Three Things Employers Need to Know Now About EEO-1 Component 2 Pay Data

Most employers are familiar with their EEO-1 reporting obligations, but the new EEO-1 Component 2 data obligations have created confusion.  EEO-1 Component 2 data is pay and hours worked data, including matching demographic data, that the EEOC is requiring some employers to submit. The agency’s stated intent for collecting the data is to determine whether pay disparities based on legally protected characteristics exist.

With court orders and announcements by the EEOC coming out seemingly every week, employers should keep several critical things in mind about EEO-1 Component 2 obligations.

  1. EEO-1 Component 2 data is still due September 30, 2019.

Employers with 100 or more employees in every pay period between October 1 and December 31 of 2018 must submit Component 2 data for 2018, and those with 100 or more employees in every pay period between October 1 and December 31 of 2017 must submit Component 2 data for 2017. (If an employer has less than this many employers in any pay period between October 1 and December 31 of a year, it may use that pay period as its “workforce snapshot period” and will not have to submit data for that year.)

If an employer qualifies in both years, it must submit data for both 2017 and 2018 by this September 30.

Data must be submitted through this website: Submitting data requires registering for a User ID, and the website is receiving a high volume of requests, so employers should register as soon as possible.

  1. Employers should be very careful about how they report hours for FLSA exempt employees.

The EEOC requires employers to report hours-worked data in Component 2. For FLSA-exempt employees, employers can either (1) report actual hours worked if the employer maintains accurate hours-worked records, or (2) report a proxy of 40 hours per week for full-time employees and 20 hours per week for part-time employees. So an employer does not have to start tracking the hours of FLSA-exempt employees simply to report Component 2 data.

However, using a 40-hour proxy creates a significant FLSA litigation risk. Often, FLSA claimants allege that they were misclassified as exempt and that their salaries were intended only to cover the first 40 hours in their workweek. Employers typically counter that the salary is intended to cover all the hours in the workweek, no matter how many the employee works. This has significant effects on damage calculations. For example, if an exempt employee works 50 hours a week and is paid a $500 weekly salary, and a court finds the employee to have been misclassified, the damages will be much higher if that $500 only covered the first 40 hours. That is because if the salary only covers the first 40 hours, then the employee is due not only an overtime premium for the 10 other hours in the week, but the employee has a much higher regular rate (the salary paid divided by the hours it covers) and also has not been paid the regular, “straight-time” wages for the hours beyond 40:

Salary covers all 50 hours: Regular rate would be $500 an hour/50 hours = $10 an hour, overtime premium would be half that ($5 an hour), times 10 hours of overtime work = $50 in damages

Salary only covers first 40 hours: Regular rate would be $500 an hour/40 hours = $12.50 an hour, overtime work would be time and a half based on that hourly rate ($18.75 an hour), times 10 hours of overtime work = $180.75 in damages.

This shows that how many hours the salary covers is crucial, because it can more than triple the potential damages in FLSA litigation.

When employers use a 40-hour proxy for the exempt employees in Component 2 data, they are therefore taking a risk that they are creating a record suggesting that salaries only cover the first 40 hours of work, a record that (if properly obtained by a claimant) could be used in future FLSA litigation to increase damages significantly. Employers using such a proxy should seek legal counsel to consider options for lowering that risk.

  1. Despite an EEOC announcement that no future obligations exist beyond this year, employers should be prepared to continue reporting in future years.

Recently, the EEOC gave notice of proposed rulemaking (and sought comments) that would eliminate the EEO-1 Component 2 obligations. Employers should not make significant investments in compliance efforts beyond getting their data in for 2017 and 2018 on September 30, but employers should not assume that this will be the last time they must submit Component 2 data. The current administration’s EEOC has sought to roll back the Component 2 before, but a district court stopped it. A court could similarly block this rule if it becomes final, a future administration could reinstate it, or the current administration could decide to continue the Component 2 obligations.

The Bottom Line

Employers must submit Component 2 data by September 30 if they have enough qualifying employees in 2017 or 2018. Employers should think hard about the consequences of reporting exempt employees’ pay data when it comes to the Fair Labor Standards Act and the risk of exempt misclassification lawsuits. And although the EEOC has signaled it will not require Component 2 data after this September 30’s submission, that could easily change.