OFCCP Will Cooperate with Federal Contractors Ahead of Pay Audits

 

Allen Smith, J.D. By Allen Smith, J.D. July 29, 2019
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​The Office of Federal Contract Compliance Programs (OFCCP) will make pay audits of federal contractors less contentious by collaborating with contractors on the pay groups they use to identify race- or sex-based disparities in compensation.

A pay group—officially called a pay analysis grouping—is a grouping of similarly situated employees who would be expected to be paid the same wages, based on job similarity, minimum qualifications or certifications, noted Holly Lake, an attorney with DLA Piper in Los Angeles.

Contractors can submit their pay groups to the OFCCP for review, and the agency will take these groups into account in future compliance evaluations, according to a July 22 agency opinion letter. But the OFCCP hedged in the letter, stating that it can't guarantee it will rely on an employer's pay groups in all future compliance evaluations, since companies may change their compensation systems.

The ability to get feedback on and preapproval of pay groups before an audit is a big win for contractors, said Connie Bertram, an attorney with Polsinelli in Washington, D.C. The OFCCP and contractors often disagree about pay group composition, which can result in the OFCCP finding pay discrimination based on disparities among employees the contractor does not believe are comparable, she said. With the OFCCP's preapproval of a federal contractor's pay groups, a contractor can reliably self-audit and fix potential pay disparities before it faces an OFCCP audit.

"I encourage contractors to review their compensation on an annual basis, even though the regulations do not require an annual, but only a periodic, review," said Cheryl Behymer, an attorney with Fisher Phillips in Columbia, S.C.

Over the past two decades, the OFCCP has tested ways to make pursuing pay-discrimination claims easier for the agency, according to David Goldstein, an attorney with Littler in Minneapolis.

Now it "is trying to be more of a compliance-assistance agency than a 'gotcha' enforcement agency," said Alissa Horvitz, an attorney with Roffman Horvitz in McLean, Va.

Some employers might have many employees with the same job title, in which case a job title could be an effective grouping to evaluate employees who are similarly situated, she noted. Other employers won't have enough workers in one title and will need to find other ways to group jobs or employees. A pay group might include people in similar pay bands, at similar levels or in similar jobs or departments. "It often is challenging to build a structure that honors the concept of similarly situated employee groups," she said.

[SHRM members-only toolkit: Managing Pay Equity]

When Should Federal Contractors Seek OFCCP Preapproval?

Federal contractors that know they will be selected for a compliance review may want to seek the OFCCP's preapproval for their pay groups. Contractors might know if they are to be reviewed if they are listed on the agency's corporate scheduling announcement letter.

 "It would be wiser … to approach the OFCCP after having already developed appropriate groupings with counsel's advice and recommendations, conducted a privileged pay-equity analysis and fixed the issues that arose under counsel's analysis," Horvitz said. The attorney-client privilege would protect employers from having to disclose the results of the self-audit should there be an OFCCP audit or litigation. When seeking OFCCP preapproval of pay groups, the groups would not be subject to the privilege, but the self-audit would be.

If a federal contractor is large, with many facilities that may be subject to numerous audits, it might consider asking the OFCCP to preapprove its pay groups, according to David Cohen, president of DCI Consulting Group in Washington, D.C.

Unfortunately, the opinion letter does not clarify when compensation changes might prevent the OFCCP from relying on employers' pay groups, even after it has preapproved them, he noted. Federal contractors that seek OFCCP preapproval of pay groups may want to ask the agency to clarify in a written, informal agreement which compensation changes might result in the agency's nonreliance on the preapproved groups, Cohen said.

Contractors might change their compensation systems if they merge with other companies, or they might switch from broad pay bands to specific pay grades. With broad bands, there are huge ranges of salaries within the bands, giving employers flexibility in a tight labor market.

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