August 28, 2014

DOL Proposes Rule That Would Require Federal Contractors to Submit Pay Data

The U.S. Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) recently proposed a rule that would require certain federal contractors to submit annual “Equal Pay Reports” providing summary data on their employee compensation categorized by, among other factors, race and sex. The rule is open for public comment until November 6, 2014.

On August 6, 2014, the U.S. Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) announced a proposed rule that would require certain federal contractors to submit annual equal pay reports providing summary data on their employee compensation.

Under the proposed rule, which is open for public comment until November 6, 2014, companies that file EEO-1 reports with the federal government, have more than 100 employees, and hold a federal contract, subcontract, or purchase order amounting to $50,000 or more, are required to submit summary pay data on their workforces annually to the OFCCP. The data contained in the so-called Equal Pay Report must be provided by race and sex and must include job category, hours worked (either actual hours worked for hourly workers or default figures for salaried workers), and number of employees. A fact sheet released by the OFCCP explains that Equal Pay Reports would not be required to include individual employee pay data or information on factors such as education or work experience that may affect compensation.

The OFCCP proposes to aggregate each contractor’s summary data from the Equal Pay Reports with those of peer employers by industry to construct an objective industry compensation standard. The OFCCP intends to compare each contractor’s summary data with the industry standard, release the comparison, and afterward direct its enforcement resources toward those contractors whose comparisons are suggestive of sex or race discrimination in pay.

The OFCCP has established the calendar year as the applicable reporting period and set March 31 of each year as the filing deadline for the prior year. Covered companies will be able to file electronically and compile the Equal Pay Report using the same data that is used to report W-2 earnings to the Internal Revenue Service.

Early commentators have questioned the utility of the proposed rule, arguing that the Equal Pay Reports will fail to produce meaningful conclusions about pay discrimination given the level of data aggregation to be undertaken by the OFCCP and the myriad of factors that may affect compensation but are not reported. The OFCCP has made clear, however, that the proposed rule is “one component of a larger strategy to address the reality that, despite five decades of extraordinary legal and social progress, working women still earn only 77 cents for every dollar that working men earn” — a gap that is “even greater” when accounting for African American women and Latinas.

The OFCCP’s proposed rule is the latest instance in a series of executive actions taken by the Obama Administration under the authority of Executive Order 11246, which requires federal contractors and subcontractors to take affirmative action to attract and retain qualified minorities, females, covered veterans and the disabled. Just last month, on July 21, 2014, President Obama signed Executive Order 13672, which amended Executive Order 11246 to include nondiscrimination based on sexual orientation and gender identity. And in September of last year, the OFCCP released sweeping changes to its regulations requiring certain federal contracts and subcontractors to engage in affirmative action for veterans and disabled individuals. For more information on these changes, please see our previous client alert.

Though the proposed rule is subject to change before being promulgated in its final form, it would be prudent for covered companies to proactively assess pay data and be prepared to distinguish any compensation differences that that are explained by legitimate factors such as seniority, job duties, and skill sets.