data based on the assumption that the data “will not only help enforcement agencies do their work, but it helps employers to evaluate their own pay practices to prevent pay discrimination in their workplaces.” In other words, the EEOC will use EEO-1 pay data to identify employers for audit and employers should use the data to assess their own compliance with federal laws prohibiting pay discrimination.  As employers know, there are countless factors involved in establishing employee pay and these factors are not included in the summary pay data reported in the EEO-1. Because the EEO-1 reports will not capture these factors, employers should critically assess and document how they compute employee pay to ensure any pay gaps are defensible during an EEOC audit or investigation.