EEOC Pay Data Saga Ends (For Now), but was “Component 2” Ever an Answer to Systemic Pay Discrimination Issues?

This morning, my LinkedIn feed was full of messages and alerts about the end of the EEOC’s collection of pay and hours data through its Employer Information Report, commonly known as the EEO-1. The struggle over the collection of the “Component 2” data has drug on since 2016, and we haven’t seen the end of it yet. This pendulum swing between Democratic and Republican administrations over how executive branch agencies advance an administration’s priorities is very familiar to labor lawyers, as we have been dealing with the whipsawing NLRB for years: a Democrat-controlled Board rules one way, only to have a Republican-controlled Board swing precedent in the other direction. Employers get stuck bouncing back and forth.

I am a data guy. If I can have a computer crunch numbers or analyze legal data for me, I will make that investment every time. I was excited when Component 2 was first proposed, but one part of the discussion that seemed to get glossed over was whether the Component 2 data was actually useful for the purpose EEOC originally wanted to collect it. Unfortunately for the important goal of advancing pay equity efforts, I don’t think it was. I will show you some sample data below to illustrate why I think Component 2 fell short and stakeholders should not be sad to see it go.

Background

Let’s start with the obvious: pay equity is a key issue, and should not be a political one. Paying two similarly situated individuals differently based on race, gender, or some other protected characteristic is unlawful and, even if a state agency or the EEOC never come knocking, foolish.

In attempt to help address this issue, in 2016, late in the Obama administration in 2016, the Equal Employment Opportunity Commission (“EEOC”) launched an initiative to expand the data it collected through the EEO-1 report for federal contractors and employers with more than 100 employees. The EEOC’s goal was to “assist the agency in identifying possible pay discrimination.” Specifically, the EEOC added a pay and hours reporting requirement (“Component 2”) to the list of elements for data collection.

The EEO-1 Component 2 data consisted of taxable income and hours worked in a calendar year, aggregated into twelve pay bands and organized by the same categories as the traditional EEO-1 Component 1 data (job category, race, ethnicity, and gender).

Shortly after taking office, the Trump administration decided to suspend collection of this data, kicking off court battle between the National Women’s Law Center and other plaintiffs and the Office of Management and Budget. The D.C. District Court found that OMB did not have proper justification to stay implementation of the Component 2 data collection and ordered EEOC to start collecting that data. After several delays, the EEOC ultimately did that.

Having been ordered to collect the data for 2017 and 2018, EEOC published a Notice of Information Collection in September 2019 advising the public that “the EEOC is not seeking to renew Component 2 of the EEO-1.”

The Trump EEOC decided “it should consider information from the current Component 2 collection before deciding whether to submit a renewed pay data collection to OMB” (you get one guess on whether it will ever request pay data…).  The Agency concluded that

at this point in time, the unproven utility to its enforcement program of the pay data as defined 2016 Component 2 is far outweighed by the burden imposed on employers that must comply with the reporting obligation.

Yesterday, D.C. District Court Judge Tanya Chutkan ordered the EEO-1 Component 2 pay data reporting portal closed for 2017 and 2018, as employer responses had reached the threshold she had required in prior orders.

The Laudable Goals of Component 2 Data

Officially, the EEOC’s 2016 decision about what pay data to collect balanced the usefulness of data with the burden on employers of collecting it. More specifically, though, proponents cited two goals:

1. First, by collecting and reporting the data, employers would be encouraged to conduct self-audits, correct any pay disparities, and proactively change their pay practices and structures.
2. Second, EEOC (and OFCCP, which oversees government contractors) could more effectively address workplace discrimination by using the aggregate information to look for trends and strengthen enforcement efforts.

The first goal is laudable, but may fail. Companies who must file EEO-1 overwhelmingly rely on payroll processors or HCM systems to collect this data. In ADP and Paylocity, two widely used services, the services provided pre-configured reports that outputted the requested Component 1 and Component 2 data automatically. No self-audit or analysis required.

The second goal is useful, too, but the aggregated data that EEOC collected appeared less than helpful in meeting it. Even at the individual employer level, the data would be less than useful for analysis. The EEOC itself stated that the agency “does not intend or expect that this data will identify specific, similarly situated comparators or that it will establish pay discrimination as a legal matter.”

What Does Component 2 Data Look Like Anyway?

The EEOC’s sample Component 2 form provides a good overview, but the data breaks down into five general categories:

1. Job categories numbered 1-10 from the EEO-1 Component 1, from Executive/Senior Level Officials and Managers to Service Workers
2. Columns A-N for combinations of Gender (a binary choice of male or female), Ethnicity (Hispanic/Latino or not), and Race (White, Black or African American, Native Hawaiian or Pacific Islander, Asian, Native American or Alaska Native, Two or more races)
3. Pay bands for the amounts reported on an employee’s W-2, in Box 1, numbered 1-12:
   • $19,239 and under
   • $19,240 – $24,439
   • $24,440 – $30,679
   • $30,680 – $38,999
   • $39,000 – $49,919
   • $49,920 – $62,919
   • $62,920 – $80,079
   • $80,080 – $101,919
   • $101,920 – $128,959
   • $128,960 – $163,799
   • $163,800 – $207,999
   • $208,000 and over
4. Hours worked

That data ends up looking like this:

How Component 2 Failed to Advance the Cause

There’s no question that pay disparities exist and need to be addressed. As the Justice Ginsburg noted in Ledbetter, “comparative pay information, moreover, is often hidden from the employee’s view.” However, comments to the EEOC’s decision to stop collecting Component 2 data often summarily concluded that data like that sample above would “improve the effectiveness of enforcement efforts” generally with analogies to how the EEO-1’s far simpler race and gender data do that for EEOC and OFCCP. Supporters did not explain exactly how the pay data itself could do that.

The raw data above is problematic. It shows groups of employees’ wage bands, but provides no context as to how employees landed in them or why. Masked in the data above would be a number of completely permissible and often objective pay factors, such as:

• shift (i.e. day/night work hours)
• seniority at the company or in a position
• seniority of the position (a “lead,” a “supervisor,” and a “manager” all might fall into the same Component 2 job category)
• location of the position
• market rates for the particular position (both a forklift driver and machine operator could fall into the same job category, but the market for their respective jobs is often dramatically different)
• local wage laws (employees working the same jobs in different locations may be covered by different pay requirements: show-up pay, minimum wages, etc.)

Worse yet, because the EEOC relied on W-2 Box 1 data, Component 2 collection includes compensation completely unrelated to an employer’s pay decisions. My own W-2 Box 1 excludes voluntary deductions for 401(k) contributions, health insurance premiums, and FSA and dependent care deductions. For other employees, pay components such as disability benefits, PTO, jury duty pay, severance payments, deferred compensation, and profit sharing could impact what is reported in Box 1.

Providing W-2 information is also problematic because the EEO-1 report was intended to take a snapshot of a particular payroll period. Component 1 data like race and gender information generally does not change, making such a snapshot useful. However, particularly for hourly employees, payrolls are fluid and change regularly from year-to-year based on promotions, pay rate changes, deduction changes, leaves of absence and more.

Finally, whenever I have conducted a pay equity analysis for a client, I have never used W-2 Box 1 as the basis for it, nor have I tried to analyze pay based on actual hours worked. The latter is a separate analysis from pay equity. The former starts me with a flawed basis and masks actual pay disparities.

Upshot for Employers

What can the EEOC do better on the data collection side? I’m not sure. Component 2 was doomed to fail, even if the goals were admirable and the work to root out systemic pay discrimination absolutely necessary. Pay equity is something we need to address as a country and as employers, but Component 2 ended up a flawed distraction. I hope employers, employee advocates, Congress, and future administrations can find another, more useful approach. The data is there, even if it has to be pulled out on a case-by-case basis during enforcement rather than generalized.