Back in January, President Barack Obama proposed a new rule requiring organizations with more than 100 employees to submit summary pay data to the Equal Employment Opportunity Commission each year showing what employees of each gender, race, and ethnicity earn, which the administration believes would help the EEOC spot unjustifiable gender and racial pay gaps. Now, the EEOC has announced that the rule will go into effect in March 2018:
The summary pay data will be added to the annual Employer Information Report or EEO-1 report that is coordinated by the EEOC and the Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP). … Private employers including federal contractors and subcontractors with 100 or more employees will report summary pay data. Under no circumstances should employers report individual pay or salaries or any personally identifiable information. …
The EEOC adopted this new EEO-1 after an extensive deliberative process that included publication of two versions of the proposed EEO-1 for public comment and a public hearing on March 16, 2016, at which stakeholders, researchers, and academics discussed the EEO-1 proposal and responded to questions from EEOC Commissioners. In total, the EEOC considered written comments from thousands of individuals, employers and their representatives, civil rights and women’s organizations, human resources and payroll associations, and Members of Congress.
Critics of the rule contend that collecting this data will impose a significant burden on organizations and that the information will not be as useful as the government thinks. SHRM’s Lisa Nagele-Piazza reviews these objections in response to the EEOC’s announcement:
[Mickey Silberman, an attorney with Jackson Lewis in Denver,] said that employers will “undoubtedly be exposed to burdensome investigations based on false positives.”
“Comparing people with respect to their pay is complicated,” he explained, “and relying on W-2 earnings may show a pay disparity when in fact none exists.” As an example, he said a male employee may exercise the option to purchase stocks in one year while a female employee exercises the option in another year. Because stock options aren’t taxed until they’re exercised, the pay data for these employees will look different on their W-2 forms even if they had the same options.
Furthermore, human resource information systems (HRIS) that contain demographic data about employees’ race and gender generally don’t communicate with payroll or time-keeping systems, Silberman said. Therefore, employers may face a costly and significant burden in collecting and compiling the data.
At a time when hopes are high that pay transparency can help close pay gaps, governments are betting on these mandatory disclosures to make a difference. The UK also plans to begin requiring employers to report pay data by gender in 2018. CEB took a closer look at the changing regulatory landscape in the US in a webinar back in June, which CEB Total Rewards Leadership Council members can watch here.