Final EEO-1 Summary Pay Data Rule

Overview.  As previously reported, the Equal Employment Opportunity Commission (EEOC) announced its highly anticipated final requirements for revision of the EEO-1 reflecting the collection of pay data. The new pay data reporting obligation will commence on March 31, 2018.   Highlights of the final rule are set forth below. 

Details. 

Below is a comparison of the current EEO-1 and how it will change beginning with reporting year 2017:

Current EEO-1 Report.  Currently, employers with 100 or more employees submit the EEO-1 annually to report the number of persons employed in a payroll period selected by the employer within the calendar quarter ending September 30. Employee counts are summarized within ten job categories (e.g., executive, professionals, technicians, etc.) and by race, ethnicity, and gender. The 2016 EEO-1 report was due September 30, 2016, and was unaffected by the changes announced.

EEO-1 Report Changes for 2017. Under the final rule, the same employers will continue to submit the EEO-1 report annually to report the number of full-time and part-time employees employed in a payroll period selected by the employer, but beginning with the 2017 reporting year, employers will select a payroll period within the last calendar quarter of the reporting year (October, November, or December). For employees in the selected pay period, employers will now need to report not only their ethnicity/race and gender by job category, but also their annual employee earnings (from IRS Form W-2, Box 1) and hours worked for the full calendar year.

Pay Bands.  Each employee will be classified into one of 12 “pay bands” within each job category. Employee counts will then be summarized by the 12 pay bands within the ten job categories and by race, ethnicity, and gender. A separate “Section D Hours Worked Report” details the aggregate annual hours worked for each pay band/job category/race/ethnicity and gender category.

Hours Worked. The EEOC has adopted Fair Labor Standards Act (FLSA) definitions of hours worked, which generally includes “all time an employee must be on duty or on the employer's premises or at any other prescribed place of work, from the beginning of the first principal activity of the workday to the end of the last principal activity of the workday.”  Basically, hours worked includes only hours actually worked, and not all hours paid, which can include Paid Time Off. For FLSA-exempt employees, employers may report 40 hours per week for full-time employees, and 20 hours per week for part-time employees, multiplied by the number of weeks employed that year. Alternatively, employers may track and report actual hours worked by exempt employees.

Note: According to the EEOC, employers should treat hours worked in pay periods that span calendar years as follows: “If wages are actually paid in the next calendar year for work done in the last days of the past calendar year, these hours are counted in the next year, because that is when the pay is reported on the Form W-2.”

Best Practices. In order to collect the additional data required for the updated EEO-1 report, it may be necessary to coordinate between Human Resources and Payroll functions. The EEO-1 report has often been administered by Human Resources within large employer organizations.  With  the addition of annual W-2 earnings and hours worked, it will be necessary to include data from payroll as well as timekeeping and other systems in order to prepare the report.

While the EEOC hopes that the earnings and hours worked data will help address gender pay gaps, as well as pay disparities by race and ethnicity, the new EEO-1 many not accurately identify gender and race-based pay disparities because, among other things, the report does not reflect legitimate differentiating factors such as: years of experience, education, and tenure with an organization.  For this reason, many employers may wish to simultaneously conduct their own pay equity analyses by taking into consideration these other relevant factors when pay disparities appear.  Before undertaking any such self-audit, employers should consider doing so with the assistance of legal counsel.

Call to Action.  Beginning January 1, 2017, employers will need to accurate track all hours worked by their employees to ensure they are capturing the hours accurately for the new EEO-1.