Happy Friday.  Big data has entered into the employment context.  The EEOC is proposing changing the EEO-1 report to require employers to report about an employee’s earnings based on their race, gender and ethnicity.  Here are five things employers should know about the EEOC’s proposal:

1.      Proposal to add wage data about employees to EEO-1 reporting.

Currently, employers must collect EEO-1 data from any pay period occurring in the months of July through September of the current survey year. The EEO-1 must be filed by September 30th of the same year.  The EEOC also proposes that beginning in 2017, all employers will be required to submit the proposed EEO-1 report electronically.  The sample form can be found here.

The EEOC’s proposal would require employers to report the number of employees by their sex, race and ethnicity according to the employee’s W-2 income.  The proposal would require this information to be reported for certain wage bands.  The EEOC wants this data in order to “compute within-job-category variation, across-job-category variation, and overall variation, which would support the EEOC’s ability to discern potential discrimination while preserving confidentiality” (more about the EEOC’s claim about confidentiality below).

The EEOC believes that the W-2 income reporting is the most accurate and easiest data for employers to use in preparing the report:

W-2 gross income includes wages, salaries, fees, commissions, tips, taxable fringe benefits, and elective deferrals. Amounts withheld for taxes, including but not limited to income tax, Social Security, and Medicare taxes, are considered “received” and are included as gross income of the given year they are withheld.  The W-2 encompasses all earned income, including supplemental pay components such as overtime pay, shift differentials, and nonproduction bonuses (e.g., year-end bonuses, hiring and referral bonuses, and profit-sharing cash bonuses).  Nonproduction bonuses account for over 11 percent of cash compensation for management, business, and financial operations occupations, while shift differentials are a significant component of compensation for healthcare workers.

2.      Total hours worked must be reported

Employers will also have to report the total number of hours worked by the employees included in each EEO-1 pay band cell.  The EEOC states that this “data will allow analysis of pay differences while considering aggregate variations in hours. The total hours worked also will permit an analysis that accounts for periods when the employees were not employed, thus reflecting part-time work.”  The EEOC is not sure about how to have employers report hours worked for exempt/salary employees, and is seeking comments from employers about this issue.

3.      EEOC proposes to use software to determine “statistics of interest”

According to the EEOC:

The EEOC and OFCCP plan to develop a software tool that will allow their investigators to conduct an initial analysis by looking at W-2 pay distribution within a single firm or establishment, and by comparing the firm’s or establishment’s data to aggregate industry or metropolitan-area data.  This application would highlight statistics of interest.

This raises the question though about how the software will exactly make the determination what constitutes “statistics of interest?”  It obviously does not take into account the wide range of factors that determine an employee’s rate of pay: experience, education, seniority with the company, management skill, etc….  There may be additional factors that skew the statistics as well, such as geographic and local issues about the workforce.  I’m afraid that this type of statistical calculation can place employers in the situation that they will be presumed guilty if the EEOC’s software flags a concern based on the EEO-1 report, and then the employer will have the burden to justify its pay scale.

4.      Confidentiality issues

The EEOC attempts to belie any confidentiality concerns in its proposal, but many issues are unaddressed.  Some of the confidentiality issues that need to be addressed:

  1. Employees’ privacy rights are a concern.  The employees’ information about race, gender and income is shared with yet another governmental agency.  In addition, the EEOC is also in charge with enforcing discrimination based on religion.  The proposal does not seek information about the employee’s religion as this time, but will the EEOC seek this information in the future to assist in religious discrimination cases?  Towards this end, will the EEOC also ask the owner or president of the organization to disclose their religion in order to determine if she discriminates against other religions in the hiring or promotion process?
  2. Competitor’s access to wage information.  Is it possible for the data collected on the report to be released by a Freedom of Information Act request to be used by competing firms?  Could the information be used in setting salaries and wages to in hopes to poach employees?
  3. Attorneys may be able to subpoena these filings in current lawsuits for free discovery.  In addition, could attorneys seek the information from the EEOC to conduct their own analysis regarding pay distribution in order to find cases?

5.      Employers may comment about the proposal

Want to share your comments about the proposed regulation with the EEOC?  The EEOC established a relatively easy way to post a comment on its website here.  I actually have to hand it to the EEOC in making the comment process very easy.  Comments are due by April 1, 2016.