All Commentary
Monday, September 11, 2017

EEOC Rule Repeal Means Employers Can Focus on Hiring, Not Paperwork

President Trump’s White House has put a stay on a burdensome new regulation.

President Trump’s White House has put a stay on a burdensome new form from the Equal Employment Opportunity Commission that employers would have been required to submit next year.

Currently employers with more than 100 employees have to report the race and sex of their workers by broad occupational category on an EEO-1 form. Last year the Obama administration approved the expansion of this form to include wages and hours worked.

Employers would have to classify workers by gender, race, and ethnicity in 12 different pay bands, 14 gender/race/ethnicity groups, and 10 occupational categories, as well as hours worked per employee, beginning in March 2018. This would have been especially burdensome because now employers do not have to keep track of hours worked for workers on salary.

The Paperwork Reduction Act was manipulated to require employers to complete far longer forms.

This would have resulted in an expanded EEO-1 form with 3,360 data points instead of 180 data points. In addition, if the firm had multiple establishments (locations), it would have to have filled out one form for each establishment with more than 50 employees. Ten establishments could mean 33,600 data points.

Neomi Rao, head of the Office of Information and Regulatory Analysis, part of the White House’s Office of Management and Budget, has put the expanded form on hold and said that her department will review the rule.

So-Called Paperwork Reduction

What is extraordinary is that the Obama administration used the Paperwork Reduction Act to change the EEOC form. The Paperwork Reduction Act, which is supposed to reduce bookkeeping, was manipulated to require employers to complete far longer forms. This process avoided the more lengthy Notice of Proposed Rulemaking process required for a new form. Such methods increase Americans’ cynicism with government.

The expanded form was a result of lack of congressional support for the Paycheck Fairness Act, sponsored by Representative Rosa DeLauro (D-CT) and Senator Patty Murray (D-WA). It would require the EEOC to collect compensation data from firms, “by the sex, race, and national origin of employees.”

Because the bill had no chance of passage, President Obama went around Congress by tasking the EEOC with collecting data on workers’ pay.

The EEOC assumed that roughly 60,000 firms would file when the number of firms with 100 or more workers was over 100,000.

The EEOC stated that completing the form would take 8 hours the first year and 3.2 hours in subsequent years. This is ludicrously low. It estimated that the annual burden for compliance would be $25 million a year, after a one-time $27 million implementation cost.

Further, the EEOC assumed that 60,886 firms would file when the number of firms with 100 or more workers was 106,639 in 2014, the latest data available. These firms have 1.6 million establishments, and many would have to complete forms.

The EEOC does not address the security of firms’ data, and data from federal contractors is available through a Freedom of Information Act Request.

At the end of fiscal year 2016, the EEOC faced a backlog of 73,500 cases. If expanded reporting would help clear the backlog, perhaps the form would be worthwhile. But this effort would further slow the EEOC, and the new data would not help judge discrimination.

Proving Discrimination

The EEOC’s proposed measure of wages, W-2 forms, cannot prove discrimination because they do not show education, experience, and risk involved in the job, factors that can lead to earnings differentials.

W-2 earnings include overtime pay, tuition reimbursements, and benefits. Workers might have higher W-2 income due to overtime or tuition reimbursements, not discrimination. The National Research Council, in a report on compensation published in 2012, recommended using base pay as measured by the Labor Department’s Occupational Employment Survey, which would avoid these extraneous payments.

Fitting into a pay band doesn’t ensure lack of discrimination.

Ironically, the proposed 12 broad wage bands that employers would use to report earnings could disguise discrimination. If two equally-qualified people were in the $39,000-to-$49,919 band, one earning $40,000 and the other $48,000, discrimination could be present. Fitting into a pay band doesn’t ensure lack of discrimination.

Occupational categories are similarly broad. One category, “professionals,” includes artists, computer programmers, librarians, physicians and surgeons, and teachers. Medical schools that employ female librarians and male doctors can await an avalanche of lawsuits and investigations.

And that’s the real story. In an April 2017 letter, the National Women’s Law Center and other proponents of the new form emphasized the targeting opportunities it will bring. The letter states, “The revised EEO-1 Report will provide the EEOC with a critical tool for focusing investigatory resources to identify pay discrimination. It will allow the EEOC to see which employers have racial, ethnic, or gender pay gaps that differ significantly from the pay patterns from other employers in their industry and region.“

Even without meaningful data, the EEOC would have used the forms to do “random” checks on firms they don’t like, and accuse them of underpaying women, just as the IRS does “random” audits.

President Trump has reduced the paperwork burden for employers by revisiting the EEO-1 form. Washington will not now have new and extraordinary powers and information to regulate the American workforce, and firms will be able to focus on expanding – and even hiring.

Reprinted from Economics21.

  • Diana Furchtgott-Roth, former chief economist of the U.S. Department of Labor, is director of Economics21 and senior fellow at the Manhattan Institute.