The OFCCP issued a new compensation directive on August 24, 2018, Directive 2018-05 Analysis of Contractor Compensation Practices During a Compliance Evaluation. The new directive replaces Directive 307 which had been in place since 2013. The new directive better clarifies and outlines the OFCCP’s standard procedures for reviewing compensation during compliance evaluations.
The OFCCP issued this new directive for three main reasons: 1) to improve transparency of the OFCCP’s approach during audits, 2) to assist contractors in their compensation self-audits, and 3) to improve consistency and efficiency during audits.
The directive states that the OFCCP will start audits by comparing compensation among similar-situated employees. In order to achieve this, the OFCCP will develop pay analysis groupings (PAGs), which were also discussed previously in directive 307. PAGs are potentially problematic because employees with different job duties are often compared by the OFCCP. The OFCCP determines if employees are similarly situated using two main factors: “(a) job similarity (e.g., tasks performed, skills required, effort, responsibility, working conditions and complexity); and (b) other objective factors such as minimum qualifications or certifications.” It is important to note that the directive also states “in the absence of information about a contractor’s compensation system, OFCCP will conduct its preliminary desk audit analysis using either EEO-1 or AAP job groups…” They ask that contractors provide information about their compensation system (e.g. policies, pay grades, etc.) along with their initial data submission. However, even if contractors provide this information, it is ultimately the OFCCP’s choice which grouping they use, broader or more narrow. The final step in the OFCCP’s analysis is to control for other factors. Some of these possible factors include: business unit, product line, location, seniority, prior experience, education, and/or salary grade.
In a continued effort by the OFCCP to improve transparency, the OFCCP will issue a Pre-Determination Notice (PDN) if they find discrimination in their preliminary analysis. The PDN will include individualized employee-level data which allows contractors to replicate the OFCCP’s analysis. This gives contractors a formal opportunity to provide non-biased reasons for differences in compensation.
The procedures established in this directive apply to all OFCCP reviews scheduled on or after August 24, 2018.