On August 6, 2014, the U.S. Department of Labor (DOL) announced a proposed rule that would require most federal contractors and subcontractors annually to submit Equal Pay Reports on employee compensation to the Office of Federal Contract Compliance Programs (OFCCP). The aim of the proposed rule is to collect summary data on how federal contractors and subcontractors pay their employees, with an eye toward identifying potential gender-based and race-based pay disparities. This marks a significant change in compliance requirements for the federal contractor community because until now, federal contractors were required to disclose compensation data only in OFCCP compliance reviews.
The Equal Pay Report rule comes after President Obama issued a presidential memorandum on April 8, 2014, instructing the Secretary of Labor to propose a rule to collect summary compensation data from federal contractors and subcontractors. The proposed rule would require contractors to provide compensation information for their workforce broken down by sex, race, ethnicity and specified job categories. The rule was published in the Federal Register on August 8, 2014, and all comments must be received by November 6, 2014. After consideration of public comments, the DOL is anticipated to issue a final rule in the first half of 2015.
Pursuant to the proposed rule, companies that file EEO-1 reports, have more than 100 employees and hold federal contracts or subcontracts worth $50,000 or more for at least 30 days would be required to file Equal Pay Reports electronically to the DOL. The reports would include:
The total number of workers within a specific EEO-1 job category by race, ethnicity and sex;
The total individual W-2 wages for all workers in the job category by race, ethnicity and sex; and
The total number of hours worked by all employees in the job category by race, ethnicity and sex.
Based on the pay data submitted by contractors, OFCCP will publish aggregate summary pay data by industry and EEO-1 job category to enable contractors to review their pay data using the same metrics as OFCCP and take voluntary compliance measures.
It is important to note that the DOL has indicated that it intends to use the compensation data submitted by contractors to direct enforcement activities toward contractors whose compensation data suggests potential gender-based or race-based pay disparities, while at the same time reducing the likelihood of an OFCCP compliance review for companies the DOL deems less likely to be out of compliance.
What This Means for Employers
The proposed rule appears to raise many concerns for employers. First, while the data collected under the Equal Pay Report will be used in the process of selecting which contractors OFCCP will audit, it is unknown whether OFCCP will actually use the employer-provided information in its audits. If OFCCP uses that data, the employer being audited may be working against a presumption of potential liability for gender-based or race-based pay disparities.
In addition, employers that are not actually discriminating but that have pay statistics that catch the OFCCP's attention may find themselves audited more frequently based on this proposed rule. As one example only, the geographic location of an employer's operations can affect pay levels.
Finally, contractors should be aware of confidentiality implications related to the implementation of this proposed rule. The OFCCP's proposal addresses confidentiality, saying that its practice is not to release data from contractors still in business if the information is sensitive and its release would mean commercial harm for the contractor. There is no guarantee, however, that confidentiality will be maintained, and recent reports have questioned the ability of the DOL to adequately protect sensitive information provided by employers.
Employers may wish to comment on the proposed rule during this period to voice concerns or suggest modifications to the proposed rule and its requirements. Comments can be submitted on the DOL's website.
In anticipation of the proposed rule being finalized in 2015, employers should consider reviewing and revising their current compensation systems and practices with the assistance of legal counsel in advance, to proactively identify and address any compensation disparity issues.