4 Steps to Calculating Your Adverse Impact

Evaluating Your Selection Processes Remains Key – Here’s How To Start

With all the recent changes to federal contractor compliance, a lot of federal contractors are confused about what they should be focusing on to ensure EEO compliance. One key set of analyses that remains important to compliance is reviewing your employment decisions for non-discrimination. Today, we will delve into four steps you can take to evaluate your selection processes using a systematic, data-driven approach that has been used in countless discrimination cases for well over 50 years.

Before you start: Know what you are doing and why you are doing it.

Federal contractors have historically been required to evaluate their selection procedures as part of their annual Affirmative Action Plans. With the revocation of EO 11246, these analyses have shifted away from OFCCP’s domain yet remain relevant for compliance with the new EO 14173 contract certifications, Title VII and State regulations. All employers (including federal contractors) should still evaluate selection processes from a Title VII and state law lens to help identify gaps in data tracking and potential EEO barriers that could create discrimination claims.

Title 41 § 60-3 of the Code of Federal Regulations, also known as the Uniform Guidelines on Employee Selection Procedures (UGESP), provides guidelines employers should follow to monitor their selection processes for EEO concerns. These guidelines remain in effect, despite the recent changes to federal contractors’ compliance obligations. UGESP encourages employers to first use a test known as the “four-fifths rule” to evaluate any selection concerns:

“A selection rate for any race, sex, or ethnic group which is less than four-fifths (4/5) (or eighty percent) of the rate for the group with the highest rate will generally be regarded by the Federal enforcement agencies as evidence of adverse impact, while a greater than four-fifths rate will generally not be regarded by Federal enforcement agencies as evidence of adverse impact.”

What does this mean? Quite simply, employers are responsible for regularly evaluating their selection processes – such as faculty hires or competitive promotions for operatives on your assembly line or layoffs for housekeepers – to ensure there is no race or sex-based discrimination in those employment processes. To do this, employers need to continue to track the total pool for those who were selected for hire, promotion, or terminations. While an “eyeball review” can also be used, there is simply no substitute for a regular audit of your employment data through the type of robust statistical review set out in UGESP.

A step-by-step way to evaluate your selection processes for potential EEO barriers

Step 1

Find the selection rate for each group. For each group, divide the number of applicants selected by the total number of applicants in that group.

Here we use the example of male versus female applicants for operative positions. We have ten male applicants with 5 male hires for a 50% male selection rate. We also have forty female applicants with 5 female hires for a 12.5% female selection rate.

Step 2

Determine the reference group; that is the group with the higher selection rate. For positive personnel actions (e.g. hiring or promotion), or the lowest rate for negative personnel actions (e.g. terminations).

• In our example, the reference group is male and the comparison group is female.

Step 3

Calculate the impact ratio analysis for each group. This compares the reference group’s selection rate with the comparison group’s selection rate.

• In our example, we are dividing the female selection rate (.125) by the male selection rate (.5) to get .25 or 25%.

Step 4

Determine whether the result is less than 80%. Remember, according to UGESP, a result that is less than 80% is considered evidence of adverse impact.

• In our example, the result is 25% indicating adverse impact.

If adverse impact is indicated via the four-fifths rule, most practitioners recommend an additional test, which evaluates the statistical significance of the selection rate difference. Statistical significance can be calculated using the Fisher’s Exact test. Generally, a Fisher's result, or p-value, of .05 or less (this translates to a standard deviation of 1.96 or greater) is regarded as statistically significant.

• In our example, using the Fisher’s Exact Test, the calculation results in a p-value of 0.018 which is below the p-value threshold of .05 for statistical significance. When analyzing statistical significance, we more commonly measure in terms of standard deviations; a p-value of 0.018 translates to approximately 2.36 standard deviations, which is above the 1.96 threshold for statistical significance, thus the above adverse impact is statistically significant.

What Next?

These four steps are just the beginning of an employer’s review since they test raw selection rate differences, without considering the reasons for those differences. This Administration’s recent executive orders serve as a reminder that Title VII requires employers to identify whether these differences are due to race, sex, or other protected traits OR due to legitimate, job-related reasons as the next step. Identifying the root cause and developing solutions that also comply with Title VII is key. Work with your consultant and your counsel to get the most out of your analysis.