October 6, 2020

OFCCP Won’t Review Federal Contractors’ EEO-1 Pay Data

Certain private employers and federal contractors were required to send EEO‑1 Component 2 pay data—broken down by job category, race, sex and ethnicity—to the federal government this year, but the Office of Federal Contract Compliance Programs (OFCCP) recently announced that it doesn’t intend to review the information. The OFCCP said it doesn’t see the benefit of collecting the information. “OFCCP will not request, accept or use Component 2 data, as it does not expect to find significant utility in the data given limited resources and its aggregated nature, but it will continue to receive EEO‑1 Component 1 data,” according to a U.S. Department of Labor notice.

Government Ordered to Collect Pay Data
The Equal Employment Opportunity Commission (EEOC) collects EEO‑1 reports each year and uses information about the number of women and minorities companies employ to support civil rights enforcement and analyze employment patterns. The EEOC shares this information with the OFCCP, which is responsible for ensuring that federal contractors comply with nondiscrimination laws and regulations.

Component 1 data of the EEO‑1 report, which has been collected since the 1960s, lists employees by job category, race, ethnicity and gender. Component 2, which was collected for the first time this year, asks for employees’ hours worked and pay information from their W‑2 forms, broken down into the same categories as the data in Component 1.

Businesses with at least 100 employees and federal contractors with at least 50 employees and a contract with the federal government of $50,000 or more must file Component 1 of the EEO‑1 form. However, only employers with at least 100 employees, including federal contractors, must file Component 2.

In 2017, the government decided not to collect Component 2 data, but earlier this year, a federal judge ordered the EEOC to collect pay data for 2017 and 2018 from covered employers.

In September, the EEOC announced that it doesn’t plan to collect EEO‑1 Component 2 data in the future, noting that the burden imposed on employers to gather the information outweighs the usefulness of the data for the agency. The EEOC still intends to follow its longtime practice of collecting Component 1 data.

Pay Data’s Usefulness Debated
Worker advocates and business groups disagree on whether collecting Component 2 pay data will help the federal government address the wage gap and eliminate discriminatory pay practices.

The National Women’s Law Center (NWLC), an advocacy group that sued the government to make it collect the data, says the information is important. The data was collected for the first time in 2019, and though the submission window has officially closed, a court ordered the EEOC to continue collecting data until a certain percentage of employers have filed their reports.

“By deciding to ignore the EEO‑1 pay data before the historic collection of this data has even been completed, makes it clear that its priority is protecting employers from scrutiny rather than enforcing pay-discrimination laws,” said Emily Martin, the NWLC’s vice president for education and workplace justice.

Employer groups, however, argue that the data is difficult to collect and doesn’t accurately reflect workplace pay practices. For one thing, some data may be housed in the human resource information system, and other data may be stored in a payroll processing system that is managed by a third-party service provider, noted Josh Mitchell, Ph.D., an economist with Welch Consulting in Los Angeles.

Additionally, the W‑2 Box 1 annual taxable wage “is ill-suited for comparing employee pay rates, because it conflates employer and employee decisions and ignores employment changes that affect compensation,” Mitchell testified during a Nov. 20 EEOC hearing on the data collection.

Lynn Clements, director of regulatory affairs at Berkshire Associates, an affirmative action compliance service in Columbia, Md., agreed. She said that an employee’s W‑2 earnings over a 12-month period can be affected by many events that are out of the employer’s control, such as benefit elections and deductions and leaves of absence. “That the W‑2 earnings can be so heavily impacted by employee choice completely undermines the stated purpose of identifying race- or gender-based pay disparities that occur as a result of employer pay decisions,” she testified at the hearing.

Less Controversial Data
The federal government has been gathering EEO‑1 Component 1 information for years, and many employers don’t object to the data collection.
“Component 1’s structure, content and filing options have worked remarkably well over the years,” said Michael Eastman, senior vice president of policy and assistant general counsel for the Center for Workplace Compliance, an employer association based in Washington, D.C.

Component 1 simply requires employers to list employees by job category, race, ethnicity and gender and contains only 180 data fields per employer location, whereas Component 2 has 3,660 data fields for each site.

The OFCCP uses Component 1 of the EEO-1 report for its audit process in multiple ways, said Erin Schilling, an attorney with Polsinelli in Kansas City, Mo. Through this part of the report, the agency can identify federal contractors and subcontractors that are in its jurisdiction and may be selected for audit.

“OFCCP will continue to receive EEO‑1 Component 1 data from covered contractors and subcontractors,” the agency said. Component 2 data, however, “is not collected at a level of detail that would enable OFCCP to make comparisons among similarly situated employees” as required by Title VII of the Civil Rights Act of 1964. “Analyzing EEO‑1 Component 2 pay data would therefore put an unnecessary financial burden on OFCCP,” the agency said.

To contact the reporter on this story: Lisa Nagele-Piazza, J.D., SHRM-SCP -@LisaPiazzaSHRM