Pay Transparency Remains in Vogue This Legislative Session – Part 2: Pay Data Reporting

As we reported in the first installment of our series on pay transparency, pay equity legislation continues to trend nationwide. While Part I focused on salary range disclosure legislation, in Part II, we highlight mandatory pay data reporting requirements that are being considered in Massachusetts.

What is Mandatory Pay Data Reporting?

Pay data reporting laws require covered employers to submit detailed compensation data reports, often broken down by race and gender, to state-designated agencies. To date, California and Illinois have adopted such laws. Under California law, private employers with 100 or more employees are required to file pay data reports that disclose:

• the number of employees by race, ethnicity, and sex in each of multiple job categories;
• for each combination of race, ethnicity, and sex within each job category, the median and mean hourly rates;
• the number of employees by race, ethnicity, and sex whose annual compensation falls within each of the multiple pay bands; and
• the total hours worked by each employee in each pay band.

Additionally, private California employers with 100 or more contract workers must submit a separate contractor pay data report. Illinois law provides a slightly different system through which private employers with 100 or more employees in the state must submit pay data reports to apply for and obtain a required equal pay registration certificate.

Federal Law – The Rise, Fall, and Possible Comeback of EEO-1 Component 2 Data Reporting

Pay data reporting at the federal level is not a new concept. Larger employers and federal contractors are sure to remember the short-lived EEO-1 Component 2 Data Reporting that the Equal Employment Opportunity Commission (EEOC) initially adopted in 2016 under the Obama Administration. This data collection provision required covered employers (private employers with 100 or more employees and federal contractors with 50 or more employees) to submit a secondary part to their EEO-1 reports containing aggregated employee pay data based on race, ethnicity, sex, and job category. But just before implementation in 2017, the Trump Administration stayed the process for the 2017 and 2018 reporting years and announced it would not collect Component 2 data for later reporting years. Advocacy groups challenged the Trump Administration’s decision in court, and in 2019, a federal district court deemed the stay unlawful. Thus, the Court ordered the EEOC to collect Component 2 pay data from covered employers for the 2017 and 2018 reporting years. In 2019, the EEOC voted to discontinue EEO-1 Component 2 pay data collection.

Whether Component 2 data reporting will return to the EEO-1 form remains uncertain, but several indicators suggest a comeback may be on the horizon. For example, the EEOC’s Strategic Enforcement Plan, which, along with the EEOC’s Strategic Plan, establishes the agency’s priorities for the next four years, and identifies promoting equal pay as one of six priorities for the Commission. Moreover, although not binding, in 2022, EEOC Commissioner Keith Sonderling announced Component 2 pay data reporting requirements would likely return. More recently, with the confirmation of Commissioner Kalpana Kotagal, Democrats regained a majority on the previously deadlocked EEOC, paving the way for Commissioner Sonderling’s announcement to come to fruition.

State Legislation – Massachusetts Case Study

At the state level, Massachusetts may soon join the list of states to mandate certain pay data reporting. The Commonwealth House and Senate have each passed a bill that, together with salary range disclosures, imposes pay data reporting requirements on covered employers (H. 4109 and S. 2468). While the bills’ salary range disclosure requirements vary, they are nearly identical with respect to pay data reporting obligations. For example, both bills would apply to employers with 100 or more employees in the Commonwealth who are also subject to federal EEO-1 reporting requirements. If enacted, such employers would be required to supplement their annual corporate filings with the Massachusetts Secretary of the Commonwealth to include a copy of their federal EEO-1 reports. Importantly, the bills contemplate future amendments to the EEO-1 form that will require employers to disclose “workforce demographic and pay data categorized by race, ethnicity, sex[,] and job category.” The Secretary of the Commonwealth will, in turn, provide covered employers’ EEO-1 information to the Massachusetts Department of Labor for publishing on its website. Along those lines, H. 4109 and S. 2468 further provide that employer pay data reports will not constitute “public records” subject to disclosure under the Massachusetts Public Records law. California similarly does not consider its pay data reports public records, despite an earlier version of its bill that would have made such information publicly available online.

Once the two chambers agree and adopt a single final version of the bill, it will be presented to Governor Maura Healy for signature. If the Governor signs the legislation into law, it will take effect one year later.

What Should Employers Do Now? 

Until further changes are officially adopted, employers should continue to monitor the EEOC and state legislature websites for updates. Employers should also consider working with employment counsel to conduct a pay equity audit to understand their pay practices better and identify and remedy potential pay disparities, as federal and state reporting requirements continue to evolve.