The Administration has announced a proposal by the Equal Employment Opportunity Commission (EEOC) to enhance the amount of data certain employers would be required to report. The EEOC's proposal on compensation data collection is intended to address gender pay equity issues and, in part, utilizes employer's tax reporting on Forms W-2.

The EEOC's proposal is part of the Administration's focus to narrow the gap between compensation paid to men and women in comparable positions and to provide women with additional tools to challenge pay discrimination. The initiative is designed to provide the EEOC and the Department of Labor (DOL) with pay data to better target compensation issues and address compensation disparities.

Under the proposal, "covered employers" would be required to substantially increase the data that must be collected and reported to the EEOC. For this purpose, a covered employer generally is any employer with more than 100 employees, or more than 50 employees for employers that are federal contractors. The proposal requires the increased data to be reported on the revised Employer Information Report (EEO-1) to be filed with the EEOC by September 30, 2017. Comments in response to the proposal are due by April 1, 2016.

Background

Under the Civil Rights Act of 1964, employers must keep records relevant to determining whether unlawful employment practices have been committed. The EEOC and the DOL Office of Federal Contract Compliance Programs (OFCCP) require covered employers to file the form EEO-1 to the Joint Reporting Committee that is housed at the EEOC.

Currently, the EEO-1 directs covered employers to annually report the number of individuals they employ by job category and by race, ethnicity and gender. There are 10 job categories: Executive/Senior Level Officials and Managers; First/Mid-Level Officials and Managers; Professionals; Technicians; Sales Workers; Administrative Support Workers; Craft Workers; Operatives; Laborers and Helpers; and Service Workers.

EEOC proposal

Beginning in September 2017, the EEO-1 would be modified to require covered employers to report Form W-2 earnings and hours worked for all employees by job category, and by race, ethnicity and gender. (Federal contractors with between 50 and 99 employees would only be required to submit the current EEO-1 reporting information without the compensation data.) For each of the job categories, the proposal would require the compensation data to be categorized by 12 pay bands that are set forth by the Bureau of Labor Statistics. For example, an employer would report 10 black or African American men in the Technician job category in the third pay band ($24,240 - $30,679), or 10 white women in the Professional job category in the seventh pay band ($62,920 - $80,079).

The EEOC intends to publish the aggregate EEO-1 data in a manner that does not reveal any particular employer information. Furthermore, the EEOC is not permitted to release the EEO-1 data under a Freedom of Information Act request.

Implications for employers' tax and payroll functions

Employers may have broader questions about the proposal, but a number of specific challenges are likely to arise from the EEOC proposal from a tax and payroll perspective.

— The proposal requires Form W-2 compensation to be reported. Form W-2 compensation generally reports income when paid and not necessarily when earned. The expanded EEO-1 reporting proposal presents questions about the timing of reporting compensation that is not included in income when it is earned, such as many forms of equity-based compensation and deferred compensation. Form W-2 reporting on deferred compensation (not yet paid) has been indefinitely delayed by the IRS (Box 12-Code Y reporting); query whether an expanded EEO-1 would create further incentives to require such reporting.

— The proposal requires Form W-2 compensation to be reported and filed on the EEO-1 reports by September 30. Because Form W-2 compensation is compiled annually at the end of the calendar year, the September due date for filing the EEO-1 would require employers to reconfigure their payroll and HRIS systems. Prior experiences with the Affordable Care Act information reporting indicate that systems reconfigurations of this sort are not simple or straightforward endeavors.

— The proposal requires employers to collect total hours worked by the employees included in each EEO-1 pay band cell. Collecting and transmitting employees' hours to the appropriate information system may be difficult, depending on the configuration of the employers' payroll and timekeeping systems. More importantly, for certain categories of employees who do not work on an hourly basis, there is little or no guidance for how to determine the actual number of hours worked.

— Although the EEOC asserts that it will maintain the data confidentially, employers undoubtedly will have privacy-related concerns.

— Finally, employers reporting the Form W-2 information should not be in violation of Section 6103 tax return information confidentiality requirements because the information is transmitted on an aggregate basis and no individual information is provided. Nevertheless, employers will need to manage the reporting to ensure they remain compliant with the Section 6103 mandates.

The EEOC proposal is the most recent pronouncement on pay equity, but it is not the only proposal. Several states, including California, New York and Massachusetts have recently enacted expanded pay equity legislation. In light of the federal and state focus on issues of compensation inequality, employers would be advised to preemptively conduct a pay-equity analysis and to review their tax and payroll functions to ensure the data may be properly collected.

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