Despite the Equal Pay Act of 1963, which requires that men and women be paid equally for equal work, significant pay gaps have persisted based on gender, race, and ethnicity in the United States. Regulators and legislators have therefore increasingly searched for alternative means to reduce the pay gap, such as pay reporting requirements.
In 2016, the Equal Employment Opportunity Commission began a federal program to collect employer pay data when it instituted the EEO-1 Component 2 report. Component 2 required employers to provide employee income information broken down by gender, race, and ethnicity, and employee job category. However, due to legal challenges and a shift in priorities under a subsequent presidential administration, the Component 2 data was only collected by the EEOC for 2017 and 2018.
States take pay reporting matters into their own hands
In response to the federal action, states such as California and Illinois have enacted legislation that requires employers to provide detailed information regarding their pay practices to state agencies. Proponents of these laws believe that pay data reporting laws will encourage employers to review practices that may contribute to pay disparities and strengthen the ability of state agencies and private plaintiffs to pursue their rights in court.
Pay reporting in California
In 2020, as a result of the uncertainty regarding the collection of the federal pay reporting data, California passed Senate Bill 973, the nation's first state legislation that would require employers to provide their pay data to a state agency or government body. Although the bill largely tracked aspects of the federal program (EEO-1 Component 2), there were several important differences, including:
- California’s requirement that the employer provide employee data based on a nonbinary gender category.
- The requirement to provide pay data based on employees’ wages from IRS Form W-2 Box 5 (Medicare, wages and tips), as opposed to Component 2’s use of Box 1 (wages, tips, other compensation).
Then in 2022, California implemented significant revisions to its pay data reporting requirements through the passage of Senate Bill 1162. As a result, starting in 2023, employers must follow these reporting processes:
- For each combination of race, ethnicity, and sex, the employer will have to provide the median and mean hourly rate.
- Covered employers with more than 100 employees hired through labor contractors (staffing agencies) will have to submit a separate report on those employees. However, because employers often do not have demographic or specific pay information on those temporary employees, the California Civil Rights Department has stated that it will encourage the staffing agencies to supply the data to their clients for reporting purposes.
On Feb. 1, the California Civil Rights Department released an updated FAQ and data files, including template CSV and Excel files, so employers can understand and fulfill the technical requirements of their reporting obligations.
Pay reporting in Illinois
In March 2021, Gov. J.B. Pritzker approved Illinois Senate Bill 1480, which amended the Illinois Human Rights Act, and would have required companies to submit their EEO-1 Section D employment data to the state of Illinois along with their annual corporate reports. However, this law was soon revised, and its reporting obligations were expanded, by Illinois Senate Bill 1847, signed by the governor in June 2021.
As a result of SB 1480 and SB 1847, Illinois now requires employers to submit extensive pay data along with an equal pay registration certification to the state. The Illinois Department of Labor (IDOL) has begun to assign application dates to employers on a rolling basis, starting in March 2022 and running through March 2024. Covered businesses must provide information including:
- Wage records, including a copy of their federal EEO-1 report;
- A list of all employees during the past calendar year, separated by gender, race, and ethnicity, the county where the employee works, their start date, and their wages in the past calendar year; and
- An equal pay compliance statement, signed by a corporate officer or the company’s attorney, certifying a variety of pay practices, including: (a) that the company is in compliance with applicable equal pay laws, (b) that the average compensation of female and minority employees is not consistently below the average compensation for male and non-minority workers, taking into account their length of service, job requirements, experience, skill, effort, responsibility, working conditions, and other factors, (c) that the business does not restrict employees of one sex to certain job classifications, and (d) the approach the business takes to deciding wages and benefits, such as conducting a wage or salary survey.
The takeaway for all employers
Employers should keep in mind that California and Illinois are part of a larger trend among federal regulators and state legislatures who are interested in correcting historical pay disparities in the U.S. Beginning in 2024, under Connecticut SB 1202, employers with at least 100 employees in the state will be required to provide demographic data when filing their quarterly unemployment tax and wage reports.
Commissioners at the Equal Employment Opportunity Commission have also hinted that the agency may reinstate the federal EEO-1 Component 2. Understanding both the legal regulations regarding pay reporting, as well as an organization’s own internal pay practices and existing pay disparities will be vital for legal compliance in the future.