Pay Data Reporting Requirements In A Changing Landscape

Orrick - Equal Pay Pulse

Orrick - Equal Pay Pulse

Employers face increasing demands and pressure to ensure and declare equitable pay for employees, not only from within their own workforces, but also from clients, customers, and government leaders. While states continue passing increasingly progressive pay equity laws, the requirements of such laws may not align with the purpose and intent of federal or state equal pay laws.  Employers should be mindful of the risks associated with how state agencies may use pay data collections and be prepared to explain their practices and provide further response, if needed.

Illinois is the latest state to pass a pay data collection law, joining ranks with California in an ongoing trend for greater transparency in pay. On March 23, 2021, Illinois Governor J.B. Pritzker signed SB 1480, an amendment to the Illinois Equal Pay Act of 2003, requiring employers with more than 100 employees in the state to start reporting pay data on January 1, 2023 and obtain an equal pay registration certificate by March 24, 2024.

Under the amendment, employers must pay a $150 filing fee and submit the following information with their application for certification to the Department of Labor:

  • Equal pay compliance statement signed by a corporate officer, legal counsel, or authorized agent of the company;
  • Confirmation that the business does not restrict certain roles to genders and makes employment decisions without regard to gender;
  • Explanation of how the business reviews wages and benefits to identify disparities and how the business corrects such disparities;
  • Explanation of the system the business uses to determine compensation for employees;
  • Most recent federal EEO-1 report (if applicable – generally companies with more than 100 employees); and
  • List of employees separated by gender and race/ethnicity categories and the total wages paid to each employee.

Similar to EEO-1 reporting requirements, the Illinois amendment requires employers to provide race, ethnicity, and gender demographic data to the state of Illinois as part of its annual filing under the Illinois Business Corporation Act. The amendment further explains that this “information that is substantially similar to the employment data reported in the federal EEO-1 Report.” One key difference, however, is that pay data collected under the Illinois law will be made public on the Secretary of State’s website, whereas the federal EEO-1 reports are generally maintained as confidential.

Another unprecedented component is Illinois’ forthcoming requirement that companies must obtain a certification by signing a compliance statement that confirms the following:

  • The business’ compliance with Title VII of the Civil Rights Act of 1964, the Equal Pay Act of 1963, the Illinois Human Rights Act, the Equal Wage Act, and the Equal Pay Act of 2003;
  • The average compensation for female and minority employees is not consistently below the average compensation (as determined by the U.S. Department of Labor) for its male and non-minority employees within each EEO-1 major job category. Employers must take into account length of service, requirements of specific jobs, experience, skill, effort, responsibility, working conditions of the job, or other mitigating factors;
  • The business does not restrict employees of one sex to certain job classifications and makes retention and promotion decisions without regard to sex;
  • Wage and benefit disparities are corrected when identified to ensure compliance with the state and federal antidiscrimination laws; and
  • How often the business evaluates wages and benefits to ensure compliance with state and federal antidiscrimination laws;
  • Whether the business, in setting compensation and benefits, uses (a) a market pricing approach; (b) state prevailing wage or union contract requirements; (c) a performance pay system; (d) an internal analysis; or (e) an alternative approach and a description of the alternative approach.

The Illinois Department of Labor may audit a business’ compliance by asking for certain information for each job category in the EEO-1 report, including the number of male and female employees, salaries paid to male and female employees, average length of service for male and female employees in each major job category, and other information as needed to determine compliance.

Employers with more than 100 employees in the State of Illinois have until March 23, 2024 to submit their certification applications to comply with state’s new reporting requirements, and recertification is required every two years. Failure to timely certify may result in civil penalties of up to one percent of the employer’s gross profits.

Those subject to this law should use this time to gather the necessary information, develop a strategy for identifying and addressing any pay equity issues, and implement a plan for remediation. Complying with Illinois’ new requirements will be a significant undertaking and employers should start scrutinizing their compensation programs to ensure they are ready to certify pay compliance by the deadline.

Echoing criticism of California’s law, it is not clear how Illinois intends to use the information it will obtain from employers, and at least at a federal level, the lack of alignment between pay data collection and the requisite factors to prove and defend against a pay equity claim has drawn sharp criticism and presents additional hurdles for employers. For example, critics have raised concerns that the required pay data submissions are inconsistent with existing requirements for proving a pay equity violation under federal and state equal pay laws. Further, the summary data collection will lump together and purport to compare incomes of all individuals in extremely broad categories (e.g., “professionals”) without consideration of whether such individuals perform “substantially similar” work. This makes it difficult to meaningfully use the data to assess pay equity under applicable law.

To comply with pay equity reporting requirements or in response to pressure by shareholders and the public, some companies have taken the route of expressly declaring that they have achieved “pay equity.” Companies considering this approach should be mindful of how they define pay equity, whether such analysis incorporates all necessary factors to support a declaration of zero pay equity issues, and whether their approach aligns with how pay equity is defined under applicable law.

In drafting their disclosure statements, employers should consider partnering with experienced vendors and legal counsel who are well-versed in the nuances of pay equity to preserve privilege and limit the risks associated with reporting pay equity data.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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