July 25, 2019 | HR Compliance | Posted by Bob Greene, Senior HR Industry Analyst at Ascentis
EEO-1 Component 2 Pay Data Collection: It’s ON!
This past March 6, we posted an update on the EEO-1 Pay Data Collection Requirement, updating our readers on the situation at the time relating to the EEOC’s pending mandate for employers to submit annual compensation and hours worked data broken down by race and gender. Now, we’re back with the latest updates.
EEO-1: A history
The EEO-1 “Component 2” report revision was sidelined in August 2017, when the new Presidential Administration, through their Office of Management and Budget (OMB), delayed indefinitely the requirement for employers of 100 or more workers to report this data.
In November 2017, the National Women’s Law Center (NWLC) along with other plaintiffs, sued the OMB to rescind the agency’s set-aside of the new regulations, with the intent to reinstate them. And on March 5, 2019, the NWLC won its lawsuit.
On summary judgment, Judge Tanya Sue Chutkan of the DC Federal District Court ruled:
- The stay of the new reporting requirements was an arbitrary and capricious act on the part of the OMB
- The OMB failed to follow its own rules in issuing the stay
- The OMB failed to provide a “reasoned explanation” for the stay, as required under applicable federal rules. [National Women’s Law Center v. Office of Management and Budget, U.S. District Court for the District of Columbia, No. 1:17-cv-2458]
Although the OMB appealed to the DC Circuit Court of Appeals, arguments in the appeal are not even scheduled yet, and the due date for the Component 2 information filings is September 30, 2019. In an acknowledgement that the DC District Court ruling stands, on July 15, 2019 the EEOC established a website delivering instructions, information and updates to the ~60,000 estimated employers impacted by this new reporting requirement. You will find this site here. Individuals within an organization who are responsible for completing these filings should check this site frequently (perhaps weekly), since the EEOC is posting “Latest Updates” (with dates of posting) at the top of the page. Oh, and did we mention? Employers will be required to “play catch-up” this year, reporting data for both the 2018 and the 2017 reporting periods!
It’s time to prepare
The Sample Component 2 Report runs an impressive eight pages, due to the possibilities of: two genders, seven racial designators, 10 job categories, and 12 pay ranges. Yes, that’s 1,680 unique “combination counts” to populate. Simple to do by upload (once the report you produce in Excel or “CSV” format is placed into the accepted file formatting standards). Far more tedious if you are typing these values into the website one by one.
Remember: multi-establishment employers must file separate reports for:
- Each establishment with more than 50 employees
- Either separate reports (“Type 8 records”) or a special list report for all establishments with fewer than 50 employees each (“Type 6 records”)
The EEOC filing website will kindly total up all of your individual reports to produce a single consolidated report (“Type 2 record”), saving you one, single report – but only if you choose to file your smaller establishments separately (as “Type 8 records”).
Overview of what to expect:
- This first filing will need to be two separate filings: One for calendar year 2017 and one for calendar year 2018.
- Each employer must choose a payroll “snapshot” pay period between October 1 and December 31 of the applicable reporting year and use the active employees for that period to report pay and hours data over the course of the calendar (tax) year.
- Although the reporting deadline for 2017 and 2018 will be September 30, 2019, the reporting deadline for future years for Component 2 data will conform with the Component 1 (“traditional EEO-1”) reporting: May 31 of the following year. Employers have only an 8-month lapse between 2018 and 2019 reporting efforts.
- Hours must also be reported. Here are the rules:
- Non-exempt and/or hourly employees: Report actual hours paid.
- Exempt employees: If the employer retains actual hours worked, those should be used. However, the safe harbor that employers should use for exempt employees where hours worked are not being retained, is 40 hours for each full-time employee and 20 hours for each part-time employee, for each pay period in which they have earnings.
- Pay data is to be taken from Box 1 (Wages, Tips and Other Compensation) from the applicable year’s form W-2 for the employee.
- To conform with the pay data annual period, the instructions also tell employers to report hours worked as applicable when paid (the “rule of constructive receipt”), which is the simplest way to address weekly and bi-weekly pay periods extending over a year-end. For example, a bi-weekly pay period beginning December 22, 2018 and ending January 4, 2019 would be paid after January 4, 2019, and both the earnings and the hours for that entire pay period count in 2019 Component 2 reporting, and not in 2018 reporting.
Although the ability to populate this reporting online manually has been available since July 15, clearly most employers, particularly those with multiple establishments, will want to automate the upload their reports. This capability is being promoted on the EEOC site as being available some time in “mid-August.
Impact on employers
The prior Presidential administration estimated the cost of producing this new reporting at “a few additional hours each year” to gather – an aggregate cost of $50 million for all US employers subject to the requirement. The US Chamber of Commerce, at the other end of the estimating spectrum, suggested that the true aggregate cost to US employers was more like $400 million annually – eight times the government estimate. It will likely fall somewhere in between.
One principle regarding the “level of effort” required by each employer to produce this report appears intuitively obvious: employers who are on a single, consolidated HCM (Human Capital Management) technology platform, from a single vendor, should expect such a platform to leverage the data from both the payroll and HRIS modules to produce this report. Employers who are still on separate, “integrated” or “interfaced” payroll and HRIS modules (particularly from two different vendors) will likely have a much tougher time. For these situations, extracts from two separate systems may be needed, then the two reports merged based on key data elements, and finally, massaging the data into the needed upload format as specified by the EEOC.
The last time we saw this large of a new administrative requirement that prescribed the need for combined HR and payroll systems was ACA annual reporting. Although some organizations decided then to consolidate to a single platform, others have retained specialty vendors or consultants, or even eliminated the need for consolidated systems entirely (by, for example, bypassing the W-2 Box 1 affordability safe harbor in favor of one of the other two available safe harbors).
This time around, with Component 2 data reporting, the level of effort required for those on disparate HR and payroll platforms may finally feel the weight of “the straw that breaks the camel’s back,” resulting in decisions to consolidate HCM functionality on a single platform. And if you’re looking to leave your disparate HR and payroll systems behind and finally move into a more streamlined experience, we know someone who can help.
Bob Greene currently serves as Senior HR Industry Analyst at Ascentis. Bob’s 40 years in the human capital management industry have been spent in practitioner, consultant and vendor/partner roles. As practitioner, he managed payroll for a 5,000-person bank in New Jersey. As consultant, he spent 8 years advising customers in HRMS, and payroll and benefits system design as well as acquisition strategies. Bob also built a strategic HCM advisory practice for Xcelicor (later acquired by Deloitte Consulting.)