On August 6, 2014, the Office of Federal Contract Compliance Programs (“OFCCP”) released a Notice of Proposed Rulemaking requiring federal contractors and subcontractors with 100 or more employees to submit an annual equal pay report. This compensation data tool was published in response to President Obama’s April 8, 2014 Presidential Memorandum calling for proposed regulations to be published within 120 days.
The equal pay report will have a significant impact on federal contractors. According to OFCCP, the equal pay report will “enable OFCCP to direct its enforcement resources toward federal contractors whose summary data suggests potential pay violations, while reducing the likelihood of reviewing companies that are less likely to be out of compliance.” The proposed rule was officially published in the Federal Register on August 8, 2014. There is a 90-day public comment period with comments due by November 6, 2014.
Who Must File
The proposed rule applies to prime contractors and first tier subcontractors (and construction subcontractors of any tier) who are required to file EEO-1 Reports, have more than 100 employees, and have a federal contract, subcontract, or purchase order amounting to $50,000 or more lasting for at least 30 days (including modifications).
OFCCP is also considering covering postsecondary academic institutions that file the IPEDS report with the Department of Education.
Requirements of Equal Pay Report
The NPRM contemplates requiring covered federal contractors to submit an equal pay report that includes the following information:
Total number of workers within each EEO-1 job category by race/ethnicity and sex;
Total W-2 wages for all workers in each EEO-1 job category broken down by race/ethnicity and gender; and
Total hours worked for all employees in each EEO-1 category by race/ethnicity and gender.
No individual employee pay data will be required.
OFCCP plans to design a web-based portal for covered contractors to report and maintain compensation information. OFCCP indicates that the webportal would be protected by applicable government IT security standards where contractors key in their data electronically or upload their forms into the system using the standard formats provided by OFCCP.
Data May be Basis for Audit Not Sanctions
Data from the proposed equal pay report would not in itself result in any sanction or adverse action against the contractor for compensation discrimination, according to OFCCP. However, OFCCP will use the information to prioritize contractors for compliance evaluations. If OFCCP selects a contractor for a compliance evaluation, that review would cover compensation data beyond what is in the contractor’s equal pay report and would involve a more specific and detailed data request that are typical in an OFCCP compliance evaluation.
OFCCP is also considering publishing aggregate information based on pay data collected from the equal pay report, but the data will not be specific to any particular contractor. The data could include ranges or averages by industry, labor market, or other groupings.
OFCCP is proposing an annual reporting window of January 1 to March 31. The data in this report would be based on W-2 earnings for the prior calendar year (Jan. 1- Dec 31) for all employees included in the contractor’s EEO-1 report for that year, which will generally align with the time period covered under a contractor’s W-2 filings.
The practice of OFCCP using the equal pay report to target its enforcement efforts could potentially eliminate OFCCP’s current random audit selection process and replace it with a targeted selection process. Despite the potential constitutional concerns, contractors should strongly consider conducting proactive pay equity analyses now, so that any areas of concern can be addressed before data is reported to OFCCP. This should include a total compensation analysis since contractors will need to report total compensation (i.e., all wages contained in the Form W-2) rather than just base salary.
Contractors should also be wary of potential confidentiality issues. Although OFCCP attempted to allay contractors’ confidentiality fears, the data, much like EEO-1 reports, could be turned over to private plaintiff’s attorneys for use in civil litigation. OFCCP believes that the Freedom of Information Act (“FOIA”) would exempt the disclosure of contractor data if it can be shown that (1) the contractor is still in business (2) the data is confidential and sensitive, and (3) the release of data would subject the contractor to commercial harm. For now, it is unclear whether these exemptions would actually shield contractors’ pay data in all cases.