Pay equity issues took center stage when the Lilly Ledbetter Act was signed into law by President Obama in 2009, the first such federal legislation to be enacted in an effort to close the wage gap between genders. This statute ushered in a new era for pay equity, and the effects continue to ripple throughout the country with no signs of slowing down.
That Act overturned a U.S. Supreme Court decision that had denied recovery to a woman named Lilly Ledbetter, who was allegedly paid less than similarly situated males. The federal law established that the statute of limitations for this kind of violation begins anew for each paycheck issued. But the signing of this statute was just the beginning. This article will summarize the five major developments that have evolved in the last several years and that will continue to impact employers: early efforts at pay equity enforcement; a revised and beefed-up EEO-1 Report; state efforts at addressing pay equity; pay transparency; and a new “Triple Threat” for employers.
1. The Early Efforts at Pay Equity Enforcement
The year after the Lilly Ledbetter Act was signed, the president created the National Equal Pay Enforcement Task Force that included Patricia Shiu, the recently-appointed Director of the U.S. Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP), the agency that enforces affirmative action compliance for federal contractors and subcontractors. And in 2013, OFCCP issued Directive 307, vowing to increase its pursuit of compensation disparities using any and all means possible and rooting out compensation disparities of any size and type. This Directive rescinded the agency’s prior triggers and thresholds upon which federal contractors had relied for guidance about the viability of their compensation programs.
But these weren’t the biggest bombshells when it comes to federal efforts to address pay equity issues. That honor would go to the revised EEO-1 Report, officially unveiled in 2016, requiring a mountain of new data to be reported to the government by 2018, but covering 2017 compensation models. In other words, as of January 1, 2017, employers will find that their pay structures will be under the federal microscope like never before.
2. Meet the New EEO-1 Report
OFCCP initially proposed regulations to resurrect its prior Equal Pay Report (the former “EO Report”) that would have required federal contractors to provide detailed compensation reports on an annual basis. When OFCCP had a similar requirement years before, its own statistical reports had called the validity of the data into question—noting that the data identified both false positives and false negatives, instead of providing accurate predictions of compensation disparities. Consequently, after receiving many negative comments to the proposed regulations, OFCCP dropped the Equal Pay Report regulatory route and turned the project over to the Equal Employment Opportunity Commission (EEOC).
The EEOC decided to modify the EEO-1 Report to collect pay data with the goal of identifying employers with potential compensation issues and creating industry benchmarks. Thus, the revised EEO-1 Report was born, which will soon impact all employers—federal contractor and non-federal contractor alike—if they have 100 or more employees and are subject to Title VII of the Civil Rights Act of 1964.
The EEO-1 Report itself isn’t a new concept. Employers have been providing workforce demographic data to the EEOC and the OFCCP since the 1970’s. All employers with 100 or more employees, and all federal contractors with 50 or more employees and a government contract of $50,000 or more, file an annual EEO-1 Report that provides demographic race/ethnicity and gender data about the company’s workforce by job category.
But here’s what will be new for many employers. While the EEOC annually collects information about the number of employees by job category and by sex, race, and ethnicity, employers with 100 or more employees will now be required to provide summary pay data and hours worked by their employees in 2017. Federal contractors with 50-99 employees will continue to submit the EEO-1 Report without pay data or hours worked information. Rather than the former September 30 deadline for the EEO-1 Report, employers must file the 2017 data by March 31, 2018 to allow them to collect the data through December 31, 2017.
This change means that employers must report significant information about their pay practices to the EEOC and OFCCP, which, in turn, will use the information to identify disparities and areas of potential pay discrimination to determine where they will take enforcement action. While March 2018 may not seem to be a pressing deadline, it is important to realize that this EEO-1 Report will capture compensation data for 2017, meaning that employers’ current pay practices will be under scrutiny in the not-too-distant future.
The EEOC collects workforce data from all employers with 100 or more employees through an annual EEO-1 Report. The report, in its current form, collects data about gender, race, and ethnicity of employees by 10 different job groupings.
The new EEO-1 Report expands the reporting requirements significantly to obtain information on pay practices, for employers with 100 or more employees. In addition to reporting the number of employees by gender, race, and ethnicity in 10 job groupings, those employers are now also required to provide employee compensation information and the number of hours worked by employees across 12 pay bands pre-selected by the EEOC.
The data collected through the EEO-1 Report encompasses more than 63 million workers nationwide and is shared with other federal agencies, such as the U.S. Department of Labor (DOL) and the OFCCP, so that these agencies can enforce federal laws. The EEOC also publishes the aggregated data to the public, and it has promised to publish reports including the aggregated pay data and hours worked so that companies may see how they compare with other, similar organizations. OFCCP has said that it will consider data from the EEO-1 Report as a factor in selecting contractors for audits.
On January 29, 2016, the Obama Administration first proposed executive action through the EEOC to require certain businesses to provide detailed information about their pay practices. Employers would be required to identify salary information for their employees, broken down by gender and by race. Many observers identified serious flaws in the EEOC’s proposed rule to implement the executive order, highlighting the undue burden on employers and questioning the utility of the data collection.
On April 1, 2016, Fisher Phillips submitted comments to the EEOC regarding the proposed regulations. The firm recognized that the goal of eradicating and better identifying discriminatory pay practices was a worthy endeavor. However, the comments stated that the firm was concerned that the proposed regulations, as initially written, would not accomplish anything noteworthy.
Subsequently, the EEOC issued a revised version of its proposed pay data collection rules in an effort to “think about how we minimize the burden on employers.” However, the revised rule only made two substantive changes to the original rule: it clarified that employers should use Box 1 on the employee’s W-2 form as a measure of reportable compensation, and it pushed back the deadline for the EEO-1 Report to March 31, 2018. These changes did little to alleviate the burden on employers.
On September 29, 2016, the EEOC announced that it had finalized its proposed changes to the EEO-1 reporting form. The new EEO-1 Report is significantly more complex; whereas the old EEO-1 Report had 121 data points, the new report consists of 3,360 data points. As noted above, the most significant change to the EEO-1 Report is that it will now collect summary pay data and aggregate hours worked data.
Employers must now report the total number of employees (both full-time and part-time) in each of 12 pay bands for each EEO-1 job category. The total number of employees is further broken down by gender (male or female) and across seven race and ethnicity categories (Hispanic or Latino, White, Black or African American, Native Hawaiian or Pacific Islander, Asian, Native American or Alaska native, or two or more races).
The ten EEO-1 job categories remain unchanged: (1.1) Executive/Senior Level Officials and Managers; (1.2) First/Mid-Level Officials and Managers; (2) Professionals; (3) Technicians; (4) Sales Workers; (5) Administrative Support Workers; (6) Craft Workers; (7) Operatives; (8) Laborers and Helpers; and (9) Service Workers.
In order to identify the pay band, employers must use the pay reported for income tax purposes in Box 1 of the W-2 form. The twelve pay bands are:
The EEO-1 Report also collects hours worked data so that part-time and partial year employment is factored into the analysis. The data is derived from the number of hours worked that are recorded as a requirement of the Fair Labor Standards Act (FLSA). However, for employees exempt under the FLSA, employers have the option to either report 20 hours per week for part-time and 40 hours per week for full-time employees, or report the actual number of hours worked by the employee.
The data reported is based on a “workforce snapshot” period of any pay period between October 1, 2017 and December 31, 2017. Employers have the discretion to select any pay period during the three-month snapshot window to establish the population for the EEO-1 Report. The data collected will be based on the December 31 end of the 2017 reporting period. The filing deadline will be March 31 of each year going forward.
The EEOC’s goal in gathering this additional data is to identify businesses that may have pay gaps, and then target those employers who appear to be discriminating because of gender—and possibly race or ethnicity—through enforcement actions. The EEOC plans to publish reports using aggregated data and to train its investigators to use its Analytic Software Tool to identify potential indicators of discrimination warranting additional investigation.
Thus, an employer’s best course of action is to begin reviewing pay practices, identifying and addressing any areas of pay disparity now, before the data must be reported to the EEOC. The company should conduct a gender-specific internal audit, and possibly a race and ethnicity audit, to gain an understanding of its pay practices and have the opportunity to correct pay disparities before the formal reporting period.
The employer should also review compensation policies to ensure that a gender bias does not persist. Additionally, the company should review and revise job descriptions to determine under which of the ten EEO-1 job categories each position should be reported. The company should consider conducting the audit and reviewing it with an attorney’s assistance to ensure that the project work is protected by attorney-client privilege.
Employers should also keep in mind that completing the new EEO-1 Report will be a costly and time-consuming endeavor. It may require updates to internal data collection systems so that the technology systems are able to gather and manipulate the pay data in the ways required by the new EEO-1 Report. Additionally, there is a cost associated with rectifying any identified unlawful pay disparity, as another employee’s pay cannot be reduced to ensure pay equity.
3. The States Get In on the Pay Equity Trend
Another developing trend has seen the individual states take up the issue of pay equity when it comes to their own laws, creating a patchwork of varying obligations across the country. Not surprisingly, California has been in the forefront of states that have recently issued pay equity laws. In fact, in late 2016, California expanded its gender equity requirements to include race and ethnicity, similar to the EEO-1 Report outlook.
New York also recently passed employee-friendly laws requiring gender equity, and the Governor of Massachusetts signed a new gender pay equity law in August 2016. The Massachusetts law, effective in 2018, includes a safe harbor provision for employers that conduct self-audits and take steps to correct any identified disparities. Massachusetts employers may not ask an applicant about his or her salary history—an effort to ensure employers are not basing compensation on what the person had previously been earning, rather than what the job is “worth.”
Maryland has a law in place similar to the New York law, and Oregon has proposed a law following the California and Massachusetts models (which is moving through the legislature as of January 2017). No doubt we will continue to see an increase in individual states developing their own pay equity laws. In addition to the states with “new” or “improved” pay equity laws, many states have older laws that have recently received increased attention and been used with renewed enthusiasm.
4. How Does OFCCP View Pay Transparency?
Pay transparency requirements are very much alive and well. OFCCP’s pay transparency rule requires contractors to notify their employees and applicants that they will not be disciplined for discussing their pay, yet another outgrowth from the Lilly Ledbetter legacy. The Pay Transparency Policy should be posted wherever employee and applicant notices are posted, including electronically. This contractor pay transparency requirement has been mirrored in several of the state pay equity laws.
In addition, the pay transparency notice component of the Fair Pay and Safe Workplaces Act was not included in the recent injunction of two of the three sections of the Act and it is still in place. The Fair Pay’s notice requires the contractor to notify its exempt and independent contractors of their status and to provide wage statements. (The remaining Fair Pay and Safe Workplaces Act regulations, including the so-called “blacklisting” rules, were blocked by a federal court just before they were scheduled to become effective. As a result, federal contractors who met those high thresholds currently do not need to worry about making mandatory disclosures of violations or about whether their arbitration agreements can include sexual harassment and similar tort claims.)
5. Beware the “Triple Threat”
Finally, employers need to worry about the sinister-sounding “Triple Threat,” which sounds more like a weapon used by a comic book villain that an increasingly common legal tactic. More employees and former employees are filing lawsuits under the Equal Pay Act, which uses the same two-step conditional certification process seen in FLSA cases. Conditional certification is easily granted and hard to fight, resulting in the recent swarm of FLSA wage and hour collective action cases. Plaintiffs’ attorneys who have honed their skills with FLSA collective actions over the last decade are now starting to realize that the same principles apply to pay equity claims. Thus, pay equity poses a triple threat: EEO-1 reporting requirements; new and revised state pay equity laws; and increased class-like federal litigation.
Conclusion: What Can We Expect in the Trump Administration?
Looking forward to the future of pay equity, President Trump has made it clear that he is a businessman who understands the needs of the business community and who will support business in America. At the same time, he has made some campaign statements supporting pay equity that may be difficult for him to discount during at least the early years of his administration. Globally, pay equity and pay transparency have become the norm for many of the European countries where employers are preparing to publicize their pay analyses under government regulations.
Although we may see some modifications to the federal EEO-1 pay data reporting requirements, until the EEOC has a different party balance, it is unlikely that the EEO-1 requirements will change dramatically. While the status of the EEO-1 pay data reporting may be somewhat uncertain, employee-friendly states may push through additional state pay equity legislation to address this issue. No doubt that pay equity is a hot-button topic, and it is here to stay.