EEOC

EEO-1 Component 2 Pay Data Analysis

July 23, 2019 by Dan Kuang, Ph.D.

Despite resistance from the employer community, EEO-1 “Component 2” compensation reporting requirements will most likely be upheld by federal courts. As employers scramble to assemble their reports, many are also concerned with the potential risk exposure these reports may introduce. First and foremost, how will the OFCCP and EEOC use this information in their pay equity investigations?

Strategically, the OFCCP has largely shared their two-part game plan:

Internal Pay Equity: The OFCCP will measure pay equity within a company to ensure that there is internal equity; in other words, that employees within the same EEO Category are paid equitably.
External Pay Equity: The OFCCP will measure pay equity between companies; specifically, they will compare a company’s EEO-1 Pay Data against others in the relevant business sector.

Measuring Internal Pay Equity

To measure internal pay equity, the OFCCP is clear¹:

Mann-Whitney U test will be used to measure pay equity for gender and 2-group comparisons.
Kruskal-Wallis test will be used to measure pay equity for race where more than two groups are compared.

The mechanics of these statistical tests are not important for the average Human Resources (HR) professional. What is important, however, is for HR professionals to conceptually understand what these statistical tests are evaluating.

In concept, these analyses can determine whether there is a bias in the distribution of men and women along the 12 pay bands (ranging from lowest 1 = less than $19,239, to highest 12 = $208,000 or greater). For example, if women tend to dominate lower-paying salary bands while men are in the higher-paying salary bands, then women are being paid less than men. The Mann-Whitney U and Kruskal-Wallis can determine if there are differences in the distribution of gender or race across the 12 bands, respectively.

To help make sense of all of this, here is a sample report by gender for EEO Category professional:

Per the EEOC reporting requirements, the counts of male and female employees were reported by the pay bands. The statistical analyses will examine the actual counts. In concept, the analyses are looking for patterns in the distribution of males and females across the pay bands. In this example, note that females dominate the lower 1-5 pay bands, while men dominate the higher 7-12 pay bands. The statistical methods will identify this group difference and estimate its statistical significance.

Measuring External Pay Equity

The OFCCP is less clear on their strategy to measure external pay equity with the EEO-1 pay data. This is understandable as Title VII is primarily concerned with internal pay equity, and the law is less concerned with compensation philosophy where a company may choose to pay below-labor market standards as long as everyone is impacted equally.

Contractors need to be aware that there is an analytical approach that could assist the OFCCP and EEOC to identify employers with potential pay equity problems. Consider the following analysis example of EEO Category 1.1:

To simplify this analytical method, pay bands 1-6 are collapsed into “1-6” and pay bands 7-12 are collapsed into “7-12”. Note the interesting pattern when comparing internal composition (%) against external composition (%):

Females have higher internal representation in pay bands 1-6 (72%) than external data (60%).
Females have lower internal representation in pay bands 7-12 (28%) than external data (40%).
Males have lower internal representation in pay bands 1-6 (40%) than external data (57%).
Males have higher internal representation in pay bands 7-12 (60%) than external data (43%).

These results draw three important conclusions:

Women tend to hold the lower pay band positions (1-6) while men hold the higher pay band positions (7-12). This pattern maps onto the external pay data and, therefore, is not too concerning.
Women have higher representation in lower pay bands than external data, while the opposite is true for men, who have lower representation in the lower pay bands than external data. This pattern is problematic.
Women have lower representation in higher pay bands than external data, while the opposite is true for men, who have higher representation in higher pay bands than external data. This pattern is problematic.

In effect, women do worse than expected among lower pay bands while men do better than expected among higher pay bands. In and of itself, this pattern is sufficient to raise concerns for the OFCCP and EEOC. Additionally, if this pattern is observed across multiple EEO categories, concerns for systemic pay discrimination will naturally be raised.

Conclusions

One of the most compelling arguments against EEO-1 Component 2 reporting has been the concern that no meaningful conclusions can be drawn from analysis of broad EEO categories; the results will primarily be a mix of false positives and false negatives. Analyses that do not make proper apples-to-apples comparisons among similarly situated employees will most likely suffer this very likely consequence. Having said that, it is important to keep in mind that the OFCCP and EEOC will most likely use the EEO-1 pay data to flag employers who may have pay equity problems rather than to establish prima-facia claims of pay disparity. The methods discussed in this paper serve this purpose well.

By measuring internal and external pay equity with a lens for patterns, the OFCCP and EEOC can more efficiently identify employers who may be considered for more thorough and complex Title VII-oriented pay equity investigations. Employers should not dismiss the very likely danger that lurks once their EEO-1 Component 2 pay data is reported.

1. Federal Register, Vol 80 (20), p. 5118, footnote 47

Repost: July 2019 – LocalJobNetwork The OFCCP Digest, Volume 8 September Edition

EEOC Officially Reinstates “Component 2” Reporting and Sets Deadlines

May 2, 2019 by Matt Nusbaum

As anticipated, the Equal Employment Opportunity Commission (EEOC) has published a notice in the Federal Register announcing the “immediate reinstatement of the Revised EEO-1: Pay Data Collection,” commonly known as “Component 2.” EEOC’s initial announcement stated that the agency intends to collect 2018 pay data by September 30, 2019 (opening the survey some time in mid-July), but had not yet determined whether or not the agency would collect 2017 pay data.

Now the EEOC has scheduled the publication of a follow-up announcement in tomorrow’s Federal Register stating that the agency has determined that they will, in fact, be collecting 2017 and 2018 pay data. More importantly, they are going to collect both between mid-July and September 30 of this year.

By the time the EEOC re-opens the survey in July to collect the “Component 2” data, employers will have already filed their “regular” (Component 1) 2018 EEO-1 reports. And, of course, 2017 reports were filed last year. It remains to be seen how the EEOC will require employers to report the 2017 and 2018 Component 2 data, particularly those that file via the data upload option. Will employers be required to essentially re-file 2017 and 2018 reports with Component 2 data added in, or will employers be allowed to upload just the Component 2 portions? We won’t know until the EEOC releases more information.

In the meantime, employers are encouraged to start preparing now. That requires first getting your hands on the employee snapshot data used for the 2017 and 2018 reporting cycles. The employee ID numbers in those snapshots represent the universe of employees for the Component 2 data.

Using the 2017 and 2018 snapshots, the next step is to query the payroll system for total-year W-2 wages and total-year hours worked. For the 2017 snapshot population, wages and hours should reflect the totals for calendar year 2017. For the 2018 snapshot population, the data should reflect the totals for calendar year 2018.

The total-year W-2 wages should be whatever was reported in “Box 1” on the employee’s W-2 form. The EEOC expects that this information is readily available in most payroll systems.

Total hours worked could present more of a challenge. For FLSA non-exempt employees, the EEOC expects employers to use the actual total number of hours worked for each employee (because the FLSA requires employers to track that information). For FLSA exempt employees, employers are expected to use actual total hours worked if that information is captured; otherwise, employers are allowed to calculate an estimated total hours worked for each employee using 40 hours per week for full-time exempt employees, or 20 hours per week for part-time exempt employees. Be mindful of employees who switched from part- to full-time or vice versa during the calendar year and adjust their estimated total-hours-worked calculation accordingly.

Do not get distracted by whether or not any particular employee was in the same job the entire year or employed by the company the entire year. You are not required to collect pay and hours-worked data only for the period each employee occupied the job they were in when the snapshot was taken. You need total W-2 compensation earned and total hours worked in any capacity for the employees in each snapshot.

With total W-2 earnings and total-hours-worked added to your 2017 and 2018 EEO-1 snapshot data, you will be well poised to prepare your upload files when the EEOC releases those specifications sometime before the survey re-opens in mid-July.

Employers will likely want to evaluate the compensation data they are about to submit to the federal government, but the EEOC has not published any useful information yet as to whether, and to what extent, that data will be analyzed by the government, much less how. Stay tuned for an upcoming blog post by Dr. Dan Kuang with suggestions for how to approach those statistical analyses.

In the meantime, Biddle consultants are available to help you navigate these new waters. Contact a Biddle EEO/AA specialist at staff@biddle.com.

EEO-1 “Component 2” Pay Data Reporting Starting to Show Signs of Life

April 26, 2019 by Matt Nusbaum

As anyone responsible for EEO-1 reporting is well aware, the 2018 EEO-1 Survey is currently open and the 2018 reports are due by Friday, May 31, 2019. The 2018 reports were originally set to be due by March 31, 2019, but due to the government shutdown, the Equal Employment Opportunity Commission (EEOC) had to push back the opening of the filing season and accordingly extended the filing deadline.

Because of all the news, talk, and speculation about the EEO-1 lately, what might be less clear to some is what has to be reported by May 31. The answer is actually quite simple: it is the same EEO-1 report that you have been filing for years with the headcounts of employees at each reporting establishment broken-down by the ten familiar EEO-1 job categories. That’s it.

What about “Component 2,” the pay and hours worked reporting element approved at the end of the Obama administration, then rescinded at the start of the Trump administration? The Trump administration’s action has been successfully challenged in federal district court and the EEOC has been ordered to reinstate “Component 2” reporting for the 2018 EEO-1 filing season. Further, EEOC has committed to setting a September 30, 2019 deadline for the collection of this new component.

That may or may not be the last word with regard to Component 2. There is the possibility that the government will appeal the District Court’s decision. There could also be further legal challenges waiting in the wings. Either of these things could further delay the implementation of Component 2, or not. The prudent course of action would be to prepare to file Component 2 by EEOC’s current September 30 deadline.

But the EEOC has yet to even formally announce the reinstatement of Component 2, and we are still waiting on the technical specifications for data file uploads of Component 2 information, aren’t we? Yes, but that does not necessarily mean that employers cannot start preparing now.

The EEOC had proposed a new form and instructions for collecting Component 2 data, which were originally approved by the Office of Management and Budget (OMB). The court decision, assuming it stands, would effectively rescind OMB’s subsequent rescission of its approval. In other words, the previously approved materials become approved again. Prior to Component 2 being shut down, the EEOC had been preparing its systems to receive the new information and did publish technical specifications for the data upload files.

Luckily, those materials are still available, though they are not easy to find. To save you a long and painful internet search, you can simply click here and download the form and instructions for Component 2 from the OMB website. Even more detailed information about Component 2 reporting can be found in the EEOC’s Supporting Statement originally submitted to OMB during the approval process. The originally published technical specifications are harder to come by. Fortunately, BCGi downloaded them and you can too by clicking here.

In a nutshell, employers will likely be required to effectively “add” pay and hours worked data to the EEO-1 reports filed by May 31. In other words, you will report Component 2 information for the same employees for whom you submitted “Component 1.” The raw data necessary can be gathered now by pulling payroll information for the employee IDs in your 2018 EEO-1 snapshot. From there, you will need to do some extra work to translate actual pay figures into the EEO-1 pay bands.

As for the technical specifications necessary to prepare a data upload file for actual reporting, the EEOC is unlikely to completely re-tool their systems and processes more than necessary. It is a good bet that the technical specifications regarding Component 2 will be largely the same. We will have to wait and see whether and to what extent EEOC will break-out Component 2 for the 2018 reporting cycle or ask employers to resubmit Component 1 as well.

For certain, employers will be more likely to meet the EEOC’s Component 2 deadline if the raw data has already been gathered with an eye toward presenting it in something like the existing technical specifications. If you want to get started but need a little help, contact a Biddle EEO/AA specialist at staff@biddle.com.