Written Testimony of Elizabeth Milito, Esq. NFIB Small Business Legal Center

Hearing of March 16, 2016 - Public Input into the Proposed Revisions to the EEO-1 Report

Chairwoman Yang and Commissioners:

The National Federation of Independent Business (NFIB) appreciates the opportunity to submit this statement to the U.S. Equal Employment Opportunity Commission (EEOC) regarding the proposed revision of the Employer Information Report (EEO-1), which was published for public comment at 81 FR 5113 (February 1, 2016). NFIB is the nation's leading small business advocacy organization representing 325,000 small business owners across the country.

NFIB represents small businesses in every region and every industry in the country. The NFIB Small Business Legal Center is a nonprofit, public interest law firm established to provide legal resources and be the voice for small businesses in the nation's courts through representation on issues of public interest affecting small businesses.

On January 29, 2016, the EEOC announced a proposed revision to the EEO-1, which will require private sector employers with 100 or more employees to report pay data by sex, race, and ethnicity as well as job category. According to the EEOC, the new data will enable the agency to identify possible pay discrimination and assist employers in promoting equal pay in their workplaces.

While NFIB and its members are committed to supporting workplaces that are free from discrimination, we do not believe that the additional reporting burden imposed on employers will identify illegitimate discriminatory pay practices. Instead, we are concerned that the revised EE0-1 will put more employers at risk of investigations and lawsuits over legal disparities in pay in addition to exponentially increasing employers' reporting burden.

Background

Currently, the EEO-1 requires certain federal contractors with 50 to 99 employees and other private employees with 100 or more employees to annually report the number of individuals they employ by job category, race, ethnicity, and sex. For the 2016 EEO-1 reporting cycle, the EEOC has proposed an unprecedented expansion of the form, "to ease the transition to the new pay data collection in 2017." Starting in 2017, the revised EEO-1 would require employers to report data concerning employees' pay and hours worked, in addition to data on race, ethnicity, and sex by job category. This expanded form would contain over 3,500 data cells. Every employer covered by the report will need to spend significant time and money figuring what and how to report. 

Pursuant to the Paperwork Reduction Act (PRA), the EEOC is asking for a three-year approval of the revised EEO-1 from the Office of Management and Budget (OMB). OMB must consider "whether the data request is the least burdensome possible and whether the information shall have practical utility." NFIB believes that EEOC has failed on both counts: the revised EEO-1 is not "the least burdensome," nor will the revised EEO-1 provide any "practical utility."

NFIB has consulted with members and outside human resource experts in order to understand the potential impact of the revised EEO-1. Concerns primarily fell within four areas, which I will focus on today: (1) difficulty with collecting and reporting W-2 pay data; (2) difficulty with collecting and reporting hours worked data; (3) privacy concerns; and (4) concerns with EEOC's potential misuse of data. I will also discuss, briefly, concerns NFIB has with burdens unique to small businesses.

Problems with Collecting W-2 Data

The revised EEO-1 will collect aggregate W-2 data in 12 pay bands for the 10 EEO-1 job categories already used.  The EEOC explains that "[e]mployers will simply count and report the number of employees in each pay band."  Remarkably, the EEOC claims that the submission of W-2 data will not impose a significant additional burden on employers because employers already compile this information for tax purposes. 

EEOC's claims are completely off. While it is true that employers are required to issue W-2s to their employers, they typically do this at the end of the year. Currently, W-2s reflect wages earned in a calendar year, not from October 1 through September 30, which is the timeframe that will be required for the revised EEO-1. So to comply with the revised EEO-1, employers will need to collect and report W-2 data specifically for the EEOC. In the words of one NFIB member "I will now need to collect pay data in format completely different from that used by the IRS and state revenue authorities."

The EEOC has proposed three approaches for employers to gather W-2 data. These approaches may or may not work for businesses depending on what type of payroll system is in place and how much the business can afford to spend on an upgrade. The EEOC assumes that employers can make simple changes to their databases to import the W-2 data at any given time or that the "one-time burden of writing custom programs to import data" is a small and inexpensive one. This one-size fits all assumption is particularly troubling for small businesses in the 100-employe size range who likely had no plans (and no budget) to upgrade its payroll and accounting systems.

Moreover, for both non-exempt and exempt employees W-2 data is not necessarily reflective of non-monetary compensation employees might receive. Examples of non-monetary compensation include flex-time, paid-time-off, telecommuting options, free parking, tuition assistance, and gym membership. A paycheck alone does not necessarily reflect the non-financial rewards that attract and retain employees.

Problems with Collecting Hours-Worked Data

In addition to pay data, on the proposed EEO-1, employers will be required to provide hours-worked data. For example, for each pay band on the revised EEO-1, employers will report the total number of hours worked by employees counted in that pay band for the previous 12-month period (October 1 through September 30), by ethnicity, race, and sex. The EEOC believes that this "data will allow analysis of pay differences while considering aggregate variations in hours." Like pay data, hours-worked data, will be problematic to collect.

To start, the EEOC has not yet proposed an approach to deal with the reporting of hours for salaried employees. The Federal Register notice merely states that "Component 2 of the revised EEO-1 will collect the total number of hours worked by the employees included in each EEO-1 pay band cell." The EEOC has invited employers to comment on this particular issue and suggested that one approach would be for employers to use an estimate of 40 hours per week for full-time salaried workers.

Few employers keep timesheets on actual hours worked by exempt employees for the simple reason that exempt employees' salaries are not based on hours worked but on job duties and job performance. As such, NFIB would oppose any reporting method that would impose time-keeping requirements for exempt employees.

The EEOC also has not addressed how the hours of part-time employees and employees who work less than the full reporting period should be counted by employers. 

Concerns with Breach of Pay Confidentiality

The EEOC and the Office of Federal Contract Compliance Programs (OFCCP) claim that the agencies will continue to protect and maintain the confidentiality of the pay data reported by employers. They assert that by using pay bands and collecting aggregated data, the revised EEO-1 will protect an individual employee's privacy. However, for a small business with only a handful of executive-level managers and mid-level managers, it will likely be obvious who is paid what. Moreover, while Title VII specifically prohibits the EEOC and its employees from disclosing EEO-1 data outside of Title VII proceeding, OFCCP is not prohibited from such disclosures.

NFIB and its members are also concerned about the ability of the EEOC to keep EEO-1 data confidential. Last year hackers were able to compromise confidential information of more than 22 million people by hacking into OPM's database. Employers are rightfully worried about another potential breach of government security.

Potential for Abuse and Misuse of Data

While the EEOC indicates collection of this data will reveal pay discrimination, this is unlikely to be the case. The revised EEO-1 will not provide sufficient information to identify discrimination among similarly-situated individuals. For instance, pay disparities can occur for many, many legitimate reasons, including experience, relevant and related education and training, part-time work, and breaks in employment, none of which will be reflected in the data collected by the revised EEO-1. The EEOC has not explained how it will account for these factors when analyzing data to determine whether there is potential pay discrimination based on a protected category. There is simply no way that the EEOC's analyses will offer an "apples to apples" comparison of compensation and hours for the various pay bands.

But the information reported may be used to target employers, who will then need to spent significant time and money to defend themselves against legally deficient claims. Meanwhile, every employer covered by the report will also need to spend time and money figuring what and how to report. 

Burden on Small Businesses

Small businesses routinely feel the brunt of the regulatory excesses. It has been well documented that small businesses are disproportionately impacted by regulation. But in addition, according to the latest NFIB Research Foundation's Small Business Economic Trends survey, released monthly, "government requirements and red tape" ranked as the most important problem facing small business owners. Accordingly, NFIB believes that the EEOC must note the unique problems faced by a small business charged with completing the revised EEO-1.

Unreasonable government regulation, especially onerous paperwork burdens, continues to be a top concern, and our members consistently rank those costs as one of the most important issues that NFIB should be working on. Small business owners prominently rank "Uncertainty Over Government Actions" and "Unreasonable Government Regulations" as their fourth and fifth most serious problems in the quadrennial NFIB report, Problems & Priorities. Our members view regulation as a serious problem. Most small business owners are unhappy with the difficulties regulation creates and the time it takes them away from their business, rather than any limitation on freedom those regulations might impose; and they identify federal regulation as the biggest culprit in creating those difficulties.

The EEOC states that the revised EEO-1 will create a minimal burden on employers. This claim is simply absurd. The form will impose significant cost and burden on all employers, make no mistake. But small employers - those with 100-500 employees - are most likely to have less robust HRIS and payroll systems, thereby requiring very significant software upgrades and consulting fees.

Beyond the monetary expenses, EEOC must also consider other types of paperwork burdens. Beyond actually filling out forms, employers will expend a great deal of time gathering the resources and getting the people together to get information that the government is demanding. EEOC estimates that the revised form will burden employers by causing them to incur only an additional 3.4 hours of labor to complete the new form (with over 3,500 data cells) is ludicrous. Yet, the EEOC presents no evidence to justify this estimate. The cost and labor estimates by the agency are simply not credible.

Paperwork and recordkeeping represent a major aggravation for small-business owners.¹ They spend significant amounts of money and personal time to keep up with recordkeeping, and the per-hour cost of paperwork for owners of larger small-firms is higher because they are more likely to outsource recordkeeping requirements because the value of the time they spend on paperwork is on average more expensive. Overall, the revised EEO-1 will be a bonanza for IT and HR consultants and a budget-busting headache for businesses, who had no plans to invest in new payroll and HRIS software in the coming year.

Conclusion

Small businesses are drowning in a sea of regulation. Small business owners are spending more and more time trying to understand new regulatory requirements, complying with them and filling out the paperwork that seems to accompany every new regulation. Unfortunately, the EEOC's proposal continues the trend of ever-increasing regulatory red tape by imposing costly new reporting requirements on employers. Under the PRA, the EEOC has failed justify either the utility or the burden imposed by the revised EEO-1.

Again, thank you for inviting NFIB to participate in today's hearing.

Footnote

¹ NFIB Small Business Poll, Paperwork and Recordkeeping.