Employer Alert – EEOC Payroll Reports are about to return

“Watch out, it happens,” the Equal Employment Opportunity Commission warned against returning the EEO-1 Component 2 salary data report.

So said the EEOC commissioner Keith Sonderling, who recently made the announcement to attendees of the 2022 DirectEmployers Annual Meeting and Conference. His comments are just one of many indications that the requirement will return. Below we explain why.

Payroll data reporting is on the rise

The Equal Pay Act 1963 requires that men and women receive equal pay for equal work. Yet more than 50 years after its enactment, the United States has yet to achieve pay equity between men and women. At the current rate, the The World Economic Forum predicts it will take 132 years to reach “full parity”.

This begs the question, how can we close the gap sooner? The answer comes down to the need for employers to disclose identified pay gaps, because Harvard Business Review research noted. This is exactly what the EEO-1 component 2 payroll data reporting would do.

States such as California and Illinois already require wage data reporting and are on the verge of achieving pay equity. If the EEOC were to reinstate and enforce federal wage data reporting, the effects would be magnified nationally.

Component 2 has support bracket

Salary data reports have been proven to help close gender and race/salary gaps because they promote transparency: when you are aware of a problem, it is easier to solve. Those familiar with Component 2 of the EEO-1 recognize its value.

For example, the Office of Federal Contract Compliance Programs recently expressed interest in leveraging collected pay data to aid in its pay equity enforcement efforts. The agency says specifically that wage data collected through Component 2 would provide “insight into wage disparities across industries and occupations and bolster federal efforts to address wage discrimination.”

During the Biden administration, the EEOC prioritized pay equity efforts. In April 2022, the agency released an Equity Action Plan, which outlines goals that combat systemic discrimination, advance equity, and better serve members of vulnerable and underserved communities.

A specific goal of the plan is to improve data collection and reporting, which includes analysis of compensation reports. Another supports diversity, equity and inclusion.

Payroll data reports and pay equity audits

Reporting EEO-1 Component 2 compensation data would require employers to report their compensation data to the EEOC, which could be concerning to in-house attorneys, employers, and compliance officers who don’t. not take a proactive approach to pay equity. The best way to get ahead of this reporting requirement is to complete a pay equity audit.

The very nature of a pay equity audit requires employers to assess their compensation practices. The audit can reveal discrepancies that may have gone unnoticed and provide an opportunity to correct them. This is especially true when audits are conducted at the intersection of gender and race/ethnicity.

Although Component 2 of the OEE-1 in its current form does not explicitly require a pay equity audit to be conducted, it would be in the interest of employers to conduct this type of assessment before Complete the Component 2 Annual Salary Data Report.

The EEO-1 Component 2 report simply identifies gross deficiencies. It does not take into account legitimate business factors that may account for some or all gross pay differentials, such as seniority, seniority and merit.

Pay equity audits not only identify gross pay gaps, but also the resulting pay gaps after considering legitimate business factors. This comprehensive approach provides employers with an accurate and reliable description of their organization’s compensation practices so that they have the opportunity to better understand what they are filing with the EEOC and any other government agency before filing.

Employers who choose not to conduct one before filing their annual returns may increase their exposure to pay discrimination litigation as well as pay equity enforcement by agencies. These actions are on the rise and will continue to become more frequent if compensation data reporting becomes a federal requirement again.

Brief history of the EEO-1 survey

Each year, the EEOC collects information from employers through the EEO-1 survey. Component 1 requires employers with more than 100 employees to report employee demographics disaggregated by gender, race/ethnicity, and job category.

In 2016, component 2 compensation data reporting was added as a requirement of the EEO-1 survey and was in effect for the years 2017 and 2018. It required employers to report data snapshots on the remuneration of their employees. This included employee income information disaggregated by gender, race/ethnicity, and job category, as well as individual compensation data.

Preparing for the return of component 2

Given the current political, social and governance climate, employers are about to see the return of Component 2 of EEO-1. Thus, employers should prepare accordingly.

Best practices encourage the conduct of a proactive pay equity audit. Conducting one now will help you understand your organization’s compensation practices and give you the opportunity to identify and address any unjustified compensation disparities before any future federal reporting requirements, such as Component 2 of the EEO. -1 or related state obligations.

Consider working with a DEI expert who can perform rigorous pay equity audits and help you achieve your goals. Also, be sure to choose a solution that focuses on pay equity auditing at the intersectionality of gender and race/ethnicity.

This article does not necessarily reflect the views of the Bureau of National Affairs, Inc., publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Write for us: guidelines for authors

Author Information

Joanna Kim Brunetti is Chief Legal Officer and Executive Vice President of Regulatory Affairs for Trusaic. A former partner of Akin Gump Strauss Hauer & Feld LLP, she has over 20 years of experience advising clients on a wide range of employment, tax, intellectual property and corporate matters. other business matters.