You Failed to Submit Component 2 of the EEO-1: Now What?

In a recent episode of HR Works Podcast, I discussed the impending EEO-1, Component 2 submission with experts Mark Adams and Maggie Spell of Jones Walker LLP. Specifically, we discussed what employers need to submit on the 30^th of September and what happens if they don’t make the deadline.

Jim: Hello, everyone, and welcome to HR Works, the podcast for HR professionals. We really appreciate you taking the time out of your busy day to join us.

I’m the host of HR Works, Jim Davis, an editor of the HR Daily Advisor.

This podcast aims to put valuable tools and knowledge into the hands and ears of you, the HR professional. Those tools will arm you with the best methods and strategies for attracting, motivating, and retaining top talent.

Today’s episode is going to have more of a regulatory bent. We’re here to discuss the EEO-1 Component 2 pay data reporting, which is due for submission on the September 30 of this year.

I’ve read the FAQs for the Component 2 submission. And as a nonlawyer, a trait I share in common with most of my listeners, I must say it’s pretty complex, confusing, and quite a large task that needs to be accomplished in a very short period of time.

Here to discuss the topics are some real lawyers: senior partner Mark Adams and partner Maggie Spell of Jones Walker LLP. They both work in the great city of New Orleans, Louisiana, just one of Jones Walkers’ 15 locations.

For more than 30 years, Mark has represented employers in disputes before federal and state courts and regulatory agencies. Drawing on the depth and breadth of his experience, he counsels employers on the development of effective Human Resources policies, procedures, and strategies for complying with federal and state labor and employment laws. He also works with businesses to limit exposure to employment claims, litigation, and government agency investigations.

Maggie focuses her practice on cases brought under federal, state, and local employment laws, including Title VII of the Civil Rights Act, the Americans with Disabilities Act, and the Age Discrimination in Employment Act. She regularly offers wage and hour compliance advice and has represented employers in numerous Fair Labor Standards Act collective actions and state-law wage and hour class actions.

Mark, Maggie, thanks so much for joining me today.

Mark: Happy to be here.

Maggie: Thanks for having us, Jim.

Jim: Absolutely. Why don’t we jump right in?

For those of our listeners who are not fully aware of the requirements, do you mind explaining what needs to be filed, when, and which employers must file?

Maggie: Sure. Jim, I’d be happy to take that question.

So Component 1, just to go back to that briefly, is the piece that, if you’re obligated to file an EEO-1 report you’ve been filing for years, is required for employers, including federal contractors, with a hundred or more total employees, and that’s either full-time or part-time employees during the relevant workforce snapshot period. And we’ll get into more detail about that in a moment. But those are the people who have to submit Component 1.

I say that only because who has to submit Component 2 is a little bit different. Employers, including federal contractors, who have 100 or more employees during that snapshot period have to file Component 2. The distinction here is that if you’re a federal contractor with 50 to 99 employees, you’re obligated to file Component 1 but not Component 2. So there’s a little bit of a gap there.

So generally speaking, people with a hundred or more employees are going to have to file the Component 2 data, which are due by September 30 of this year, pursuant to a district court’s order a few months ago.

And so what is going to need to be filed is what the EEOC is calling Component 2. That’s going to require a couple of different things.

First, you have to report the summary compensation data for your employees. To do that, you use the Box 1 on your W-2. And Mark and I can talk in a moment about why that’s not the greatest measure to use for this purpose. If you’ll recall, the EEOC’s goal here is to take a look at whether there are explanations for or pay gaps out there between what men and women are being paid.

So here, you are to use that Box 1 from the W-2 as the measure of pay that you’re reporting to the EEOC for Component 2. And you’re tallying the total number of employees who fall into each compensation band. And those are laid out very, very clearly by the EEOC on its website and also on the form itself. You tally the total of number of employees who fall into each one, and then you add up their wages to put in that blank.

And then regarding the hours worked, that one gets a little bit more complicated, as you can imagine. If we’re talking about nonexempt employees, you have to report the actual hours worked. This uses the FLSA model of what “hours worked” means. So, this does not include things like paid time off, paid sick leave, paid holidays, etc., which, as you can guess, would be included in that W-2 compensation.

And then turning to exempt employees, if you have actual hours worked, great. You could report that if you maintain records of that information. If you don’t, which we’re guessing is the vast, vast majority of employers with exempt employees, you report essentially a proxy of 40 hours per week for full-time employees and 20 hours per week for part-time employees times the number of weeks that they’re employed.

I know that’s a lot of information.

Jim: It is, but it’s important that people understand it.

Jim: Concerning the snapshot periods, people who have to file the Component 2 only have to do it if they have a hundred or more employees mostly, right? And that’s during a chosen window of time for the years they have to report. Can you just explain a little bit about that? And is there any wiggle room that that offers employees?

Mark: The rule is that each March 31, all employers with 100 or more employees must file the EEO-1 report. And this is where it gets a little bit murky because when do you determine when an employer or whether an employer has a hundred or more employees?

Title VII is very specific because it provides that you’re covered if you have the threshold number of employees in each of the threshold number of workweeks in the current or preceding calendar year. The hundred-employee requirement is not defined the same way. It just simply says if you have a hundred or more employees, you must file.

The regulation further provides that the employer can choose any pay period between October 1 and December 31 of the preceding year as the snapshot date for the file.

And the regulations further say that the determination of whether you have a hundred or more employees is based on the number of employees in the snapshot.

So again, that’s where it gets kinda murky because if you have a hundred or more employees on March 31 but you choose a snapshot period between October 1 and December 31 of the preceding year, in which you don’t have a hundred employees, then that raises the question, are you really covered?

I think the intent here is probably, even though it’s not expressed, that if you have a hundred or more employees at any time during the October 1 to December 31 period, then you’re covered. And then it’s up to you to choose whichever snapshot period you want that essentially is the easiest one or the most favorable one to use.

Jim: So, if you have a hundred employees in March, and then ostensibly, you have to file the Component 2, then you would take a look through the period that you can choose your snapshot from. And say, in the beginning of that period, you have a hundred employees, but somewhere in the middle, someone quit, and now you only have 99 employees. Would you be able to say, “Well, I don’t have to file because I can choose this one snapshot where I only have 99 employees”?

Mark: Technically, I think, no. Technically, I think the intent is that if you have a hundred or more employees at any time during that October 1 to December 31 period, then you’re supposed to file.

But there’s really no check on it. It’s not like the EEOC or the Office of Federal Contract Compliance Programs, which has joined jurisdiction over the EEO-1 report, is going to have any way of checking to see which employers have a hundred or more employees. I suppose I could check payroll tax reports that are turned into the IRS, but those are on a quarterly basis. And I doubt that they have that capability or the resources to do that.

So, to answer your question, is there some wiggle room here? Yes, I suppose there is, but it’s not in keeping with the spirit of the regulatory requirements.

Maggie: I think some of the guidance on the EEOC’s website supports Mark’s theory about kind of the intent.

There, they talk about if the employment levels fluctuate above and below a hundred employees during that October-to-December period, the employer isn’t obligated to choose a pay period when it has a hundred or more employees. But then, they go on to say they may choose whichever workforce snapshot period they want between October 1 and December 31 of the reporting year, suggesting that they’re still expecting you’re going to report even if you pick a period that has less than a hundred employees.

Jim: All right. Thanks for that clarification.

Just really quickly, I was looking through the FAQs, and I couldn’t find the answer. What about contract workers? Do they count toward the overall tally of employees?

Mark: No. Contract workers are … I assume you mean temp agency workers.

Maggie: Or independent contractors?

Jim: Yeah, or freelancers. Anything like that.

Mark: Yeah. Let’s talk about each separately.

Temp agency workers are reported by the temp agency that pays them. You report only payroll employees, so leased employees don’t count toward the hundred employees. Those are reported by or those go in the count for the temp agency that referred those workers.

Independent contractors are not employees, so they’re not counted either.

Maggie: But that’s another good reason you should make sure you’re properly classifying workers as either employees or independent contractors.

Mark: Correct.

Maggie: Because you may not be including someone on your EEO-1 who is technically an employee but you have classified as an independent contractor.

Mark: And also, temporary workers, or workers who are hired on a job basis such as in the construction trades, are not counted.

And workers who are hired on a temporary basis, through a union hiring hall, for example, are not counted.

Jim: Okay, great.

As we know, the date is rapidly approaching. September 30 is shockingly close. Additionally, employers, it was decided, had to file Component 2 compensation data for both 2017 and 2018 by this date.

In your opinion, can employers realistically be expected to get that much data together that quickly?

Mark: Mag, you want to take that?

Maggie: Sure. I always hate this answer, but I think it depends.

I think there are going to be employers that absolutely don’t have a realistic chance of getting these data together because of how they’re stored. If an employer, for example, has this type of data stored across a variety of different databases—some of which may be operated by vendors or outside sources, where it just makes it next to impossible, and they have a really thin staff—it may not be able to get it together.

But I think most employers can do it if they follow some key steps, such as, touching on what I just mentioned, looking at where these pieces of information are stored, coming up with some sort of consistent process for identifying where the data are located, how they can efficiently gather them, sorting them, and then they’re going to have to also verify the accuracy of the information.

Some of this will be … For example, using the job categories, they’ll be able to refer back to their EEO-1, the EEO-1 Component 1 data, excuse me. If they’re using the same snapshot period, which they’re not obligated to do—but a key reason why somebody may consider using the same snapshot period is to short circuit that particular piece.

It’s really hard to answer the question of whether it can realistically be done because it’s so employer-specific.

Mark: Yeah. Let me just add to this. I think that it’s going to be really tough for smaller companies with small HR staffs to meet this deadline and to meet this filing requirement. Many small employers don’t have a dedicated HR manager, or it may be a one-person HR department. And those are the companies that are going to have the hardest time meeting these requirements.

But the bigger companies, by and large, with the bigger HR staffs and the resources to go out and hire a service, for example, that can do this data compilation for them, should be able to meet this requirement. It just comes down to resources.

Maggie: Mm-hmm (affirmative).

Jim: Right. Something that occurs to me while we’re talking about this is you mentioned, Maggie, earlier that people should audit their classifications, their employee classifications. It’s really important that these data be accurate, right? Because if you introduce inaccuracies into them, that could skew how you’re perceived or how you’re received, I should say. Is that correct?

Maggie: Well, there are a couple of different things there. I think you’re absolutely correct that it could skew how you’re perceived or what the EEOC is going to do with those data or, quite frankly, whomever else ends up with these data down the road, to the extent they’re not kept confidential or subject to a foyer request at some point in time.

But the other thing is you’re obligated as an employer to submit accurate data to the EEOC in your EEO-1 report. And there are penalties that come along with filing an inaccurate report. And I think Mark can probably offer more on that piece.

Mark: Criminal penalties. Criminal fines and even imprisonment for filing false data or a report that you know to be false.

There is no fine or penalty for not filing or for filing late. The EEOC could sue you and get a federal court to order you to file the report, but that’s highly unlikely. I don’t think it has the resources or the desire to engage in that kind of litigation, which it would have to carry out on a massive scale. But there are criminal fines and penalties, including imprisonment, for knowingly filing a false report.

In part 2 of this article series, we’ll continue this discussion with Mark and Maggie. Specifically, we’ll learn what happens if you find mistakes with your already submitted EEO-1 Component 1 while preparing Component 2.

To listen to the entire episode, click here.