It is widely accepted that “perfect parity” in corporate compensation systems does not exist, so when analyzing pay in any cohort grouping, differences in pay are expected. The question is: are those differences justified?
To answer this question, the OFCCP regulations require “contractor[s] must perform in-depth analyses of its total employment process to determine whether and where impediments to equal employment opportunity exist… [including]… compensation system(s) to determine whether there are gender-, race-, or ethnicity-based disparities.…” This may include quantitative analyses by race/ethnicity, gender, and job title using Rank Sum, t-Test, or multiple regression statistical techniques. It may also include qualitative and/or non-statistical methodologies. While some methods are more common than others, contractors are largely free to choose which methods they will use.
In 2013, the OFCCP published new guidelines for reviewing compensation data during compliance evaluations (audits). Central to these guidelines is the Agency’s emphasis on case-specific approaches to addressing all types of compensation discrimination. Therefore, regardless of the analytical methods a contractor chooses to include in its annual evaluation, during an audit the Agency may inquire about any or none of the topics covered.
In 2014, the OFCCP debuted substantial revisions to the audit Scheduling Letter and attached Itemized Listing sent to contractors selected for compliance reviews. Relevant here, Item 19 which covers compensation, now requires substantial, individualized compensation data be provided as part of the initial, up-front audit submission package to the OFCCP.
Specifically, Item 19 requests:
For all employees, compensation [including] base salary and or wage rate, and hours worked in a typical workweek. Other compensation or adjustments to salary such as bonuses, incentives, commissions, merit increases, locality pay or overtime should be identified separately for each employee.
All employees include, but is not limited to: full-time, part-time, contract, per diem or day labor, and temporary employees.
During OFCCP audits, compliance officers may deploy any number of analytical tools, including statistical data analysis and non-statistical methods, on a case-by-case basis. These may include: individual interviews, policies and practices review, Human Resource Information Systems (HRIS) review, etc.
California Fair Pay Act
In 2016, California’s Fair Pay Act took effect. There are many similarities between the provisions of this new law and requirements under OFCCP regulations.
The Fair Pay Act requires employers to “affirmatively demonstrate that a wage differential is based upon one or more specified factors” and “that the one or more factors relied upon account for the entire differential.” Employers must further demonstrate that identified factors are non-biased with respect to gender, reasonably applied, and consistent with business necessity.
With respect to pay transparency, the Fair Pay Act provides remedies for employees who were previously terminated, discriminated against, or otherwise retaliated against for violations of pay secrecy policies inconsistent with this Act.
Finally, the Act extends record-keeping requirements for “wages and wage rates, job classifications, and other terms and conditions of employment” to three years.
In 2015, the OFCCP published the final rule regarding Prohibitions Against Pay Secrecy Policies and Actions in the Federal Register. This rule prohibits federal contractors from prohibiting discussion of compensation between employees and/or applicants, or retaliating against individuals for doing so. These protections do not extend to employees whose essential job functions include access to the compensation information of other employees, and who disclose such information to others outside of the context of a formal complaint or charge. Among other things, employers should ensure the full text of the Pay Transparency Policy Statement provided below is included in relevant company documents.
Pay Transparency Policy Statement
The contractor will not discharge or in any other manner discriminate against employees or applicants because they have inquired about, discussed, or disclosed their own pay or the pay of another employee or applicant. However, employees who have access to the compensation information of other employees or applicants as a part of their essential job functions cannot disclose the pay of other employees or applicants to individuals who do not otherwise have access to compensation information, unless the disclosure is (a) in response to a formal complaint or charge, (b) in furtherance of an investigation, proceeding, hearing, or action, including an investigation conducted by the employer, or (c) consistent with the contractor’s legal duty to furnish information. 41 CFR 60-1.35(c)
Póliza sobre la transparencia de pago
El contratista no despedirá o de cualquier otra manera discriminar a los empleados o solicitantes, por haber preguntado o discutido, o revelado su propio salario o sueldo de otro empleado o solicitante. Sin embargo, los empleados que tienen acceso a la información de compensación de otros empleados o solicitantes como parte de sus funciones esenciales del trabajo no se dan a conocer los salarios de otros empleados o solicitantes a las personas que de otra manera no tienen acceso a la información de compensación, a menos que la divulgación es (a) en respuesta a una queja formal o cargo, (b) en cumplimiento de una investigación, procedimiento, caso, o acción, incluyendo una investigación realizada por el empleador, o (c), en consonancia con la obligación legal del contratista para proporcionar la información. 41 CFR 60-1.35(c)