“Watch out, it is coming,” the Equal Employment Opportunity Commission cautioned employers on the return of EEO-1 Component 2 pay data reporting.
So said EEOC Commissioner Keith Sonderling, who recently made the announcement to attendees of the 2022 DirectEmployers Annual Meeting & Conference. His comments are but one of the many indications that the requirement will return. Below, we dive into why that is.
Pay Data Reporting Is on the Rise
The Equal Pay Act of 1963 requires that men and women be given equal pay for equal work. Yet, in the 50-plus years since its enactment, the US has yet to achieve pay equity between men and women. At the current rate, the World Economic Forum predicts it will take 132 years to reach “full parity.”
It begs the question, how can we close the gap sooner? The answer comes down to the need for employers to disclose identified pay gaps, as research from the Harvard Business Review indicates. EEO-1 Component 2 pay data reporting would do just that.
States such as California and Illinois already require pay data reporting and are one step closer to achieving pay equity. If the EEOC were to reinstate and enforce pay data reporting on a federal level, the effects would be amplified nationwide.
Component 2 Has Backing Support
Pay data reporting has been proven to help close gender and race/pay gaps because it promotes transparency—when you’re aware of a problem, it’s easier to solve. Those familiar with EEO-1 Component 2 recognize the value of this.
For example, the Office of Federal Contract Compliance Programs recently expressed interest in leveraging pay data collected to facilitate its pay equity enforcement efforts. The agency specifically said that the pay data collected via Component 2 would provide “insight into pay disparities across industries and occupations and strengthen federal efforts to combat pay discrimination.”
During the Biden administration the EEOC has prioritized pay equity efforts. In April 2022, the agency released an Equity Action Plan, which outlines goals that tackle systemic discrimination, advance equity, and better serve members of vulnerable and underserved communities.
One specific goal of the plan is to improve data collection and reporting, which includes a pay data reporting analysis. Another one is supporting diversity, equity, and inclusion.
Pay Data Reporting and Pay Equity Audits
EEO-1 Component 2 pay data reporting would require employers to report their compensation data to the EEOC, which could be worrisome for in-house lawyers, employers, and compliance officials who fail to take a proactive approach to pay equity. The best way to get ahead of this reporting requirement is to perform a pay equity audit.
The very nature of a pay equity audit forces employers to assess their compensation practices. The audit can uncover disparities that may have gone unnoticed and provide an opportunity to correct them. This is especially true when the audits are conducted at the intersection of gender and race/ethnicity.
Even though EEO-1 Component 2 in its current form doesn’t explicitly require conducting a pay equity audit, it would be in an employers’ best interest to conduct this type of assessment prior to completing the annual Component 2 pay data report.
The EEO-1 Component 2 reporting simply identifies the raw gaps. It doesn’t account for legitimate business factors that may justify some or all of the raw pay gaps, such as tenure, seniority, and merit.
Pay equity audits identify not only the raw pay gaps but the resulting pay discrepancies after accounting for legitimate business factors. This comprehensive approach provides employers with an accurate, reliable depiction of their organization’s pay practices so they have the opportunity to better understand what they’re filing with the EEOC, and any other government agency, before filling it.
Employers that choose not to conduct one before filing their reports annually can increase their exposure to pay discrimination litigation as well as agency pay equity enforcement. These actions are increasing and will continue to become more frequent if pay data reporting becomes a federal requirement again.
A Brief History of the EEO-1 Survey
Each year, the EEOC collects information from employers via the EEO-1 Survey. Component 1 requires employers with more than 100 employees to report demographic data on employees broken down by gender, race/ethnicity, and job category.
In 2016, Component 2 pay data reporting was added as a requirement of the EEO-1 Survey and was in effect for the 2017 and 2018 years. It required employers to report snapshots of their employee pay data. This included employee income information broken down by gender, race/ethnicity, and job category, as well as individual compensation data.
Preparing for the Return of Component 2
Given the current political, social, and governance climate, employers are poised to see the return of EEO-1 Component 2. As such, employers should prepare accordingly.
Best practices encourage conducting a proactive pay equity audit. Conducting one now will help you understand your organization’s pay practices and provides an opportunity to identify any unjustified pay disparities and remedy them in advance of any future federal reporting requirement, like EEO-1 Component 2 or related state obligations.
Consider working with a DEI expert who can perform rigorous pay equity audits and help you reach your goals. Also, be sure to choose a solution that focuses on pay equity auditing at the intersectionality of gender and race/ethnicity.
This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Joanna Kim-Brunetti is chief legal officer and EVP of regulatory affairs for Trusaic. A former partner with Akin Gump Strauss Hauer & Feld LLP, she has over 20 years of experience advising clients on a wide range of employment, tax, intellectual property, and other business issues.