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Mar 17, 2022

Federal contractors subject to two-pronged pay equity focus

Affirmative ActionHarassment & Discrimination 

On March 15, 2022, the Office of Federal Contract Compliance Programs (OFCCP) issued a pay equity directive and President Biden issued an executive order related to pay equity for federal contractors. Both were timed to coincide with Equal Pay Day.

The OFCCP’s Directive 2022-01 (Pay Equity Audits) reminds federal contractors of their obligation under existing regulations to annually review their employees’ compensation to look for potential discriminatory pay practices. The regulation at 41 CFR 60-2.17(b)(3) says, “Identification of problem areas. The contractor must perform in-depth analyses of its total employment process to determine whether and where impediments to equal employment opportunity exist. At a minimum the contractor must evaluate…  Compensation system(s) to determine whether there are gender-, race-, or ethnicity-based disparities[.]” The directive also states the OFCCP’s position that it has the right to see any such analyses conducted by a federal contractor for purposes of compliance with the affirmative action requirements.

President Biden’s Executive Order on Advancing Economy, Efficiency, and Effectiveness in Federal Contracting by Promoting Pay Equity and Transparency encourages the development of regulations to address pay equity for federal contractors. The Executive Order recommends that the agencies writing the regulations should consider prohibiting federal contractors from “seeking and considering information about job applicants’ and employees’ existing or past compensation when making employment decisions.” The order also suggests considering “appropriate accountability measures” to monitor federal contractors’ compliance.

Tips: The affirmative action regulations don’t specify what qualifies as an in-depth analysis of compensation, so federal contractors have a fair amount of flexibility. When assessing your pay practices, you should separate your analyses into two categories. The first category is compliance with the affirmative action requirements. You need to be able to provide documentation showing that you (or a consultant on your behalf) actually reviewed workers’ pay and looked for potential disparities based on race/ethnicity and gender. For Vigilant’s affirmative action clients, this is a service that we provide when preparing a written affirmative action plan. Even if the OFCCP doesn’t agree with your analysis during an audit, they don’t have the power to impose a financial penalty based on what type of compensation analysis you use. At most, they could try to get you to agree on a different approach in the future, by signing a conciliation agreement. (Of course, if they find what they believe to be discriminatory pay disparities, they can order back pay.)

The second category of pay analysis is addressing legal risk from pay discrimination complaints, whether from the OFCCP, the Equal Employment Opportunity Commission (EEOC), your state civil rights agency, individual employees, or a class action lawsuit. Any analysis under this second category should be performed by a qualified compensation professional under the direction of an attorney. If handled properly, this analysis can be protected under the attorney-client privilege. Ideally, this protection allows the opportunity for a truly comprehensive analysis and candid discussions to determine how to address any pay disparities that raise a concern. Talk with your Vigilant Law Group employment attorney for guidance on where to start.

This website presents general information in nontechnical language. This information is not legal advice. Before applying this information to a specific management decision, consult legal counsel.

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