The Office of Federal
Contract Compliance Programs (OFCCP) has issued new regulations for weeding out
bias in federal contractors’ pay systems. The agency has also published new
guidelines for contractors to self-audit. Both sets of standards are now in
effect.
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Evaluating Pay Systems
As part of enforcing
antibias laws affecting federal contractors, the OFCCP conducts compliance
reviews to determine whether covered contractors are discriminating in the
workplace. The agency investigates whether pay practices are discriminatory,
focusing not on individual cases of pay bias but on whether there is systemic
discrimination within a contractor’s compensation policies and practices.
However, until now, the agency hasn’t had formal standards for determining whether
compensation discrimination is present— so contractors under review often
didn’t know what to expect.
Under the new standards,
systemic discrimination will be found when “similarly situated” employees are
treated dissimilarly based on gender, race, color, national origin, or
religion. Employees are similarly situated with respect to pay decisions when
they perform similar work, have similar responsibility levels, and occupy
positions requiring similar skills and qualifications—and the agency will
examine each of these areas. An employer’s preexisting groupings— such as pay
grades—may provide some indication of whether the jobs are similar, but they
won’t be a determining factor without evidence that employees within the
preexisting groupings actually perform similar work.
If a disparity is found,
the agency will statistically analyze whether the difference can be explained
by legitimate factors, such as years of work experience, seniority, education,
or past performance. The OFCCP says, however, that there generally must also be
some anecdotal evidence of compensation discrimination before it will issue the
employer a violation notice. This could be evidence that managers harbored
discriminatory attitudes, perhaps by making gender-based comments. Thus, it
will continue to be critical to educate managers about the dangers of making
such remarks.
Comparable Worth
Standard Claims
The new rule also opens
the door for claims that an employer has discriminatorily valued certain jobs.
The OFCCP says it will issue a notice of violation if compensation rates for
jobs that are predominantly filled by women or minorities are significantly
lower than rates for other jobs occupied mostly by men or nonminorities— but
there must also be evidence that the employer based the rate decisions on the
incumbent employees’ sex, race, or ethnicity. This could be evidence, for example,
that the employer adopted a market survey to determine wage rates for the jobs,
but set the rate for the predominantly female job lower than what the survey specified
for that job while using the survey rate for the predominantly male job.
Contractor Self-Audits
Under existing OFCCP
regulations, federal contractors must evaluate their compensation systems to detect
gender, race, or ethnicity-based disparities. Now, the OFCCP has adopted
voluntary guidelines to help contractors meet this requirement. And, as a big incentive,
if an employer’s self-evaluation system meets the OFCCP’s standards, the agency
will defer to the employer’s findings in a compliance review.
The guidelines state
that a contractor may perform a self-evaluation by: 1) grouping employees who
are similarly situated (see definition above); 2) annually conducting a
statistical analysis to determine whether pay disparities exist and using a
complex “multiple regression” analysis if there are 500 or more employees; and
3) including at least 70 percent of the employee population in the evaluation.
The contractor must
investigate any significant pay disparities it discovers and remedy those that
can’t be explained by legitimate factors. Back-pay corrections have to be made
within two years. The contractor must retain certain data and documentation to
back up its self-evaluation and make such information available to the OFCCP
during a compliance review.
Beware the Legal Risks
There also are some
legal risks to following the OFCCP voluntary guidelines. Correcting past pay inequities
for a predominantly female job could invite claims from men that they were
denied pay adjustments. Or, female or minority employees may bring claims based
on the theory that the employer’s own self-evaluation study established that
the employer engaged in discrimination or that the employer did not adjust
compensation enough to remedy the problem. Thus, contractors should consult a
lawyer about their legal risks before embarking on a self-evaluation.