OFCCP Proposes "Equal Pay Report" for Contractors to go with EEO-1

by Constangy, Brooks, Smith & Prophete, LLP
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The Office of Federal Contract Compliance Programs issued a Notice of Proposed Rulemaking on Friday in response to President Obama's April directive that the agency develop a tool for compensation data collection. The OFCCP proposes a supplement to the EEO-1 Report, which would be called the Equal Pay Report. Comments will be accepted until November 6.

Who would be required to file the Equal Pay Report?

Contractors would be required to file the Equal Pay Report if they (1) are required to file the EEO-1 Report; (2) have more than 100 employees; and (3) have a contract, subcontract, or purchase order worth $50,000 or more and that covers a time period of at least 30 days. Each establishment, including a company's headquarters location, would file separate Equal Pay Reports. A consolidated report would not be required.

When would the Equal Pay Report be filed?

The OFCCP is proposing an annual filing window that extends from January 1 through March 31. The data submitted during the "window" would include all compensation from the preceding full calendar year (January 1 through December 31). As an example, an Equal Pay Report submitted in February 2016 would include compensation data from calendar year 2015.

What information must be provided in the Equal Pay Report?

The OFCCP is proposing that covered contractors include the following information in their annual filings for each location:

• Total number of workers within each EEO-1 category by race, ethnicity, and sex
• Total W-2 earnings for all workers in each EEO-1 category by race, ethnicity, and sex
• Total hours worked for all workers in each EEO-1 category by race, ethnicity, and sex

"Total W-2 earnings" includes all compensation for each employee as of the end of the calendar year for each worker who was included in the contractor's previous EEO-1 Report, which must be filed by September 30 of each year. For example, an employee who was listed on the contractor's September 30 EEO-1 report but resigned in October would have to be included in the Equal Pay Report, even though she was no longer working for the employer as of December 31.

"Total hours worked" for non-exempt employees would be based on actual hours worked during the prior calendar year. For exempt employees, contractors could use actual hours worked if recorded, or default to 2080 hours for full time and 1040 hours for part time. Contractors would be allowed to adjust reported hours to account for partial-year work, such as using hire date or dates of leave, but the OFCCP would not mandate this approach.

If the contractor captures all of this data on the same system, reporting is likely to be fairly straightforward. However, many contractors' systems do not house W-2 earnings in the same place as race, ethnicity, gender, EEO-1 category, or hours worked. For those contractors, compiling all of this information for individuals included in the EEO-1 Report from September based on total earnings through December is not likely to be as simple as the OFCCP suggests.

How would covered contractors file the Equal Pay Report?

The OFCCP would require that contractors file the Equal Pay Report electronically. Exemptions from the electronic process would be granted only in extraordinary circumstances.

What is the purpose of the Equal Pay Report?

The OFCCP states that the main purpose of the Equal Pay Report is to provide a mechanism for identifying potential discrimination in compensation. The agency intends to create an "industry standard" by aggregating the submitted data by industry. Then it will compare contractors' individual data with this "industry standard." Contractors whose differences depart the most from the industry standard are most likely to be subject to a compliance review.

It is not entirely clear whether the OFCCP will be focusing on differences in total compensation from the industry standard, or differences between members of different racial, ethnic, and gender groups from the average industry standard differences, or both. It does appear, however, that contractors that pay less than the industry standard may be more likely to be selected for a compliance review. If that is the case, such a system would neither target those most likely to be discriminating nor encourage non-discrimination. It would simply provide an incentive for contractors to raise compensation to meet or exceed the industry standard in order to avoid being targeted by the OFCCP.

The OFCCP says that the Equal Pay Report is also intended to create greater voluntary compliance by contractors and to deter "noncompliant behaviors." The OFCCP states that it will publicize summarized compensation data from contractors' reports on an annual basis to allow contractors to self-assess their pay practices and "provide useful data to current and potential employees." The OFCCP specifically notes that many "employers will not want to be identified as having pay standards that are significantly lower or different from those of their industry peers, since this may encourage valuable employees to consider moving to other employers, or discourage applicants who see that higher paying jobs may be available elsewhere. Employers do not want to be known as one of the lowest paying members of their industry, and may voluntarily change their pay structure." Again, this suggests the Equal Pay Report is designed to force employers to pay higher wages, rather than to address actual compensation disparities at any one particular employer.

The OFCCP also notes that it does not intend to use the Equal Pay Report as a means to allege compensation discrimination against a contractor. Instead, it will be used "to inform and refine its scheduling process for compliance evaluations."

Will the compensation data submitted by contractors be kept confidential?

The OFCCP says that it will protect the confidentiality of compensation information "to the maximum extent permitted under the Freedom of Information Act." The agency also says that it will not disclose information that could cause commercial harm to contractors that are still in business.

In addition, the web-based portal to be used for electronic filing will "conform with applicable government IT security standards." (After the numerous reports of hacking into the federal government's health insurance website, this assurance does not instill much confidence, does it?)

When are comments to the NPRM due?

As stated above, comments are due by November 6, and detailed instructions are on the copy of the NPRM linked above. Contractors are encouraged to provide feedback to the OFCCP regarding all components of the proposed Equal Pay Report and its impact on their organizations.

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Constangy, Brooks, Smith & Prophete, LLP
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