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DOL issues final rules on pay data and paid sick leave

New regulations impact employers

Publication October 2016

The Department of Labor recently issued two final rules that will affect a broad segment of the private and federal contractor workforce, adding pay data reporting requirements in the new EEO-1 Report, and implementing Executive Order 13706 and its guarantee of paid sick leave for federal contractors. 

Summary Pay Data Collection

On September 29, the U.S. Equal Employment Opportunity Commission (EEOC) issued a press release announcing that it will begin collecting summary employee pay data and aggregate hours worked from certain employers.  Covered employers must submit the pay data as part of their annual Employer Information Report (EEO-1). 

Private employers – including federal contractors and subcontractors with 100 or more employees – are subject to the new pay data reporting requirement.  Federal contractors and subcontractors with 50–99 employees are not required to report pay, but must continue to report employees by job category as well as by gender, ethnicity, and race as they do now.  As was the case before the EEOC's announcement, private employers with 99 or fewer employees and Federal contractors and subcontractors with 49 or fewer employees are not required to complete the EEO-1 Report.

In announcing the additional pay data submission, the EEOC reiterated that it does not disclose EEO-1 data for a specific employer; instead, it publishes large-scale aggregated EEO-1 data in a way that ensures employer confidentiality and employee privacy.  The EEOC does share the data with the Department of Labor's Office of Federal Contract Compliance Programs (OFCCP); however, the OFCCP holds EEO-1 data for federal contractors and subcontractors confidential to the maximum extent possible under the Freedom of Information Act and the Trade Secrets Act.

The new EEO-1 Report has been a pivotal issue of the Obama Administration's efforts to target and improve pay equity.  When the measure was first introduced in January of this year, EEOC Chair Jenny Yang emphasized that, "[c]ollecting pay data is a significant step forward in addressing discriminatory pay practices. This information will assist employers in evaluating their pay practices to prevent pay discrimination and strengthen enforcement of our federal antidiscrimination laws." 

However, the announcement followed – and seemingly disregarded – an extended comment period during which the business community voiced overwhelming resistance to the additional reporting requirements.  Many raised concerns that the summary pay data presents an oversimplified picture of employee wages, reflecting neither the many factors involved in compensation decisions nor the total compensation employees actually receive. 

The 2017 EEO-1 Report is the first to require submission of the summary pay data and is due by March 31, 2018, giving employers 18 months to prepare for this additional requirement.  During this time, covered employers are strongly encouraged to take the following steps to ensure that they are prepared to make the required submissions for next year's EEO-1 Report:

  • Evaluate whether or not your business is covered by the new regulations.
  • Conduct a proactive pay analysis with the assistance of legal counsel to make a protected initial determination of risk.
  • Review and upgrade your payroll procedures as necessary so that you are gathering and able to produce the required information.

Final Rule: Executive Order 13706, Establishing Paid Sick Leave for Federal Contractors

On September 30, the Department of Labor published its final rule implementing Executive Order 13706, which establishes paid sick leave for federal contractors.  EO 13706 was signed by President Barack Obama on September 7, 2015, and requires parties entering into covered contracts with the Federal Government to provide covered employees with up to 7 days (56 hours) of paid sick leave annually, including paid leave for family care.  The EO provides similar benefits to the failed Healthy Families Act, the most recent Congressional effort to mandate paid sick leave among a broader segment of private employers.

The final rule confirms that covered contracts entered into on or after January 1, 2017, must contain a clause in which the contractor certifies that all of its employees, in the performance of the contract (or any subcontract thereunder), "shall earn not less than 1 hour of paid sick leave for every 30 hours worked."  In addition, the contractor (and any related subcontractors) must allow employees to accrue up to 56 hours of paid sick leave per year.  The final rule also describes the categories of contracts and employees covered by the Executive Order; the rules and restrictions regarding the accrual and use of paid sick leave; the obligations of contracting agencies, the Department of Labor, and covered Federal contractors under the Order; and the remedies and enforcement procedures to implement the Order's requirements. 

"Part of the basic bargain of America is that if you work hard, you should be able to take care of your family," said U.S. Secretary of Labor Thomas E. Perez, in announcing the final rule. "Paid sick leave helps workers recover from illness, or be there for their families, whether it's to take an elderly parent to the doctor or to stay home with a young child with a fever. It allows working families to focus on what really matters most without having to worry about the next paycheck." 

As expected, the final rule increases the burden to employers, in many cases requiring that covered employers provide more sick leave than is required by the laws that have recently been enacted in many states.  Additionally, under the new regulation, paid sick leave carries over from one year to the next and must be reinstated for employees rehired by a covered contractor within 12 months after a job separation.  However, accrued, unused sick leave does not have to be paid out upon termination of the employment relationship.

The final rule directs the Secretary of Labor to issue regulations to implements its requirements by September 30, 2016, and has an effective date of November 29, 2016.  Before that date, employers are encouraged to evaluate whether or not they are subject to the additional paid leave requirements and, if they are, to implement the sick leave policy changes necessary to ensure compliance going forward.

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