Federal Contractor Requirements Continue to Expand – Department of Labor Proposes New Pay Data Collection Tool
Last week, the Department of Labor (“DOL”) met the deadline established by President Obama in his April 8, 2014 Presidential Memorandum and issued a Notice of Proposed Rulemaking (“NPRM”) requiring federal contractors to submit annual summary employee compensation data by gender and race/ethnicity.
Key features of the NPRM include the following:
The DOL proposes that contractors file an annual “Equal Pay Report” in addition to their annual EEO-1 report.This requirement will, according to the NPRM, address two primary objectives laid out in the Presidential Memorandum: (1) help direct enforcement resources towards contractors whose reported data suggest potential pay discrimination; and (2) encourage voluntary compliance and remediation among contractors.
The Office of Federal Contract Compliance Programs (“OFCCP”) will be expected to utilize the Equal Pay Report to compare a contractor’s pay discrepancies against a newly created “industry standard” to identify contractors for compliance evaluations. OFCCP will publish these industry standards so that contractors can compare their “pay differential ratios” to that of others in their industry. In turn, contractors will be expected, according to the NPRM, to use the report to proactively investigate their pay practices and remediate, as needed.
The NPRM contains specific proposals regarding the form, content, and use of the Equal Pay Report. Recognizing the complexity of pay data collection and analysis -- and perhaps due to the limited time DOL had in which to complete its proposals -- the NPRM seeks comment on dozens of specific questions relating to the proposed report. The agency’s consideration of the responses to those questions may materially change the nature of any final rule. Comments must be submitted by November 6, 2014, the eve of the national mid-term elections. Contractors should carefully assess the increased requirements and costs of the proposed rule and provide independent comment to the DOL or join with affiliated member organizations so that their voices may be heard.
The remaining sections of this Client Alert summarize the proposed regulation and the potential impact on contractors.
II. New Reporting Obligations
Under the proposed amendment to 41 C.F.R. section 60-1.7, prime contractors and first tier subcontractors must file the Equal Pay Report if they meet the following three requirements:
Are obligated to file an EEO-1 Report;
Have more than 100 employees; and
Have a government contract, subcontract, or purchase order for at least $50,000 that covers a period of at least 30 days.
Covered contractors must submit aggregate compensation data by “sex, race, ethnicity, specified job categories, and other relevant data points.”
In its current form, the NPRM creates significant uncertainties for contractors. For example, contractors cannot at this point determine the process that will be needed to compile the required information. Further, the suggestion that hours worked will be among the data collected raises more questions about the utility of this tool for directing enforcement activities, particularly for contractors with large exempt populations for whom actual hours worked are not tracked.
The NPRM describes that OFCCP will build an online filing system to receive electronically the Equal Pay Report.
Contractors who fail to submit the Equal Pay Report (and EEO-1 reports, for that matter) will be deemed in violation of Executive Order 11246 and the implementing regulations.
III. Preserving Confidentiality of Compensation Data
The proposed regulation recognizes that contractors have legitimate business concerns with releasing compensation data on their domestic workforce, as such data is commercially sensitive within an industry.
To the extent that the OFCCP makes public the compensation data, it would do so only in aggregate form. The agency reserves the right to publish “aggregate information,” “such as ranges or averages by industry, labor market, or other groupings, but only in such a way as not to reveal any particular establishment’s or individual employee’s data.”
It is unclear whether the OFCCP’s practice of precluding disclosure to the public would apply to federal or state enforcement agencies interested in a particular employer’s data. However, contractors can anticipate that their Equal Pay Reports will be the subject of discovery in litigation (as are EEO-1 reports) and consider such reports in the context of their information governance and their record retention protocols.
IV. Impact on Contractors: How Will the Data Be Used?
As explained below, the DOL intends the Equal Pay Report to serve as a data tool that both the OFCCP and contractors will use to evaluate pay practices.
A. OFCCP’s Use of the Equal Pay Report
The OFCCP will use data from the Equal Pay Reports to target contractors for compliance evaluations, as well as predict the likelihood of finding a violation during a compliance evaluation. The agency intends to aggregate pay differential ratios for protected groups to create an “industry standard” for pay differences among protected groups, as compared to favored groups (e.g., female professionals earn 60% of their male colleagues’ compensation in a certain industry).
The industry standards will be published. Contractors with pay variances that “substantially depart” from the industry standard are more likely to be flagged for a compliance evaluation, according to the NPRM, than contractors with pay variances that are consistent with the industry standard.
The agency premises this analytical framework on the assumption that “like employees” are similarly categorized in EEO-1 job groups across an industry.
The good news is that the agency states in its NPRM that it will not use this tool to establish pay discrimination violations; “the agency is not seeking to establish pay discrimination violations through a general reporting requirement.”
B. Contractors’ Use of the Equal Pay Report
Understanding how the agency will use the Equal Pay Report, contractors can assess their likelihood of an audit once the industry standards have been established. The OFCCP intends to provide training and technical assistance to aid contractors’ understanding of the industry standards, and how contractors can conduct self-assessments of their compensation practices.
V. Next Steps
The NPRM is consistent with President Obama’s pay equity agenda.
Be active in the public comment stage of the current NPRM, which lasts until November 6. The proposed regulation implicates important and controversial issues, such as preserving the confidentiality of compensation data and using secondary data sources in creating the “industry standards,” that will benefit from robust participation from the contractor community.
Begin reviewing your policies, practices, procedures, and technology platforms to evaluate whether your company is set up to collect, store, and report the proposed compensation data. The transition to this obligation will be facilitated by adequate foresight and preparation.
Consider which internal stakeholders should be involved in evaluating a contractor’s compensation data as compared to the agency’s industry standard.
By taking such measures, federal contractors can facilitate their transition to incorporating this additional layer of compliance into their practices. We will continue to follow developments in this area.
If you have any questions concerning these developing issues, please do not hesitate to contact any of the following Paul Hastings lawyers:
Leslie A. Dent
Kenneth W. Gage
Jon A. Geier
Heather A. Morgan
Marc E. Bernstein
Blake R. Bertagna
79 Fed. Reg. 46,562 (proposed Aug. 8, 2014) (to be codified at 41 C.F.R. pt. 60-1), available at
These compensation-related executive actions, combined with other recent Executive Orders related to (1) ending discrimination against LGBT employees and (2) requiring contractors to (a) report labor and employment violations in the procurement process, (b) limit the use of pre-dispute arbitration agreements, and (c) create new federal pay stub reporting requirements, may lead employers to rethink remaining or becoming federal contractors. See [
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