OFCCP Significantly Overhauls Its Compensation Standards

On February 26, 2013, the Office of Federal Contract Compliance Programs (“OFCCP”) announced a significant shift in its approach to analyzing contractors’ compensation decisions during audits.  In the press release, OFCCP stated that it was rescinding its “Voluntary Guidelines” and “Compensation Standards” from 2006 because they “limited OFCCP’s ability to conduct full investigations and use every enforcement tool at its disposal to combat pay discrimination.”  In its place, OFCCP issued Directive 307, which establishes many new practices and procedures OFCCP will follow when investigating contractors’ compensation practices during audits. The new procedures took effect on February 28, 2013.

Since 2006, the “Voluntary Guidelines” and “Compensation Standards” had provided the analytical framework OFCCP used to analyze contractors’ compensation decisions.  In the press release, Director Patricia Shiu referred to these as “arbitrary restrictions” that provided a “limited approach” and “often prevented OFCCP from detecting evidence of illegal pay discrimination by narrowly defining what could be considered in its investigations.”

The new investigative procedures and standards in Directive 307 provide significant “flexibility” to OFCCP in how it will analyze contractors’ compensation systems.  According to OFCCP, the new procedures and standards will allow OFCCP to take a case-by-case approach to analyzing contractors’ compensation practices more consistently with the principles of Title VII.  OFCCP plans to vigorously evaluate each factor contractors consider when making compensation decisions (such as tenure, time in position, education, etc.) to ensure contractors are consistently applying those factors.  Significantly, OFCCP states that its preliminary analysis will consist of large groups of employees that may be based on groups larger than job title and job groups.  Testing these large groups will likely lead to findings of statistically significant compensation disparities, which will provide OFCCP with a basis to further investigate contractors’ compensation practices.  OFCCP believes these new procedures and standards “will allow OFCCP to conduct more rigorous, effective and consistent reviews of employer pay practices, making it possible for OFCCP to better direct its resources for the benefit of workers, contractors, the federal government, contractors, and taxpayers.”

OFCCP has already been implementing many of these new procedures during audits over the last several years.  Now that OFCCP has fully unveiled its agenda for compensation audits, contractors can expect more intensive reviews of their compensation practices by OFCCP. The new procedures contemplate that OFCCP will take a “no stone unturned” approach during compensation audits.  As a result, contractors should start analyzing their compensation systems and decisions now to ensure they can explain any statistically significant disparities in compensation when the OFCCP “comes knocking.”

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Filed under Compensation, Department of Labor, OFCCP

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