audit

One of the six strategic enforcement priorities of the Equal Employment Opportunity Commission (EEOC) is fighting pay discrimination in the workplace. In order to address the issue of how to identify companies with unfair pay practices, the EEOC recently proposed a revision to the EEO-1 report which would require employers to collect and report employee compensation information to the federal government. It isn’t a secret that the EEOC intends to utilize such company information to direct investigation efforts and enforce pay equity laws.

If the EEOC’s proposal becomes final, the new rule would begin with the March 2018 EEO-1 report. Prior to being required to report employee compensation information to the EEOC, a self-audit allows an employer to analyze and assess its pay practices and policies to ensure compliance with equal pay and anti-discrimination laws. Most importantly, an audit may uncover pay discrepancies and allow an employer time to proactively rectify before becoming the subject of an EEOC pay equity investigation.

Purpose of Self-Audit

The purpose of the self-audit is to provide an understanding of your company’s compensation structure and identify pay disparities among comparable employees – pay disparities that would be identified by the EEOC or the Office of Federal Contract Compliance Programs (OFCCP) in connection with the EEO-1 report information. As part of the audit process, there is an evaluation of legitimate, job-related factors which may explain and defend pay differences. This analysis and information will be essential should the issue arise during a future EEOC equal pay investigation. Moreover, an audit assists the employer in voluntarily and proactively addressing potential equal pay compliance issues before it is required to report the employee compensation information.

Components of a Self-Audit

You should evaluate your company’s compensation structure and analyze what factors influence employees’ compensation, such as job title/grade, experience, geographic location, education. An audit will also review your company’s policies and procedures in regard to employee compensation. Are your company’s commission and bonus plans, performance evaluation processes, and pay grade structures uniformly applied to ensure equality? The results of an audit will identify whether your company’s compensation system has actual and/or potential internal equity issues (i.e., pay differences among comparable employees that cannot be explained by legitimate, job-related factors).

The information collected and analyzed through a pay equity audit allows you to ensure your company’s compliance with federal and state pay equity and discrimination laws. It is important to note that employers should engage counsel with respect to an audit to provide legal advice concerning potential discrimination issues, and to the maximum extent possible, shield information from disclosure by the attorney-client privilege.