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Closing the Gap: Executive Action Would Require Large Employers to Disclose Pay Data by Gender

In its most recent effort to close the gender wage gap in the United States, the Obama administration has proposed a new rule that would require large employers to disclose how much they pay their male and female employees.  This announcement comes seven years after the passage of the Lilly Ledbetter Fair Pay Act, a federal law making it easier for women to challenge discriminatory pay by extending the period of time in which they can file pay discrimination lawsuits.  Despite such governmental efforts to eliminate discriminatory pay practices, current statistics show that a stubborn wage gap persists in America, with women earning 79 cents for every dollar earned by men.

The Rule

As proposed, the new rule would require companies with 100 or more employees (both private industry and federal contractor) to submit salary data to the Equal Employment Opportunity Commission (EEOC), broken down by race, gender and ethnicity.  According to the administration, the proposal would cover more than 63 million U.S. workers.

The Goal

According to the EEOC, the aim of this latest regulatory effort is twofold:  to assist the agency in identifying pay gaps and to assist employers in evaluating their pay practices.  Ultimately, the government would use this information to target employers who are engaging in gender discrimination and to determine where it will focus its enforcement efforts.

The Logistics

The EEOC predicts that the administrative burden of gathering this compensation data should be relatively light because it builds on the existing Employer Information Report (EEO-1).  Currently, employers with 100 or more employees provide demographic information on the race, gender and ethnicity of employees by completing their annual EEO-1 form.  The new rule would require employers to include salary and pay information in the report they already file.

As explained by the EEOC, the revised report would collect data on employees' W-2 earnings and hours worked, which EEO-1 filers already maintain in the ordinary course of business.  This W-2 pay information would be reported in "pay bands," meaning that affected employers would tally and report the number of employees whose W-2 pay for 12 months was in each pay band.  In order to protect confidentiality, employers would not report individual pay or salaries.

The Timeline

A draft of the proposed revisions is available for inspection and public comment from February 1, 2016 to April 2016.  The EEOC Chair has stated that she anticipates the rulemaking process to be completed by September 2016, when the new rules would official go into effect.  

The Game Plan

Although the first submission deadline may seem far off, it is advisable for affected employers to familiarize themselves with the proposed rule now.  Businesses should also consider reviewing their current reporting system to determine whether any software upgrades or modifications will be needed in order to facilitate compliance with the new reporting requirements.

To ensure that they are in a good position should this rule go into effect as proposed, affected employers also should begin conducting their own gender-specific pay audit.  Taking proactive steps to identify any existing disparities in their pay practices will permit employers to determine whether those disparities may be justified by non-discriminatory explanations and whether they should adopt remedial measures to mitigate potential inequality issues.