The Office of Management and Budget Hits the Brakes on the Revised EEO-1

By Lynne Anne Anderson, Kate S. Gold and Philippe A. Lebel

Last year, the U.S. Equal Employment Opportunity Commission (EEOC) unveiled its proposed revisions to the Employer Information Report EEO-1 (EEO-1). Previously, the EEO-1 directed federal contractors and employers with 100 or more employees to report annually the number of individuals that they employ by job category, race, ethnicity and gender in 10 different job groupings. As part of the Obama administration’s enhanced focus on equal pay, the EEOC’s proposed EEO-1 revisions aimed to expand the information collected to include pay data and working hours to help the EEOC discover potential discrimination in employment and pay equity.

The EEOC finalized its new EEO-1 in September 2016, and the additional information was to be provided by employers by the next reporting deadline in March 2018. That was the plan until the Office of Management and Budget (OMB) stepped in.

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Get Ready to Comply: All Signs Point to Enforcement of the Enhanced EEO-1 Form and Reporting Obligations

By Alexa E. Miller and Lynne A. Anderson

For approximately fifty years, the Equal Employment Opportunity Commission (“EEOC”) has collected workforce data about race, gender, ethnicity and job category from all businesses with 100 or more employees, using the EEO-1 report.  In an effort to combat pay discrimination, last year the EEOC announced that it finalized regulations expanding the information collected in the annual EEO-1 report to include pay data.

The revised EEO-1 form requires employers to collect aggregate W-2 earnings and report the number of employees in each of the twelve pay bands (spanning from $19,239 and under to $208,000 and over) for the ten EEO-1 job categories (Executive/Senior Level Officials and Managers; First/Mid Level Officials and Managers; Professionals; Technicians; Sales Workers; Administrative Support Workers; Craft Workers; Operatives; Laborers and Helpers; Service Workers) and classified by race, sex and ethnicity.  The revised EEO-1 form has been largely criticized by employers claiming that the collection of W-2 earnings, without any context to explain legitimate non-discriminatory reasons for pay disparities (e.g., education, training, experience, tenure, merit, etc.) will unnecessarily open the door to increased scrutiny and investigations.  To make matters worse, the EEOC has not been very forthcoming about how the information would be analyzed and used, other than as a “screening tool” to identify pay discrimination.

With the post-election transfer of power completed, many practitioners were unsure whether the EEOC would move forward with collecting summary pay data under the new administration.  Indeed, one of President Trump’s first actions was to issue a government-wide regulatory freeze halting any new and pending regulations from taking effect.  Moreover, the newly appointed acting chair of the EEOC, Victoria Lipnic, confirmed that the revised EEO-1 forms are precisely the intended regulations targeted by Trump’s directive to halt and re-evaluate new and pending rules.  That stance coupled with the President’s executive order requiring that for every new federal regulation implemented, two must be rescinded, left many within the employment law community predicting that the new EEO-1 form would fall victim to the new administration’s chopping block.

However, with the passage of time, it appears that the revised EEO-1 form is likely here to stay.  Unlike some other agencies, the EEOC operates by majority vote.  Acting Chair Lipnic voted against the new pay data reporting requirements, but she was outnumbered 3 to 1.  Therefore, any changes to the new EEO-1 report would require a majority vote from the commission.  Trump will have an opportunity to nominate two more Republican commissioners later this year, which, if the nominees are confirmed by the Senate, could tip the balance in favor of rolling back the revised EEO-1 form.  However, that type of ideological shift among the EEOC commissioners would not occur until at least the Fall of 2017.  Although Lipnic indicated that the enhanced pay data collection requirements may be re-evaluated in the future, she has also stressed that equal pay remains a priority for the EEOC.  Given the timing of any new appointments and the upcoming filing deadline (March 31, 2018), it’s more likely that we will see a proposal to modify the revised EEO-1 form, rather than a complete repeal of the collection of pay data.

Thus, employers with more than 100 employees would be wise to gear up for compliance. The EEOC recently issued guidance to assist companies with the new reporting obligations by answering questions from the agency’s employer webinars about the revised EEO-1 report. The EEOC’s guidance instructs employers to reference an employee’s wages as reported in his or her W-2, Box 1 for the calendar year, which includes wages, tips and other compensation, to identify the correct pay band.  The EEOC clarified that employers cannot reference gross annual earnings instead of W-2, Box 1, earnings.  Employers should then count and report the total number of employees in each pay band for the job category on the new EEO-1 form.

The revised EEO-1 form also requires employers to report the total hours worked during the year, which will help explain partial year or part-time employment. The new EEO-1 form follows the Fair Labor Standards Act (FLSA) definition of hours worked.  Therefore, employers are not required to include paid leave, such as sick leave, vacation leave, or paid holidays as hours worked.  For non-exempt employees, employers should use the number of hours worked under the FLSA during the reporting year.  For exempt employees, employers can choose to either report the designated proxy hours of 40 per week for full-time employees or 20 hours per week for part-time employees multiplied by the number of weeks worked that year, or, alternatively, report actual hours worked, as defined by FLSA, if the employer already maintains such records.  Employers are not required to create or retain any new records of hours worked for exempt employees.

Other noteworthy changes in the new EEO-1 report include the new workforce snapshot period, which was previously a pay period in between July 1 and September 30, but is now a pay period between October 1 and December 31, and the new filing deadline every March 31, beginning March 31, 2018 and continuing thereafter. Employers are reminded to report pay and hours worked for the entire year for employees who are on the payroll during the workforce snapshot period.  The job categories and demographic data remain the same.

“Ensuring equal pay protections for all workers” remains a substantive priority for fiscal years 2017-2021, as set forth in the EEOC’s Strategic Enforcement Plan. Therefore, it is important that employers are fully ready to comply with the new reporting obligations.  Prior to compiling and reporting its 2017 EEO-1 data, we recommend that companies conduct an internal audit to identify any pay disparities and then consult with legal counsel to analyze the bona fide business reasons for any discrepancies.

Maryland’s Expanded Equal Pay Law Takes Effect October 1, 2016

By Alexa E. Miller, Kate S. Gold and Lynne A. Anderson

Maryland joins California, New York and Massachusetts by passing legislation aimed at combating wage disparity based on gender. (For a discussion on California, New York and Massachusetts’s Equal Pay Laws, click on our previous posts.)

Expanding Equal Pay for Equal Work

The new law, which goes into effect October 1, 2016, amends Maryland’s existing Equal Pay for Equal Work Act by expanding the prohibition on wage discrimination based on “sex” to also include “gender identity.” The protection against pay discrimination for work performed in the same establishment and of comparable character or on the same operation encompasses more than just unequal payment of wages.  The new law also bars discrimination for “providing less favorable employment opportunities,” which includes: (1) assigning or directing an employee into a less favorable career track or position; (2) failing to provide information about promotions or advancement opportunities in the full range of career tracks offered by the employer; or (3) limiting or depriving an employee of employment opportunities that would otherwise be available but for the employee’s sex or gender identity.

New Defenses to Wage Differentials

The new law expands the permissible factors that employers can legitimately use to explain variations in wages to employees of one sex or gender identity. The law, as previously enacted, provided exceptions based on: (1) a non-discriminatory seniority system; (2) a non-discriminatory merit increase system; (3) jobs that require different abilities or skills; (4) jobs that require regular performance of different duties or services; and (5) work performed on different shifts or at different times of day. The new law adds defenses for (6) a system that measures performance based on a quality or quantity of production; or (7) a bona fide factor other than sex or gender identity, including education, training, or experience, provided that the factor is not based on or derived from a gender-based differential in compensation, is job-related and consistent with a business necessity, and accounts for the entire differential.

Increased Wage Transparency

Additionally, the new law includes provisions to promote pay transparency in the workplace. Specifically, employers may not prohibit an employee from inquiring about, discussing or disclosing their own wages or the wages of a co-worker, or from requesting that the employer provide a reason for why the employee’s wages are a condition of employment. Likewise, employers are prohibited from taking an adverse employment action against employees who inquire about, discuss, or disclose their own wages or the wages of other employees (if those wages have been voluntarily disclosed), ask employers to provide a reason for the employee’s wages, or aid/encourage other employees in exercising their rights under the law. Significantly, the law allows employers to maintain a written policy which establishes reasonable workday limitations on the time, place and manner for wage discussions. Such limitations must be consistent with standards adopted by the Commissioner of Labor and Industry and all other state and federal laws.

It’s important to note that the new law does not : (1) require employees to discuss or disclose their wages, (2) diminish employees’ rights to negotiate terms and conditions of employment (including compensation), (3) limit employees’ rights under a collective bargaining agreement, (4) obligate employers or employees to disclose wages, (5) permit disclosure of proprietary information, trade secrets or information that is otherwise protected by law without written consent of the employer, or (6) permit disclosure of wage information to a competitor of the employer.

Takeaways for Employers

Maryland’s amended equal pay law applies to employers of any size. Therefore, Maryland employers should be proactive and conduct internal audits to analyze compensation data and evaluate the non-discriminatory reasons for any pay disparities. Notably, the definition of “same establishment” was expanded to include any workplace of the same employer located in the same county in the state, broadening the scope of comparators. Employers should also train managers and supervisors about the pay transparency provisions and modify existing policies, such as non-disclosure and anti-retaliation policies, to reflect the new law’s requirements.

If you have any questions or concerns about this alert please contact the author named above or your usual Drinker Biddle contact.

Get the Most Out of Your Employee Payroll Audit

By Kate S. Gold, Heather B. Abrigo and Philippe Lebel

Employee payroll audits, which have long been recommended as a best practice for corporations that want to stay on the right side of the law, have become even more critical with the current proliferation of labor and employment laws at the state level. Among other things, the California Fair Pay Act, which went into effect on January 1, 2016, places new demands on California employers that in many cases can only be effectively satisfied by means that include a payroll audit.

Earlier this month, we held a webinar to discuss the CA Fair Pay Act requirements and what employees should do to comply. Below you will find some of the key takeaways.

What is the California Fair Pay Act?

The new law goes further and imposes more obligations on employers than longstanding federal and state equal-pay and employment-discrimination laws. More than simply requiring employers to pay men and women equal pay for the same work, the California statute prohibits employers from paying members of one sex less than the rates paid to employees of the opposite sex “for substantially similar work, when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions.” And the employees of opposite sexes whose jobs and pay are being compared need not work together in the same establishment. There are several important defenses to liability under the law, such as the employer’s use of a bona fide factor that is not sex-related.

How can a payroll audit help?

Determining what types of work are “substantially similar” in terms of skill, effort, responsibility and working conditions is no easy task. That’s where a payroll audit can help.

On a step-by-step basis, a properly conducted audit will identify potential problems under the California Fair Pay Act by identifying positions that have “substantially similar work,” analyzing the pay of these workers by gender, finding any disparities in pay, and determining whether any defenses apply. For example, does the company have a bona fide seniority system or merit system, or is there a business necessity for the disparities in pay?

In addition to these complex Fair Pay Act questions, employee payroll audits remain desirable or necessary for other purposes, such as ensuring that employees are treated fairly under the company’s employee benefit plan and that certain employees or groups of employees are not excluded from the plan.

What steps should be taken?

 When conducting a payroll audit, it should be done with review and consultation of attorney with the end goal of identifying and quickly addressing disparities that cannot be explained adequately or need to be corrected. It is important to note that the audit is subject to attorney/client privilege and/or work product protection. The following are key steps in the audit process:

  • Consider all job titles/descriptions across all geographic regions
  • Consider how to identify or sort based on disparate geographical locations
  • Compare the positions that have “substantially similar work
  • Determine if the statutory exemptions apply
  • Identify explanations for disparities
  • Address disparities that can’t be explained
  • Determine what action needs to be taken

Ongoing Compliance

From a compliance perspective, the number one benefit to conducting employee payroll audits is the ability to determine what action needs to be taken to address and correct disparities if they exist. Failure to address disparities that can’t be explained within the requirements of the California Fair Pay Act or the Federal Pay Act can result in penalties, sanctions and, in some cases, litigation with the DOL and/or IRS. Ongoing compliance should include regular review of the following:

  • Handbooks and policies to remove outdated references to “equal” work
  • Policies that prevent employees from discussing or asking about other employees’ compensation
  • How compensation decisions are made and adjust if necessary
  • Job descriptions – update and describe as comprehensive as possible
  • Record keeping – records must be kept for three years
  • Training of HR personnel, senior management on the new law and how it should be applied in setting compensation at hiring

Click here to watch the full presentation.

Click here to view a PDF of the presentation.

Possible Amendment to New Jersey’s Anti-Discrimination Law Would Likely Mean More Claims, Greater Liability Risks and Larger Damages Awards

By David Woolf and Vik Jaitly

Earlier this week, the New Jersey General Assembly passed a bill that would amend the New Jersey Law Against Discrimination (“NJLAD”) to address specifically pay differentials among employees of different sexes who perform “substantially similar” work. The amendment, which the state Senate passed last month, will now be delivered to the Governor for consideration.

As the NJLAD exists now, an employee can bring a pay-related claim only by alleging that the differential amounts to sex discrimination and satisfying a comparatively higher standard. If the bill is signed into law, New Jersey would follow in the footsteps of other states like New York and California, which have recently updated their discrimination laws to provide a separate cause of action specifically for unequal pay.

The bill, if enacted into law, would severely limit the circumstances under which an employer can pay male and female employees different amounts for “substantially similar” work. An employer would be permitted to do so if it can demonstrate that it is utilizing a seniority (pay based on tenure) or merit (pay based on achieving certain goals) system. Alternatively, the employer would need to demonstrate that each of the following factors exists:

The differential is based on one or more legitimate, bona fide factors other than sex, such as training, education or experience, or the quantity or quality of production;

The factor or factors do not perpetuate a sex-based differential in compensation;

Each of the factors is applied reasonably;

One or more of the factors account for the entire wage differential; and

The factors are job-related with respect to the position in question and based on a legitimate business necessity, and there are no alternative business practices that would serve the same business purpose without producing the wage differential.

If enacted, the New Jersey bill would also significantly increase potential employer exposure, in that the recovery period would be extended to pick up the entire time period when the pay differential existed.

With the passing of this bill by both houses, and with laws specifically targeting gender-based pay differences on the rise generally, employers would be wise to look at their employees’ titles and job descriptions to identify “substantially similar” positions and any pay differentials among the employees in those positions. Where such differences exist, employers will want to explore the reason for those differences and whether changes need to be made. If an employer has an established seniority or merit-based system on which it intends to rely, it is important that the system be set forth in detail and made available to all employees, so that there is no question as to its existence and applicability later.