In August 2014, the U.S. Department of Labor’s (DOL) Office of Federal Contract Compliance Programs (OFCCP) proposed a rule that would require federal contractors and subcontractors to provide employee compensation data broken down by sex, race and ethnicity in an annual report (the Equal Pay Report). Employers covered by the new rule would include government contractors and subcontractors who are required to file EEO-1 reports, have more than 100 employees and hold federal contracts worth $50,000 or more with a duration of more than 30 days.

The report would be submitted using a web-based tool and would include (1) the total number of workers within a specific EEO-1 job category by race, ethnicity and sex; (2) the total W-2 earnings for each worker in the EEO-1 job category by race, ethnicity and sex; and (3) the total hours worked by each employee in the EEO-1 job category by race, ethnicity and sex.

This proposed rule is aimed at combating national gender and racial pay gaps and is in response to President Obama’s memorandum in April 2014 directing the Secretary of Labor to propose a rule requiring such compensation data. It comes on a wave of federal executive action in the arena of contractor employment practices. In September, the DOL published a proposed rule that would prohibit federal contractors from retaliating or discriminating against workers who discuss their own or their co-workers’ pay. In October, the DOL unveiled a final rule to raise the minimum wage for workers of federal contractors to $10.10 per hour.

Additional burdens on employers

This reporting requirement would be in addition to the obligation many contractors and subcontractors already have to file an EEO-1 report. While the two reports would use the same demographic data (the identical seven race and ethnicity categories, sex and company identification information), the same 10 EEO-1 job categories, the same exemptions and the same definition of employee, other aspects of the two reporting requirements are not as well harmonized. Currently, the EEO-1 deadline is September 30, and reflects a snapshot of employees from one pay period between the months of July and September. In contrast, the Equal Pay Report would require aggregating data over a full calendar year and would operate on a completely separate timeline, as contractors’ obligations to file an Equal Pay Report would be determined as of December 31, with a filing deadline of the following March 31. Moreover, contractors would be required to keep their Equal Pay Reports for up to two years.

Additionally, bidders for federal contracts would be required to represent whether they currently hold a federal contract that requires them to file an Equal Pay Report, and whether they have met filing requirements for the most recent reporting period. The rule also authorizes sanctions for the failure to file timely, complete and accurate reports.

Recognizing confidentiality concerns, the OFCCP explained, in its commentary to the proposed rule, that the Freedom of Information Act would protect the summary compensation data to the maximum extent that the information is exempt. It indicated that contractors’ summary data would not be released where (1) the contractor is still in business and (2) the contractor indicates (and the DOL review process determines it to be the case) that the data is confidential or sensitive and release of the information might subject the contractor to commercial harm.

The burden of additional reporting was not altogether lost on the OFCCP, which noted in its commentary to the proposed rule the possibility of an alternative reporting framework that could utilize a “single report that would fulfill contractors’ reporting obligations under this rule and the EEO-1.” The OFCCP is now welcoming comments to the proposed rule, as well as the alternative reporting framework, until November 6, 2014, after which the comments will be considered and a final rule issued.

OFCCP’s enforcement program and next steps for employers

The Equal Pay Reports are intended, in part, to act as a deterrence to unlawful behavior, but the OFCCP also plans to use the data to facilitate its own enforcement program. Contractors who report larger race or gender pay gaps than what is typically reported may come under greater scrutiny. Those who report data with the greatest deviation from industry norms would have the highest likelihood of being selected for further investigation.

The OFCCP assures employers that the report itself would not be sufficient evidence of a pay discrimination violation, but employers should be wary of inviting closer scrutiny. Contractors should document the reasons for differences in pay among workers, as well as the methods used for determining pay, so that they are prepared to defend compensation decisions. Additionally, contractors should audit -- preferably, in a privileged manner -- compensation data sooner rather than later, to eliminate any unjustified pay gaps that may be uncovered.