Long-anticipated policy changes that impose stringent new recordkeeping requirements on federal contractors for their compensation and hiring practices could lead to more discrimination cases.
In 2011, the Office of Federal Contract Compliance Programs (OFCCP)—the Labor Department division responsible for ensuring that contractors comply with Equal Employment Opportunity laws—proposed changes to its Scheduling Letter and Itemized Listing. Used in conjunction with an audit notification letter, it identifies the materials contractors must provide at the onset of an OFCCP desk audit. The changes stalled for three years while awaiting approval from the Office of Management and Budget (OMB).
Early this month, the OMB approved many of the OFCCP’s proposed changes, imposing significant new reporting obligations. The most notable change requires contractors to submit compensation data for each employee within 30 days of receiving an audit notification letter. Traditionally, contractors only had to produce aggregate compensation data unless OFCCP, after detecting disparities, requested individualized compensation data.
With the new Scheduling Letter, contractors must also provide much more detailed information on the front end of an audit, and within a much shorter period of time. “It expands the amount of information that OFCCP is going to have at its fingertips at the beginning of an audit,” Andrew Turnbull, an associate in the employment and labor practice group at law firm Cooley, says.
The result of these changes could be more pay discrimination cases. “The OFCCP is extremely aggressive these days in looking for evidence of pay discrimination, and the agency intends to use this data to more quickly identify pay violations,” Valerie Hoffman, a partner in the law firm Seyfarth Shaw, says.
The OFCCP also significantly expanded its definition of “compensation” to include not only base salary or wages, but hours worked, incentive pay, merit increases, and overtime. Until now, the OFCCP did not seem particularly focused on finding pay issues beyond base pay, Hoffman says.
“It really drastically expands the amount of information that the OFCCP is going to have at its fingertips at the beginning of an audit.”
Andrew Turnbull, Associate, Cooley
Contractors are going to have to “collect, analyze, and provide substantially more data to the OFCCP for every audit,” Rebecca Springer, counsel at law firm Crowell & Moring, says.
A lot of contractors may not have this broader scope of compensation data “easily and readily accessible,” Turnbull says. “For some companies, they’re going to have to really look at their information technology systems to make sure they’re capturing all of this information.”
Contractors will also be required to provide their data electronically, but only if they maintain it in an electronic format that is “useable and readable.” The goal is to foster “faster and more efficient compliance evaluations.”
Another substantial policy change will require contractors to categorize and submit all hiring, promotion, and termination data by five specific racial and ethnic subgroups—Whites, African Americans, American Indians, Hispanics, and Asian/Pacific Islanders—rather than by the less informative categories of “minorities” and “non-minorities” that were previously required.
From a practical standpoint, many contractors already conduct compensation analyses for these sub-groups, as required under the government’s EEO-1 Report. What may cause confusion, however, is that the EEO-1 report separates Asians from Pacific Islanders, whereas the OFCCP Scheduling Letter does not.
Contractors will need to modify the way they currently report their compensation analyses in order to comply with the OFCCP’s Scheduling Letter. “Having to keep track of that is going to be a little cumbersome, even for experienced contractors,” Leigh Nason, a shareholder in the law firm Ogletree Deakins, says.
To simplify the process, contractors have the option to submit hiring, promotion, and termination data by job group or job title, rather than both. This eliminates the burden of having to collect, analyze, and report data in two different ways.
The new Scheduling Letter also implements revisions to the Vietnam Era Veterans’ Readjustment Assistance Act (VEVRAA) and Section 503 of the Rehabilitation Act that took effect in March. They relate to the recruitment and hiring practices of veterans and individuals with disabilities.
The new Scheduling Letter goes one step further than the rules, however, by requiring contractors to submit reports demonstrating progress toward hiring benchmarks as part of their initial audit submissions. Contractors subject to audits are now required to provide:
Results of the contractors’ evaluation of their outreach and recruitment efforts for individuals with disabilities and protected veterans;
Documentation of all actions taken to comply with the audit and reporting results of their affirmative action efforts;
Documentation of the comparisons of applicants and hires for individuals with disabilities and veterans;
Analyzing whether the contractor reached its 7 percent goal for each job group for individuals with disabilities; and
Documentation of whether the number of veterans in the contractor’s workforce meets the 8 percent hiring benchmark, or the benchmark created by the contractor.
With respect to both Section 503 and VEVRAA, contractors are now required to submit information regarding all accommodation requests and their resolution—even though the revised Section 503 specifically states that “contractors are not required to use written reasonable accommodation procedures, and the failure to use such procedures will not result in a finding of violation.”
Below is provides details on the OFCCP’s itemized listing to be used with the scheduling letter.
The Itemized Listing, used in conjunction with the Scheduling Letter, identifies for contractors the documents and information that they must provide for the desk audit phase of an OFCCP compliance evaluation. During the public comment period on the revisions proposed to the Itemized Listing in 2011, OFCCP received several valuable comments from a variety of stakeholders. This OMB approved renewal reflects these comments whereby OFCCP substantially reverts to the 2008 Itemized Listing, including continuing to allow contractors to submit employment activity data by either job group or job title. Maintaining the option of reporting employment activity by either job group or job title eliminates the burden that some commenters associated with collecting, analyzing and reporting data in two different ways as OFCCP proposed in 2011. Contractors will continue to provide this data by sex; however, they will submit race and ethnicity information using five specified categories instead of two broad categories (i.e., minority and non-minority).
To reduce the potential cost and burden that some commenters associated with the Itemized Listing even further, OFCCP made changes to aspects of its compensation data requirements. OFCCP changed the 2008 Itemized Listing so that it no longer requires that contractors submit annualized aggregate compensation data. Instead, contractors will submit individualized employee compensation data as of the date of the workforce analysis in their Affirmative Action Programs, also noting the job title, job group and EEO–1 category. By adopting this approach, OFCCP opted to modify its 2011 proposal. This change is expected to reduce the cost and burden that some commenters associated with collecting, tabulating, and analyzing data to submit in aggregate form.OFCCP also refined its definition of compensation, as proposed in 2011, to include consideration of hours worked, incentive pay, merit increases, locality pay, and overtime.
In the 2008 Letter, OFCCP encouraged the use of electronic submission of the data. In the OMB approved renewal, the agency is requiring contractors to provide the data electronically but only if they maintain it in an electronic format that is useable and readable. This provides contractors with more flexibility when compared to what OFCCP proposed in 2011, and the provision may contribute to faster and more efficient compliance evaluations.
Finally, OFCCP was required to make several changes to the 2008 Itemized Listing based on recent regulatory changes. The Section 503 of the Rehabilitation Act of 1973 and VEVRAA final rules, published in September 2013, changed the data collection, recordkeeping and reporting requirements of these two regulations. The VEVRAA rulemaking also eliminated 41 CFR part 60–250, and OFCCP rescinded the Voluntary Guidelines and Compensation Standards in February 2013 (78 FR 13508). Therefore, OFCCP had no discretion and incorporated these regulatory changes into the renewal of this ICR.
Source: Federal Register.
The Scheduling Letter also seems to contradict the final rule. “The only practical means by which contractors will be able to respond within 30 days to a current Scheduling Letter request for reasonable accommodation requests and their resolution is by maintaining a written reasonable accommodation log,” Hoffman says.
It’s advisable that contractors treat reasonable accommodation procedures as mandatory, Hoffman says. “OFCCP has now made it clear that contractors will need to submit written reasonable accommodation policies, as well as written documentation concerning accommodation requests and their resolution.”
Federal contractors should undertake a substantial review of their compensation practices well before they are audited by the OFCCP to see what vulnerabilities they may have. “Conduct it under attorney-client privilege if you can so it’s not discoverable during litigation,” Nason advises.
Contractors must be prepared to justify pay differences and defend their compensation practices. Factors such as education, skill sets, and experience may all have a role to play in explaining pay disparities.
“Most contractors don’t keep that type of information in their [human resource information systems], so when they actually do a compensation review, it’s a laborious process to pull that together,” Turnbull says. As a result, contractors may want to consider voluntarily putting that data into their systems so they can run that analysis if there is an OFCCP audit, he says.
Preparation is the best defense, he and others say, and that includes being aware of what compensation data must be reported; being prepared to explain any pay disparities; and taking a hard look at technology systems to ensure such data is readily available are all things contractors can do to protect themselves in the event of an OFCCP audit.