EEO-1 Component 2 Filing and Pay Equity
The Equal Employment Opportunity Commission (EEOC) recently announced updates to the annual EEO-1 reporting by introducing Component 2 data requirements for 2019, which includes data related to pay and hours worked by gender and race/ethnicity. Although the EEOC announced its appeal to the additional data requirement, employers are still obligated to report Component 2 data by the September 30, 2019 deadline.
Employers that must report Component 2 data differ slightly from the requirements for Component 1 reporting. Organizations with 100 or more employees, and federal contractors with at least 50 employees and a contract with the federal government of at least $50,000 or more, must file Component 1 data. However, only employers with at least 100 employees, including federal contractors, must file the Component 2 data.
In prior years, employers just had to submit Component 1 data reporting on gender, race/ethnicity, and job category. The data about the number of women and minority companies employ is used to gauge compliance practices in accordance to Equal Employment Opportunity laws. Under the Obama administration, Component 2 was added to help the EEOC and the Office of Federal Contract Compliance Programs (OFCCP) identify pay disparities across industries and job categories. However, prior to Component 2 going into effect, the Trump administration issued a stay stating the new requirements were too burdensome for employers. Later in March 2019 during a hearing for a lawsuit filed by the National Women’s Law Center, a federal district judge ordered the stay lifted and ordered Component 2 data due by September 30, 2019.
How to file
The EEOC contracted with the National Opinion Research Center (NORC) at the University of Chicago to collect the summary pay information (Component 2 data) for 2017 and 2018. Employers that have registered and filed Component 1 data were sent via email and USPS mail information regarding their login details. If you have not received this and you believe you should have, contact EEOCcompdata@norc.org or call 877-324-6214.
To submit the data, employers must navigate to https://eeoccomp2.norc.org and then select “Login to File.” Employers will need to identify and select one pay period (known as the “snapshot period”) between October 1 and December 31 for both 2017 and 2018. This pay period determines the employee population for which you will be submitting data. Employers do not need to use the same pay period that was selected for Component 1 data.
The first matrix will require employers to enter employee’s gender and race/ethnicity data by job categories (the same 10 categories from Component 1 data) and 12 pay bands, known as “Salary Compensation Bands” reported from Box 1 of the employees’ W2s.
The second matrix will report hours worked for all employees in the snapshot period by their job category and pay band. For non-exempt employees, the EEOC has defaulted to count “hours worked” as recoded for FLSA purposes. For example, paid time off or sick leave would not be included. For exempt employees, employers have the option to either report a proxy of 40 hours per week for full-time employees and 20 hours per week for part-time exempt employees or provide actual hours worked if the hours are maintained and tracked.
Next Steps for Employers
With the implementation of Component 2 data reporting coupled with an increase in states and cities adopting regulations to address the various pay gaps, employers are encouraged to ramp up on efforts regarding pay equity within their organization. Many discussions regarding pay refer to “equal pay for equal work.” This aligns with federal law standards and requires that employees that perform the same work should be given equal pay. In addition to federal law, many states have introduced laws that go beyond the Equal Pay Act and employers must also pay attention to those laws as well.
Proactive Pay Audits
One best practice is to proactively conduct pay audits to try to identify and remedy any pay disparities. Pay disparities can be permissible under Federal law for employees with similar work as long they are based on factors other than genders, such as seniority, education, credentials or certifications, past employment experience, and performance ratings.
If your organization has regular pay-cycle increases, an internal pay audit should be conducted in the quarter prior to the increases to allow an opportunity to take steps to adjust or correct disparities as appropriate. Examples would be to award bonuses or salary increases to disadvantaged employees to remedy the pay gaps.
Some states have implemented laws that make this proactive pay analysis approach serve as a safe harbor from legal action if progress is made to eliminate pay disparities. Likewise, if an audit is done and pay disparities are found and nothing is done, that can create a bigger liability. The critical component is to address compensation issues as they become apparent.
Examine Compensation Policies and Practices
Another factor that should be looked at is fully examining current compensation policies and practices. Areas to look for include ensuring decisions are based on objective criteria rather than subjective criteria, having supporting documentation for pay decisions, ensuring performance appraisals and documentation supports pay differentials when it’s performance-based, and identifying legitimate factors other than gender and other protected characteristics that justify a pay disparity. Another element regarding compensation policies is to implement standard pay ranges for each position or job classification. In doing so, employers should also examine market data to align wages with similar positions in the marketplace. This will not only assist with pay equity but also help with controlling expenses and not paying too much or too little for a position.
Once compensation policies are assessed and implemented, it is imperative to train managers on what factors should be considered when finalizing pay decisions and making decisions that are based on applicable laws and the organization’s established compensation practices.
By addressing pay equity issues proactively, employers not only limit liability and potential claims but also remain competitive and fair in their pay practices. This can allow employers to attract highly skilled workers and keep them motivated to stay.
By Kim Matus, Human Resource Business Partner, HR Service, Inc.