EEOC Proposed Changes to EEO-1 Report: Take a Closer Look at Pay Programs

By Tom Hurley

The U.S. Equal Employment Opportunity Commission (“EEOC”) is responsible for enforcing federal laws that make it illegal to discriminate against a job applicant or an employee because of the person's race, color, religion, sex, national origin, age, disability or genetic information. Companies with 100 or more employees and federal government contractors with 50 or more employers are required to file an Employer Information Report (“EEO-1 report”) annually with the EEOC. On January 29, 2016, the EEOC announced a proposed revision to the EEO-1 report to include W-2 earnings and hours worked data.

The current EEO-1 report requires employers to tally and report the number of workers they have by job category and then by ethnicity, race, and sex. In February 2016, the EEOC released the detailed proposed changes and a sample of the proposed form.

The proposal requires companies to disclose the number of employees and total hours worked by job categories and annual salary bands. The EEOC believes this new data will assist them in identifying possible pay discrimination and assist employers in promoting equal pay in their workplaces.
If the proposal is approved, then companies will be required to use the new reporting form beginning in 2017. This exercise may bring about questions regarding the pay structure, so it is recommended that companies take a look at what they have today. Get out ahead of the issue before questions start coming down from executives and board members.

A best practices approach to a review includes the following:
Compensation Strategy – Document how the company wants to pay employees. The strategy document is the compass used to guide disciplined pay design, administration and governance. The goal of many organizations is to deliver competitive pay that aligns with the market and rewards employees for company performance linked to individual contributions.
Job Classifications and Pay Bands – The proposed EEO-1 reporting requires disclosing pay data by annual salary bands. Many companies establish the “market rate” (or target pay) for a position and create a pay range around the target. Review your current job classifications and look at the pay ranges for each position. Do the differences between jobs and the ranges make sense given the roles and responsibilities? Understand the impact each position has on the success of the company.
Market Benchmarking – Consider benchmarking your positions to published surveys. Over time the target pay rates may get out of sync from the market. Determine whether certain positions are overpaid, which hurts the profits of the company, or paying too little, which puts the company at risk of losing talented employees.
Systems – Take a look at the systems you are using to track and manage pay. If gathering the data needed to conduct a review as outlined above was difficult and burdensome, then maybe a new system is needed. There are many compensation management software platforms that are affordable and should save time and help avoid errors in reporting.

The EEOC proposal is one of many factors creating the need to revisit compensation strategies and delivery of pay. Recently, companies have been challenged by competitive forces in the marketplace, increased investor and government oversight, and a new national health care model which has led to discussions about the employee value proposition. Taking a proactive approach to assessing compensation programs can help companies avoid costly liabilities and assist with the attraction and retention of talented employees.

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