In the second half of 2016, as presidential historians get busy predicting what President Barack Obama’s legacy will be, affordable healthcare legislation and multifarious efforts to revive the economy after a devastating recession will likely top their lists. Before that happens, however, the Lilly Ledbetter Fair Pay Act of 2009—the first piece of legislation Obama signed into law—and its after-effects will probably stir further debate within the business community about his presidency.
The 2009 law updates the Civil Right Act of 1964 by effectively eliminating the prior statute of limitations that claimants had for filing an equal pay lawsuit for discrimination, saying the 180-day statute of limitations resets with each new paycheck that reflects the discriminatory action. The original interpretation gave claimants 180 days from the employer’s initial wage discrimination decision to file a lawsuit. Recognizing the persistence of discriminatory pay practices, in 2014 Obama issued Executive Order 13665, which promotes pay transparency and openness, permitting workers and job applicants to share information about their pay and compensation without fear of discrimination. The Department of Labor issued a final rule implementing that order on Sept. 11, 2015, and the order took effect in January 2016.
This past January is also when the U.S. Equal Employment Opportunity Commission proposed changes to the Employer Information Report (EEO-1), which it has been collecting jointly with the Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) for more than 50 years. All employers with 100 or more workers are required to file a report annually showing a detailed breakdown of their workforce by gender, ethnicity, and age across 10 job classifications. If the EEOC has its way, starting next year employers will also have to provide W-2 wage and hours-worked data for each of the job categories by gender, race, and ethnic group.
The proposed changes to the EEO-1 form are seen as a similar effort to enhance transparency around workplace pay practices initiated by the Lilly Ledbetter Act, which make it easier for workers to more effectively challenge unequal pay by overturning rules that prohibited workers from discussing their pay with colleagues.
“Saying employers will have to go back to the drawing board and change the way they draft and submit reports to the government every year, which includes pay data, [is] a dramatic issue and certainly one that has raised enormous concerns in the employer community.”
Barry Hartstein, Co-Chair, Equal Employment Opportunity and Diversity Practice, Littler Mendelson
“Saying employers will have to go back to the drawing board and change the way they draft and submit reports to the government every year, which includes pay data, [is] a dramatic issue and certainly one that has raised enormous concerns in the employer community because of the [extra] paperwork” and expense it’s likely to entail, says Barry Hartstein, co-chair of Littler Mendelson’s equal employment opportunity and diversity practice. Employers are also worried the additional data they will have to provide in the EEO-1 reports will be used by the EEOC and the Department of Labor’s OFCCP to target federal contractors for possible equal pay violations, he adds.
This anticipated risk is reflected in Littler Mendelson’s 2016 Executive Employment Survey Report, which shows a 79.4 percent jump in the portion of respondents who say they expect more claims related to equal pay discrimination over the next year to 61 percent from 34 percent in last year’s survey. Making the stakes even higher is the fact that because Title VII of the Civil Rights Act makes it illegal to discriminate based on sex in pay and benefits, workers with Equal Pay Act claims may also have claims under Title VII.
The EEOC and EFCCP are signaling their intention to use the revised EEO-1 report to more closely scrutinize employer operations and perhaps initiate directed investigations to confirm whether or not employers are compliant with the law, says Hartstein.
Critics cite the proposed revisions’ failure to meet three requirements of the Paperwork Reduction Act (PRA), whose recordkeeping provisions the EEOC relies on to require employers to submit the EEO-1 form. The U.S. Chamber of Commerce and other critics say the revisions won’t minimize the burden on responders to reply, won’t result in data that is meaningful to the government for policy and enforcement purposes and won’t ensure that the data is securely obtained and retained.
An April 1 letter sent by the U.S. Chamber of Commerce to the EEOC includes a lengthy discussion of what it calls the EEOC’s conflicting and unrealistic estimates of the cost burden on private employers to collect EEO-1 data. Based on the 307,103 total reports the EEOC says were filed in the most recent year, an economist at the Chamber of Commerce puts the actual national annual cost burden of the EEO-1’s current format at $427.3 million, roughly 21 times larger than the $19.8 million annual total that the EEOC estimated last year, and $421.8 million more than its current calculation of $5.5 million. ?
WHAT PAY DATA WILL BE COLLECTED
Below, the EEOC describes what amendments to EEO-1 hope to accomplish.
Measure: Total W-2 Earnings
In selecting total W-2 earnings as the measure of pay, the focus was on maximizing utility of the EEO-1 pay data while minimizing the burden on employers to collect and report it. With respect to maximizing utility, the goal was to identify a measure of compensation that encompasses as much employer-paid income earned by individuals as possible. With respect to minimizing burden, the focus was on finding a measure that is well-defined and compatible with the data elements in employers’ existing human resources and pay systems. Consideration also was given to the sample Equal Pay Report proposed in OFCCP’s 2014 Notice of Proposed Rulemaking, which used W-2 earnings.
Five different measures of earnings now used by federal data collection systems were considered. The first three were from the U.S. Bureau of Labor Statistics (BLS): The Occupation Employment Statistics (OES); the National Compensation Survey (NCS);? and the Current Employment Statistics (CES) survey program. The remaining options were from the Social Security Administration (SSA)? and the Internal Revenue Service (IRS).
Source: Equal Employment Opportunity Commission
Given that the revised form would require 3,360 data points for each work location employers submit reports for, compared with just 140 data points required in the current format, Camille Olson, a partner at Seyfarth Shaw is incredulous that the new format will save employers time and expense. Olson testified on behalf of the Chamber of Commerce at the March 16 hearing that the EEOC held to get feedback about the proposed revisions.
Olson and Hartstein question the utility of the new format, raising concerns that new wage and hours data being requested would have to be aggregated in broad-based job categories rather than being specified within individual job titles. There are 10 EEO-1 categories that denote titles such as executives, professionals, technicians, sales workers, and so forth. Each of these titles group a wide variety of actual job titles together. In a hospital setting, for example, the professional category would lump together doctors, nurses, and even lawyers on staff.
“If you’re not separating for the fact that they’re doing different jobs and had different prerequisites to get those jobs … there would be little to no utility of the collected data and it would lead to false positives and false negatives and isn’t really going to provide the EEOC with any data that’s going to further its investigation of wage, sex, or age discrimination,” Olson says.
As for the PRA’s third requirement, Olson says, “any proposed revision to document collection has to propose a mechanism that will adequately protect the confidentiality of sensitive employee compensation information, and the EEOC didn’t do that.”
Many large companies have been using sophisticated regression modeling analysis to spot red flags suggesting that a particular employee demographic, such as Hispanic females, may be earning less than their counterparts in other demographics, says Steve Bucherati, Coca-Cola’s former global chief diversity officer who now heads his own consulting company, The Bucherati Group. “Regression analysis allowed us to compare every demographic group and subgroup to each other, and to compare every individual employee to every other similarly situated employee” at Coca-Cola, he says.
And this tool can also reveal other factors that explain wage disparities unrelated to gender and ethnicity. There may be a $20,000 gap between the salaries of two employers with the same job description because one was hired five years ago and has received exemplary performance reviews each year while the other was hired right out of college a year ago, for example. “There are valid, statistically defensible reasons why your base pay might be different. Sophisticated regression modeling takes that into account,” says Bucherati.
Coca-Cola hired an external organization to run the first regression modeling in 2001 at great expense, but then bought the software and began doing it internally in 2002. Coca-Cola also uses the tool to analyze proposed merit pay increases, proposed bonus awards, and proposed stock option grants before they’re announced to detect potential problems before it’s too late. “We set it up so all the recommendations came to us. We did triage by doing the analysis before recommendations and decisions were finalized.”
Companies focused on compliance have been watching what the EEOC has been doing around compensation, and most good ones have already been doing their own version of statistical regression modeling for several years, Bucherati says. “It’s the right way to run your business.”
Knowing they could be in the EEOC’s crosshairs for a directed investigation, employers should already be conducting more privileged audits to determine if there are any significant pay disparities based on job classifications and, if so, try to address the issues before the EEOC ever comes knocking, Hartstein advises. A privileged audit requires an employer to retain outside counsel, along with other experts, to help evaluate its operations in search of potentially unjust wage disparities.
Based on the minor changes they say the EEOC made to the proposed revisions from the first batch of public comments, both Hartstein and Olson say they have little hope that feedback from the second comment period ending Aug. 15 will be substantially incorporated into the final proposal that the EEOC will send to the Office of Management and Budget (OMB). If the OMB neither approves nor rejects the proposed revisions within 30 days, by default the new format will go into effect for one year.