The federal government announced its intent to gather additional pay information from larger employers, forcing all businesses with more than 100 workers to provide detailed information about their pay practices in an effort to address gender discrimination. If the president’s plan moves forward as expected, employers will be subject to a heightened pay transparency standard by the end of this calendar year.
“First, employers should know that the proposal to include ‘pay data’ applies only to employers that already submit annual reports for the number of employees per job by ethnicity, race and gender, also known as an EEO-1 report,” says Susie Ingold, co-chair of the employment law practice area at Burch & Cracchiolo. “Second, the additional element of pay data can be pulled from W2 earnings information. Employers can implement new ‘queries’ within their existing payroll systems to report newly required pay data. Lastly, if approved, the first EEO-1 report with pay data would not be due until September 30, 2017.”
Az Business talked with attorneys at Fisher & Phillips to get answers to the most commonly asked questions about this issue.
Question: What has been proposed?
Answer: The Obama Administration has proposed executive action through the Equal Employment Opportunity Commission (EEOC) to require certain businesses to provide detailed information about how much each of their employees is earning. Affected employers must break down pay information by gender, as well as race and ethnicity, after the law goes into effect in order to make it very easy to identify pay gaps.
Question: Who will be impacted?
Answer: This executive action will apply to all businesses that employ 100 or more workers. According to the White House, the proposal would cover more than 63 million Americans.
Question: How will employers report the information?
Answer: Currently all employers with 100 or more workers already complete the EEO-1 form on an annual basis, providing demographic information to the government about race, gender, and ethnicity. Once the new revisions take effect, the EEO-1 form will also require that salary and pay information be included.
Question: Why has the government proposed this change?
Answer: The federal government has specifically stated that the goal of this additional data-gathering is to identify businesses that might have pay gaps, and then target those employers who are discriminating on account of gender. It is no coincidence that this plan was announced on the seventh anniversary of the Lily Ledbetter Fair Pay Act, a federal law that overturned a Supreme Court decision and made it easier for employees to bring equal pay claims.
In other words, once this new law takes hold, the EEOC will have greater ease in identifying disparities and areas of potential pay discrimination to determine where it will take enforcement action.
Question: When will employers be subject to the new law?
Answer: The EEOC chair has stated that she anticipates the rulemaking process to be completed by September 2016, when the new rules would officially go into effect. If this holds true, employers will have to submit their pay data for the first time in September 2017.
Question: What should employers do now?
Answer: In light of these developments, affected companies should make it a priority to review current pay systems and identify and address any areas of pay disparity. It is critical to take steps now to minimize increased scrutiny once the data begins to be reported next year. By conducting your own gender-specific audit of pay practices, you will be able to determine whether any pay gaps exist that might catch the eye of the federal government when you turn over this information next year. You will 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.
What should companies do to prepare for transparency?
John Alan Doran, member, Sherman & Howard: “Review your policies, practices, handbooks and the like to ensure your own documents comply with the rules. Train and retrain your HR team, supervisors, managers and executives so they understand what is permissible conduct under the new rules versus what can properly be used to discipline an employee. Make sure you get your mandatory pay transparency policy statement properly disseminated to employees.”
Susie Ingold, partner, Burch & Cracchiolo: “To be ready, employers should consult their payroll and Human Resources Information Systems to ensure that the proper queries targeting pay data can be established. Employers should also designate an associate within the organization who is responsible for collecting the information and timely submitting the EEO-1 report with all required data.”
Adam Merrill, associate, Polsinelli: “Businesses need to take a hard look at their pay practices and meaningfully address any pay disparities between male and female employees before the new requirements take effect in 2017. Business owners, in cooperation with their human resources and finance departments, should conduct an audit of their records to determine what changes can be made.”
Tracy A. Miller, shareholder, Ogletree, Deakins, Nash, Smoak & Stewart: “As a first step, employers should conduct an audit of their current employee pay in a manner designed to protect it as privileged. If an employer identifies pay differences that cannot be explained by legitimate factors, it should take steps to correct any pay disparities and fix any weaknesses in the company’s pay system.”
Craig O’Loughlin, partner, Quarles & Brady: “Because this rule could go into effect this year, requiring employers with at least 100 employees to break down pay data by gender, race, and ethnicity on EEO-1 forms, employers should already be performing gender, race, and ethnicity-specific audits on their pay data to discover and correct pay gaps for which there are not legitimate, non-discriminatory justifications.”
Patrick Whelan, associate, The Frutkin Law Firm: “Conduct an internal audit to analyze and address, or at least be prepared to explain, potential pay discrepancies prior to submitting the data to the EEOC. It is imperative that companies are diligent about this privileged pay analysis in order to — first — determine whether disparities exist and — second— determine whether disparities can be justified or whether corrective action will be needed to remedy inequitable pay gaps.”