If everything goes as planned by the Equal Employment Opportunity Commission (EEOC), by next year employers will not be required to file the long, complicated EEO-1, Component 2 form. EEOC tried to withdraw the Component 2 form for 2019, but a federal judge forced it to require its submission by employers.
The agency said it’s not seeking to implement the form next year because the cost estimate the Obama-era commission relied on in 2016 when it sought approval for collecting the data significantly understated the actual cost of compliance for employers.
The commission recently announced that it is not seeking approval from the Office of Management and Budget (OMB) to collect detailed employee compensation data in 2020. Such procedural approval is required from OMB, which is the White House administrative agency charged with reviewing rules developed by federal agencies under law.
EEOC said that for calendar years 2019, 2020 and 2021, it will seek approval from OMB to collect only the workforce demographic information it has been collecting from employers since 1966, what is currently known as Component 1 of the expanded EEO-1 form.
Employers are still required to submit their EEO-1, Component 2 compensation data by Sept. 30 for years 2017 and 2018. This applies to all U.S. employers with 100 or more employees, and federal contractors and subcontractors who employ 50 or more workers. This extensive data gathering proposed by the EEOC was approved by the OMB in 2016, the last year of the Obama Administration.
In 2017, after President Trump took office, OMB withdrew its permission for the commission to collect the Component 2 information. A legal challenge brought against this action resulted in a federal district court judge ordering the EEOC to reinstate the EEO-1, Component 2 requirement earlier this year. The judge later approved the Sept. 30. 2019 deadline, which was proposed by the commission to the court. The judge’s decision ordering collection of the Component 2 data is currently under appeal by the Trump Department of Justice, which did not seek to have it stayed while the suit is argued before an appeals court.
What makes Component 2 especially complicated for employers is that it requires them to collect detailed employment data organized by 12 pay bands that range in salary from about $19,000 to more than $208,000 a year, divided across 10 job categories, each one separated out by race, gender and ethnic minority status. The cost burden for employers is magnified by the number of data fields required in a single Component 2 report (3,360 fields) versus a single Component 1 report (140 data fields).
Underestimating the Costs
Employer groups claimed the Obama-era EEOC had grossly underestimated the costs of complying with Component 2. Using newer methodology, the current commission now estimates the burden associated with submitting Component 1 and 2 data is $614 million for 2017 and $622 million for 2018—which represents a marked increase from the Obama EEOC’s 2016 estimate of $53.5 million for both 2017 and 2018.
In seeking to justify the collection of the Component 1 data, the commission argued that, “the proven utility of Component 1 to EEOC’s mission justifies its continued collection despite the increased burden.” It asserted that the Component 1 data serves as a valuable resource for EEOC’s analysis of industries and regions as well as for investigators in assessing allegations of discrimination.
EEOC chairman Janet Dhillon published a nine-page report in the Sept. 12 Federal Register supporting the reestablishment of the agency’s authority over collecting pay data. In the process, the commission also took a shot at advocates of the Component 2 approach by challenging their belief that the pay data collection is necessary to address and close the gender pay gap.
“The unproven utility to its enforcement program of the pay data is far outweighed by the burden imposed on employers that must comply with the reporting obligation,” the commission declared.
Even if the EEOC’s decision to drop the Component 2 form does not face a fresh legal challenge the same way its 2017 data collection policy did, employers should continue to make it a priority to review current pay systems and identify and address any areas of pay disparity, recommends attorney Cheryl L. Behymer of the law firm of Fisher Phillips.
“It is critical to take steps now to minimize increased scrutiny that may soon come your way. Ideally, you would work with counsel to conduct this initial review under the protection of the attorney-client privilege while you are assessing your workforce and the proper groupings for your employee population,” she says.
“By conducting your own audit of pay practices, you will be able to determine whether any pay gaps exist that might catch the eye of the federal government if or when you are forced to turn over this information,” Behymer adds. “You may have time to determine whether any disparities that may exist can be justified by legitimate and non-discriminatory explanations, or whether you will need to take corrective action to address troublesome pay gaps.”
The EEOC data collection efforts in the area is not the only enforcement policy employers need to be wary of, she stresses. In recent years a number of states and metropolitan areas began launching similar pay equity initiatives, which continue to proliferate. Because of this, she also strongly encourages employers to get their attorneys involved in this analysis as early in the process and as quickly as they can.