Ding Dong the New EEO-1 Report is Dead!

Office of Management and Budget Stays the New EE0-1 Report

By Mary E. Buckley, Bruce Cross, and David Ankeny

Let’s start with the really important bits:

  1. Employers do not have to put compensation data of any kind on the 2017 EEO-1.

  2. Employers have until March 31, 2018 to file the 2017 EEO-1.

  3. Employers should use the snapshot date, December 31, 2017, or a reasonable proximally.

  4. Employers can use the old EEO-1 form.

At this point, there is no further reading required. The “need-to-know” information has been provided. However, for those who want more than a quick seventy word answer, it is advised to first, pause here and breathe a sigh of relief. It would have been a headache to comply with the new EEO-1 reporting requirements; no question. Done, gone, good riddance. As they sang it in Oz, it filled the folks of Human Resources with terror and with dread till one fine day from D.C., a house fell on its head and the Office of Management and Budget pronounced it dead! So, despite the collective sigh of relief heard round HR departments, it is still worth reviewing why this new EEO-1 report arose in the first place; why it went away; whether it was a good idea; and the likelihood something like it will be seen again someday.

Where Did It Come From And Why?

The Department of Labor’s Office of Federal Compliance Programs (“OFCCP”) is the watch dog of federal contractor compliance with affirmative action and anti-discrimination law. It is believed that it was the OFCCP that primarily pushed for the EEO-1 changes. A recent ground swell of dissatisfaction with enforcement of discrimination in compensation, particularly the gender gap, emerged from the Obama era OFCCP under Director Patricia Shue. It was one of her stated goals to enforce the law of compensation discrimination. Director Shue would cite the gender gap as evidence of gender discrimination.

Director Shue’s effort was not the first time the Agency pushed to enforce equal pay and shrink the practice of pay discrimination. The OFCCP, in fact, has a checkered past with pay discrimination. Its efforts could be characterized with that famous line, “the road to hell is paved with the best intentions.” As an example, when Charles James was Director of the OFCCP during the G.W. Bush presidency, he tried to address the ineffectiveness of the OFCCP policy. His administration promulgated “Standards and Guidelines” for the OFCCP and federal contractors to follow, auspiciously to catch the “evil doers.” The flaw with the well intentioned “Standards and Guidelines” was that it only bound the OFCCP and not federal contractors, which proved to be as ineffective as the previous policy, in that it not only caught very few “evil doers” but caused an era of never ending audits.

Director Shue quickly did away with the “Standards and Guidelines.” Her rational for de-implementation being that the OFCCP manpower allows audits for only a small fraction of federal contractors, which is currently less than 5%. So, instead of continuing on with ineffective and seemingly ceaseless audits, the OFCCP needed and so created a way to scout the contractor community for likely targets of pay discrimination. If you are the OFCCP wanting to peek at the hands of federal contractors, the EEO-1 is your huckleberry. There really is nothing else. Federal contractors, with more than 50 employees, prepare affirmative action plans annually, but need not submit them to the OFCCP. The OFCCP only sees the affirmative action plans of those it audits. So, the OFCCP decided to gather compensation data through the EEO-1. It was a bold move and it met with a great deal of resistance, but in the end, the OFCCP along with EEOC prevailed. The regulations, one of which required federal contractors to submit summarized tax reporting based compensation data, were finalized September 29, 2016. Thus the 2017 EEO-1, was born.

Who Killed It And Why?

The backdoor to the White House, or known better by its formal name, the Office of Management and Budget (“OMB”) enforces the Paperwork Reduction Act (“PRA”). The OMB must approve regulatory changes to ensure the burden is justified under the PRA guidelines. To withstand the PRA, the utility of the regulation has to outweigh the burden. If it does not, then it will not be implemented. One might suspect this was a political issue. Certainly, the issue has polarized politically, but regardless of the politics at play, the OMB weighed the potential and burdens against the utility to be served, and found the new EEO-1 utility did not justify the burden. In other words it was “weighed in the balance and found wanting.”

The burdens that employers faced under the new EEO-1 were great. At a glance, this can be seen from the “snapshot” fact that the form went from being two pages to eight pages long. Substantively, the new EEO-1 required, for the first time, that employers with more than 100 employees and federal contractors to include, on the EEO-1, twelve pay bands of tax reported wages, summarized by race, gender, and EEO-1 category for all full time and part-time employees. The headcount of employees was previously mandated, but the new form required that it be broken down by race/ethnicity and gender categories within the twelve pay bands within each EEO-1 job group, which would be based on the individual 2017 W-2 data. Further, it required the total of all hours worked for employees within each pay band within each job group by race/ethnicity and gender.

Accordingly, the OFCCP revised its total estimated annual burden hour cost in 2017 and 2018 for those contractors that will complete and submit only Component 1 (contractors with 50-99 employees) to $1,872,792.41, and the total estimated annual burden hour cost in 2017 and 2018 for employers and contractors that will complete both Components 1 and 2 to $53,546,359.08.

This would be a huge time burden and high cost for most employers, whether a large or small multi-establishment company. Even for employers with one establishment companies, the burden would be significant in one sense because of time and the other sense retrieving the data.

Employers would have had to “mine” electronic data from multiple systems to satisfy the mandatory reporting requirement of the EEO-1 report. After a successful retrieval of the required data for both full-time and part-time employees during the stated period, the data would have to be summarized by category and then the complex matrix of races, genders, EEO-1 codes, and pay range groups would have to be populated.

Further, if companies had to comply with supplying the new data, the recommendation was that employers conduct a privileged (i.e. with an attorney’s assistance to ensure the work was covered by attorney-client privilege) compensation analysis to determine if pay differences were because of legitimate factors such as, seniority, time in job, etc., and, if not, then employers would have to find and correct those before the data was submitted at the end of 2017. Employers would also need to review and revise job descriptions to be better able to determine under which of the EEO-1 job categories each position should be reported. Review and revision of job descriptions would be necessary to prevent an employer’s data from being skewed because employees were included in the wrong job groups.

In theory, for a big ask–and make no mistake, this was a big ask–there should have been a big reward. There are businesses whose primary work is to regularly analyze compensation for federal contractors. Lighthouse Compliance Solutions contributor, David Ankeny, is in the business of analyzing federal contractors’ compensation. Lighthouse and businesses like it know how to spot potential discrimination. Those businesses know what employers and/or the federal government needs to detect discrimination. The new, now, thankfully defunct, EEO-1 did not have it. It would have been of little value in detecting discrimination. The means far exceeded the ends and the new Report could not be justified.

Did it make sense for the Agency to obtain discrimination indicators on the EEO-1 or any document for that matter? Somewhat but, in reality, it cannot be obtained by numbers. Income can be affected by numerous things regardless of sex or race that could cause a false positive for pay discrimination. Employee benefit plans can affect the W-2 statement as well as IRA’s. Individual choices with regard to benefits and IRA contributions would change the numbers. Another example would be stock options. A male employee may exercise the option to purchase stock in one year, while the female employee exercises the option in a different year, because stock options are not taxed until exercised, the pay data for these employees would look different on their W-2 forms even though they had the same options and received the same salary.

Further, compensation is motivation. Motivation is complex. It is not something that can be seen merely by numbers. There are no shortcuts, no clever models. Lots of factors exist. After all, motivation is different for everyone. Bottom line, it’s a waste of employer and Agency resources to look for indicators of pay discrimination merely from numbers.

Is It Likely To Ever Come Back?

Unlike the wicked witch from the Land of Oz, who is definitely not coming back, the answer is “possibly.” The OFCCP has demonstrated time and time again that it will continue its efforts to weed out pay discrimination. However, the various methods employed to reach its goal, like the DuBray Methods, salary grade analyses, cohorts and standard deviations, “Standards and Guidelines” and no guidelines, Directive 307, EO Surveys, and now, a new and improved EEO-1 report all fail to achieve the end result. As Albert Einstein put it “the definition of insanity is doing the same thing over and over again, but expecting different results.” Despite that logic, depending upon who is President, expect another similar future effort. In the meantime, employers should focus on analyzing their compensation practices on an annual basis to make sure that its employees are being paid in a non-discriminatory manner. It can be done, but just not by the pay numbers alone.

Mary E. Buckley, Associate
Cross, Gunter Witherspoon & Galchus, P.C.

J. Bruce Cross, Director
Cross, Gunter Witherspoon & Galchus, P.C.

David Ankeny, President and CEO
Lighthouse Compliance Solutions