Addressing pay disparities remains a top priority for the Obama Administration. On April 8, 2014, President Obama directed the U.S. Department of Labor (DOL) to issue a rule requiring federal contractors and subcontractors (Contractors) to provide summary compensation data for all employees, broken down by specified demographics and job categories. The new equal pay analysis “tool” is intended to maximize governmental efficiency by permitting more targeted investigation and enforcement efforts, while also minimizing the burden on Contractors to provide heavily detailed information. 

In accordance with this presidential mandate, on August 6, 2014, the DOL’s Office of Federal Contract Compliance Programs (OFCCP) issued its proposed rule requiring the annual reporting of compensation data through a new “Equal Pay Report.” The proposed rule would apply to Contractors that file EEO-1 Reports with the federal government, employ more than 100 people and hold federal contracts or subcontracts worth $50,000 or more over a period of at least 30 days, including modifications. (The OFCCP is also considering requiring certain institutions of higher education to file the Equal Pay Report, although no definite plans have been made.) Covered Contractors would be required to disclose employees’ W-2 earnings by sex, race, ethnicity, job category and hours worked. The Equal Pay Report uses the same electronic filing requirements, the same workforce demographics, the same job categories, the same exemptions and the same definitions as the EEO-1 Report. (The main difference between the EEO-1 Report and the Equal Pay Report is the time period captured by the data. That is, the use of summary W-2 earnings for the calendar year aligns with the period covered under a Contractor’s W-2 filings, so workers no longer employed as of December 31 of the prior year would nonetheless be included in the Equal Pay Report, even though they would not be included in the EEO-1 Report for the current year.) The proposed rule would also require Contractors to make representations in all future bids as to whether they currently hold a contract that requires them to file an Equal Pay Report and, if so, whether they filed the Report for the most recent reporting period. 

Each Contractor’s Equal Pay Report will ultimately aggregate:

  • The total number of workers within a specific EEO-1 job category by race, ethnicity and sex;
  • The total of all individual W-2 earnings for all workers in the job category by race, ethnicity and sex; and
  • The total of all hours worked for all individual workers in the job category by race, ethnicity and sex. 

The OFCCP will use this aggregate information to calculate the mean hourly wage paid by the Contractor in each job category by race, ethnicity and sex. The OFCCP will then compare each Contractor’s summary statistics to an “objective industry standard” to prioritize Contractors for compliance audits when they have pay gaps greater than the standard.

For Contractors scheduled for a compliance evaluation, the OFCCP would conduct a desk audit of the Contractor’s compensation data and records, likely requesting more detailed information to evaluate the precise mix of jobs, workers and pay practices involved. According to the OFCCP, the fact “[t]hat a contractor departs from the metric or has an absolute pay gap of a particular size is not sufficient evidence to find a pay discrimination violation.” Rather, the Equal Pay Report data “would only be a basis to select Contractors for a deeper assessment of potential discrimination in their compensation systems and practices based on the pay disparities observed in their reported data.”

Contractors who have not recently reviewed their compensation structures and practices should use this time to complete an internal review in advance of any final rule that will require them to start submitting the information to the government. If Thompson Hine can be of assistance in this process, or in providing further guidance on OFCCP compliance issues, please feel free to contact us.

A more detailed analysis of the proposed rule and its implications may be found by following this link