Back in March of this year, a federal judge in Washington, D.C., set off a firestorm in the employer community when she reinstated the so-called EEO-1 Component 2 pay data reporting rule, implemented by the US Equal Employment Opportunity Commission (EEOC) during the last year of the Obama administration, and then stayed indefinitely by the Trump administration during its first year, just before the rule was to take effect. From the early reports, you would have thought the sky was falling.  In a subsequent ruling in April, the same judge set a deadline of September 30, 2019, for covered employers to submit their EEO-1 Component 2 reports and, because the original rule authorized the collection of two years’ worth of pay data, she further ordered the EEOC to choose which two years to collect, 2017 and 2018 or 2018 and 2019. If the EEOC chose the former, both years would be due on September 30; but if the commission chose the latter, 2018 data would be due on September 30, and employers would have until March 31, 2020, the regular EEO-1 reporting date, to catch their breath and submit their 2019 pay data. Not an agency to make things any easier on employers, the EEOC chose 2017 and 2018. The same day the EEOC made its choice to double employers’ filing burden, the Justice Department announced it would appeal the court ruling. However, the ruling remains in place pending the appeal, which likely will stretch well beyond the September 30 filing deadline. So buckle up, employers, or at least ready your HR departments: You’ve got a lot of work to do between now and September 30 if you expect to meet the deadline.

Genesis of the Pay Data Reporting Rule

All private employers with 100 or more employees, and all federal contractors and subcontractors with 50 or more employees and at least one federal contract or subcontract worth at least $50,000, are required to file EEO-1 reports annually. The EEO-1 report has been around for many years and requires covered employers to report the breakdown of their workforces by race/ethnicity and gender in 10 job categories. In 2016, it got a bit more complicated. That’s when the EEOC—then under the Obama administration—added pay data to the annual EEO-1 reporting requirement as part of its effort to call attention to and close the so-called pay gap between men and women. The term “pay gap,” as controversial as it is misunderstood, refers to the difference in average pay between all women and all men employed in all jobs. The statistic agreed upon by most labor economists is that all working women combined, on average, earn 70 cents to every dollar earned by all working men combined. That is not to say that women in every job earn only 70 percent of what men earn in the same jobs; rather, it means the average pay of all working women combined is only 70 percent of the average pay of all working men combined. There are lots of reasons that may explain this phenomenon that have nothing to do with job discrimination, but the EEOC is convinced otherwise. Thus, in an effort to identify occupations and industries that may be contributing to the pay gap, the EEOC developed the EEO-1 Component 2 pay data report form (Component 1 is the same old EEO-1 report form you’ve always filed). The pay data collection form then was submitted to and approved by the Office of Management and Budget (OMB), which by law has to approve all mandatory data collection forms as “reasonable,” and the rule was set to go into effect, with the first reports due on March 31, 2018.

Enter Politics

Most expected the rule to be rescinded after the 2016 presidential election, and the new administration vowed to do so, but there was one stumbling block. After the transition to the new administration, the EEOC no longer had a quorum. It takes three commissioners for a quorum, and the EEOC was operating with only two, one Democrat and one Republican, and no chair. Without a quorum, the EEOC was powerless to rescind the rule. So in stepped the OMB, the agency that previously approved the new pay data collection form, and indefinitely suspended the EEOC’s use of the form “pending further study.”  OMB’s action effectively killed the pay data collection rule, or so it seemed, before the National Women’s Law Center filed the lawsuit that resulted in the court ruling that reinstated the rule.  Essentially, the court ruled it was unlawful for one government agency (in this case, the OMB) to overturn the action of another (in this case, the EEOC).

When President Trump finally appointed a new EEOC chair, who was confirmed by the Senate in May, to give the EEOC back its quorum and a Republican majority, there was some hope that the commission, rearmed with the necessary quorum, might rescind the rule itself. However, based on the new chair’s comments during her confirmation hearings, that now appears unlikely. Indeed, just last week (on May 28), the EEOC announced its pay data collection portal will be operational, and it will begin accepting EEO-1 Component 2 filings, on July. 15. The EEOC also announced that a “fully staffed help desk” will go on line June 17 to answer EEO-1 filers’ questions via both telephone and email.

So What’s on the EEO-1 Component 2 Form?

To put things in perspective, there are 140 data fields on the traditional EEO-1 report form, now known as Component 1 (14 race/gender boxes for each of the 10 EEO-1 job categories). Component 2 of the new EEO-1 report will require you to report aggregate prior-year W-2 compensation and hours worked in 12 pay bands for all employees reported in each of the Component 1 data fields. The 12 pay bands are as follows:

That’s potentially 24 additional pieces of information (compensation and hours in 12 pay bands) to fill in on the Component 2 report for each of the 140 data fields on the Component 1 report. Thus, the pay data collection rule balloons the EEO-1 Component 2 report from 140 data fields to 3,360 data fields (24 x 140 = 3,360). Multiply that “times 2” for two years of data (2017 and 2018), and you get 6,720 data fields to fill in. For multi-establishment employers, it’s worse. They’ll have 3,360 data fields to fill in on their consolidated report, headquarters report, and establishment reports for each location with 50 or more employees for both 2017 and 2018. Mind-boggling, we know. 

“Flaws” in the Ointment

The pay data you will report on the EEO-1 Component 2 form will come from Box 1 of your W-2 reports for 2017 and 2018. Right there, you can see one of the many flaws in the data to be reported. Box 1 W-2 income is not total pay. For one thing, it does not include amounts employees contribute to their 401k. Thus, if a male employee and a female employee in the same EEO-1 job category each earn the same salary, but the female contributes more to her 401k (thus lowering her Box 1 W-2 income), it will appear she is earning less money than the male; the reverse can also happen. How reliable can that be as a measure of pay differentials? Another obvious flaw is in the hours to be reported. For nonexempt workers, it’s simple enough: You will report their actual hours worked, but that won’t include benefit hours like sick time and vacation, which will be included in the W-2 income you report. For exempt employees, the problem with data reliability gets worse. If you don’t keep records of their actual hours worked (who does?), you’ll have two options, and only two: 2,080 hours (i.e., 40 hours a week) for full-time employees or 1,040 hours (i.e., 20 hours a week) for part time. There’s no allowance for part-timers who may work more or less than 20 hours a week. Your choice by default will be 1,040 hours regardless of the schedule they work, which is bound to skew the analysis when you factor in their salaries, which necessarily are influenced by the schedules and the amount of time they work. Still worse, there will be no prorating for exempt employees who worked only part of the year. For example, you’ll report 2,080 hours for a full-time exempt employee you hired in December to go with one month or less of pay reported on his or her W-2. These and many other flaws in the report methodology call into serious question just how useful, if at all, the EEO-1 Component 2 reports will be in assessing and coming to any conclusions about how to address the pay gap. In the meantime, the question remains:

What Now?

The court’s ruling reinstating the pay data reporting requirement leaves employers to face a tedious process of compiling a literal mountain of data that will be needed to file their EEO-1 Component 2 reports in September. For some, perhaps many, the process will prove beyond their capabilities. Some surveys taken since the court ruling suggest that as many as 75 percent of all covered employers are skeptical of their ability to meet the September 30 deadline. Nevertheless, for those employers with the resources to do so, especially if they are federal contractors or subcontractors who face greater scrutiny, the wiser choice seems to be to begin preparations, if they are not already begun, to file the report by the September 30 deadline. That, of course, is easier said than done.

While more complications are sure to surface as employers work through the process of gathering the data necessary for compliance, one huge obstacle likely to be encountered from the start is how to pull together the different types of data from multiple systems and sources and marry it into a single report.  Your best starting point may be simply to identify the sources and systems where you store and maintain your EEO-1 Component 2 data: race/ethnicity and gender data, W-2 data, and hours worked.  Then you’ll have to develop a system for slotting your pay and hours data into the 10 EEO-1 job categories by race/ethnicity and gender, then divvy it up between the 12 pay bands, and, finally, aggregate the total pay and hours worked for all employees reported in each field on the report form. A daunting task, to be sure. 

The report reliability issues discussed above, coupled with the Trump administration’s desire to can the pay data reporting rule altogether, have led to some interesting speculation about what the EEOC might do once it receives the pay and hours data, and whether the reporting requirement will be extended. One hopeful theory making the rounds is that the commission will announce it’s satisfied with the data collected, but needs more time to study it and the report form further. Then it will shut down the portal, and that will be the end of the EE0-1 Component 2 report, at least in its current form. Those who find the task of compliance too daunting may take heart in such speculation and choose to wait and see whether the EEOC ultimately rescinds or shelves the rule, and risk noncompliance in the meantime. Since there is no fine or penalty for not filing an EEO-1 report, that may seem a good bet for some. That’s why we say the sky is not falling.