There is no question that many companies were caught by surprise when a federal court reinstated an Obama-era rule requiring the submission of pay data as part of the EEO-1 Report submitted annually to the EEOC.

While companies are scrambling to address this new requirement, some experts see an opportunity to get ahead of the growing focus on equal pay in America. Experts from various HR, payroll, human capital, and legal organizations are strongly recommending that employers subject to the expanded EEO-1 requirements consider undertaking a pay equity audit prior to submitting pay data due September 30, 2019. (The pay data element of the EEO-1 Report is referred to as “Component 2”).

The rationale behind this recommendation is that a proactive pay equity audit will give EEO-1 filers key insights about how their pay practices may be viewed—before turning this sensitive data over to the federal government. An organization that submits pay data that it doesn’t fully understand presents a series of risks. In submitting the EEO-1 Report with Component 2, companies are essentially providing the EEOC with an informal snapshot of their pay structures. Very likely, this pay data could show pay gaps between workers of different genders, ethnicities, and other differences performing comparable work. As highlighted by the law firm McNees Wallace & Nurick LLC in JDSupra, “ultimately, the EEOC could use this data to raise claims of pay discrimination based on gender and ethnicity,” although the firm notes this is unlikely to occur in the near future.

There is another critical reason to perform a comprehensive pay equity audit: the pay data contained in Component 2 of the EEO-1 report is vulnerable to disclosure to third parties. Plaintiffs can gain access to the EEO-1 report if they bring suit under Title VII of the Civil Rights Act of 1964 or the Americans with Disabilities Act. According to the EEOC, “a request for EEO-1 data of a particular employer… must be accompanied by a copy of a court complaint stamped “Filed,” indicating that the charging party has filed suit under Title VII and/or the ADA against the named respondent.” Notably, this requirement does not apply to Freedom of Information Act (FOIA) requests to the Office of Federal Contract Compliance Programs (OFCCP). According to the OFCCP, “the EEO‐1 data received by OFCCP are subject to the provisions of FOIA, meaning that members of the public may file a FOIA request asking OFCCP to disclose information in its possession.” In short, federal contractors have an additional incentive to understand their Component 2 pay data prior to filing because it will be subject to requests from the general public for disclosure.

Let’s take a step back for a quick recap on how we got here.

  • An order by a Washington D.C. federal judge in March brought back into play the pay data reporting requirement—initially put in place by the EEOC in 2016 during the Obama administration.
  • The Office of Management and Budget (OMB), now under the Trump administration, stayed the implementation of the expanded EEO-1 form in August 2017 in accordance with its authority under the Paperwork Reduction Act (PRA) of 1995. The PRA allows the OMB to review proposed legislation for 1) its paperwork burden on the general public and 2) information collection measures of use to the Federal Government.
  • The stay was put in place in significant part because the OMB was concerned about the burden and “practical utility” of collecting pay data from covered employers. Fast forward 18 months and the OMB still had not reached a decision based on its review of Component 2 of the EEO-1 report. A federal court took serious issue with this timeline and ultimately found that the OMB had not conducted a meaningful review of the Component 2 requirements.
  • The court reinstated the pay data requirements for EEO-1 reporting as part of its order in National Women’s Law Center v OMB, No. 1:17-cv-2458 (D.D.C. March 4, 2019). The OMB’s purported rationale for the stay, the Court held, was “misdirected, inaccurate, and ultimately unpersuasive.” Ouch. On May 3, 2019, the government filed its intent to appeal the National Women’s Law Center decision. This filing did not halt the Component 2 filing obligation.

The Court’s decision resulted in employers having to meet two EEO-1 filing deadlines this year. The traditional (“Component 1”) information required for EEO-1 reporting (such as information on employees’ race, gender, EEO-1 job category, and physical location category based on a payroll period in October, November or December 2018) was due by May 31, 2019. The new Component 2 information for pay data requires employers to submit hours of service and W-2 data on their employees for calendar years 2017 and 2018 by September 30, 2019. The EEOC recently announced that it would accept submission of Component 2 data via an online portal: The EEOC stated that it expects the portal to be active by mid-July 2019

So, what should be done?

As noted, experts across multiple domains view the EEO-1 Component 2 as an opportunity to address these potential pay issues head on, by proactively conducting a pay equity audit before submitting pay data to the EEOC. A pay equity audit will help an employer to better understand what potential pay gaps may exist within their organization’s pay structure and if there are legitimate reasons for these pay gaps to exist. If done properly, a pay equity audit can provide critical insight into pay practices—BEFORE review by the EEOC or anyone else with access to Component 2 data.

This effort can require extensive domain knowledge expertise in employment law across various jurisdictions, such as econometrics, statistics and statistical modeling, workforce data management, and regulatory audit processes by agencies such as the OFCCP and EEOC.

However, the effort is worth it.

This type of audit not only identifies problems, but also provides actionable solutions. It gives employers an opportunity to ensure fairness in pay and prevent employee issues. It allows the employer to minimize risk by identifying and remediating deficiencies, providing the employer with greater standing to defend against and win claims of discrimination. Having this knowledge in hand before submitting pay data in the new EEO-1 Report provides employers the ability to provide insights into what the pay data is saying, and how they are reacting to it proactively.

One thing to keep in mind: the findings from a pay equity audit should be privileged. The audit should be conducted under attorney oversight so that it is privileged and documents from the audit can be protected from discovery in a court of law. The purpose of the privilege is not to hide or cover-up any wrongdoing; rather, it is intended to allow the attorney overseeing the matter to facilitate candid discussions with the client or his or her company about the findings.

Third-party vendors can provide this type of pay equity audit and aid in the management of data quality for this initiative.

The 2018 EEO-1 Report should be completed by private companies with 100 or more employees. Federal contractors and first-tier subcontractors with at least 50 employees and with at least $50,000 in contracts should file the EEO-1 Report, as should financial institutions and government depositories with 50 employees or more. Private employers with less than 100 employees may also be required to file if their association or common ownership with another company results in the joint entities having a total of collective total of 100 employees.

To determine if your company is required to file an EEO-1 Report, click here.

To learn more about achieving pay equity, click here.