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No Rest for the Weary: Additional Employment Data Collection Requirements for Contractors

August 8, 2014

Today, the U.S. Department of Labor’s (DOL) Office of Federal Contract Compliance Programs (OFCCP) issued a long-winded and long-awaited Notice of Proposed Rulemaking (NPRM) in the Federal Register requiring covered federal contractors and subcontractors to submit compensation data broken down by sex, race, and ethnicity in an annual Equal Pay Report.  According to OFCCP, the proposed rule will enable it to identify and direct its enforcement efforts at companies who submit data suggesting potential pay violations. In addition, the intent of the rule is to enhance voluntary compliance and contractor self-assessments. Comments on the proposed rule are due on November 6, 2014.

The key provisions of the proposed rule include:

  • Equal Pay Report:  Federal contractors and subcontractors that file EEO-1 Reports, have more than 100 employees, and have a contract, subcontract, or purchase order amounting to $50,000 or more that covers a period of at least 30 days must submit an annual Equal Pay Report with summary data on employee compensation by sex, race, ethnicity, specified job categories, and other relevant data points such as hours worked and the number of employees.  Contractors may use W-2 earnings information as the source of the compensation data. 

    Similar to the EEO-1 Report, the Equal Pay Report includes the same workforce demographic data (e.g., the identical seven race and ethnicity categories, sex, and company identification information), the same ten EEO-1 job categories, the same exemptions, and the same definition of “employee.”  Unlike the EEO-1 Report, for multi-establishment employers, the proposed rule requires each establishment (including the headquarters location) to file an Equal Pay Report.  No headquarters consolidated report is required because OFCCP evaluates contractors by establishment.  OFCCP requires electronic submission of the report, although there will be a process for requesting a hardship exemption.
  • Industry Standard Publication:  OFCCP will use the data it collects in the Equal Pay Report, in conjunction with other labor market survey data, to generate and publish aggregate compensation data on the race and gender pay gap by industry and EEO-1 category.
  • Use of Pay Data to Select Contractors for OFCCP Evaluation:  OFCCP will use the aggregate industry data to rank contractors and prioritize compliance evaluations of those contractors who have larger race or gender pay gaps than what is typically reported in the industry.  Those contractors who report patterns with the greatest deviation from the applicable industry standards would have the highest likelihood of selection for further investigation.  For the group of contractors scheduled for a compliance evaluation, OFCCP would then conduct a desk audit of the contractor’s data and records and may request more detailed data to evaluate the precise mix of jobs, workers, and pay practices to identify potential violations.  OFCCP has stated that a departure from a certain metric or information based on data from the Equal Pay Report would not in itself result in any sanction or adverse action against the contractor for compensation discrimination.
  • Confidentiality:  OFCCP will protect the compensation data reported by contractors to the maximum extent permitted under the Freedom of Information Act (FOIA).  OFCCP’s practice is not to publicly disclose information that could cause commercial harm to contractors and subcontractors who are still in business.

Like OFCCP’s widely criticized initial 2011 Advanced Notice of Proposed Rulemaking on a data collection tool, the proposed rule contains several controversial aspects and leaves open questions on what the final rule will require in the end.  For instance, the collection and analysis of raw compensation data which does not include information on factors such as education or experience that may affect pay will lead to “false-positive” findings of pay disparities.  These false-positives will lead to increased, and ultimately needless, OFCCP compliance reviews that will require a significant effort by contractors to defend.  On this same note, the NPRM estimates that the proposed cost of the rule is $684 per contractor establishment or $2,176 per company.  This estimate likely underestimates the actual costs that employers will face as they revise their systems, practices, and train employees on the new collection requirements.  Lastly, in regard to confidentiality, although OFCCP states it will protect contractor’s compensation data to the maximum extent possible, there is no guarantee that the data will be exempt from a FOIA request.

As we previously reported in our April 11, 2014 and August 1, 2014 Client Alerts, this latest DOL proposed rule follows numerous Executive Orders imposing obligations on contractors related to labor and employment.  Fair and equal pay and non-discrimination in employment issues remain a priority for the Obama administration and DOL.  In light of this administration’s focus on compensation, contractors should review their human resource information systems to confirm that the systems can track and analyze the newly required data.  Contractors should also consider conducting a self-audit of their compensation data and practices with outside counsel under the attorney-client privilege to identify and resolve any potential compensation discrimination exposure.  The audit should include a statistical analysis of the data and review all compensation policies to ensure they are consistently applied and well-documented.