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OFCCP: New Contractor Compensation Procedures

Submitted by Firm:
Cross, Gunter, Witherspoon & Galchus, P.C.
Firm Contacts:
Abtin Mehdizadegan, J. Bruce Cross, Misty Wilson Borkowski
Article Type:
Legal Update
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On February 28, 2013, the Office of Federal Contract Compliance Programs (OFCCP) issued Directive No. 307, which contains the procedures OFCCP will use in reviewing contractor compensation systems and practices during a compliance evaluation. The directive repeals OFCCP's 2006 compensation standards and voluntary guidelines for self-evaluation under Executive Order 11246.

Click here to view the new directive. 

Under the new directive, contractors must still review and monitor their compensation systems to determine whether there are any gender, race or ethnicity based disparities. As some contractors may have noticed, in the past few years, OFCCP has increased focus on compensation and has asked for individualized compensation data after their initial review of the contractor's Item 11 data. Therefore, contractors should be prepared to explain their pay practices and policies, especially in areas that contain significant compensation disparities. Once it receives the individualized compensation data, OFCCP will then decide which tools it may use for compensation issues. However, the contractors will not know what tools OFCCP actually decided to use. 

The most drastic change in the directive is the creation of a "Pay Analysis Group," which OFCCP defines as "a group of employees who are comparable for purposes of the contractor's pay practices." However, these groups may include "multiple distinct units or categories of workers" and may "combine employees in different jobs or groups, with statistical controls to ensure that workers are similarly situated." This is a drastic change from the 2006 definition of "Similarly Situated Employee Groups," which stated that employees were similarly situated "if they are similar with respect to the work they perform, their responsibility level, and the skills and qualifications involved in their positions." 

Under the new directive, the OFCCP will analyze a "Pay Analysis Group" for systemic discrimination, smaller groups of discrimination and individual discrimination. OFCCP may decide that an on-site investigation is necessary and may want to interview the contractor's staff and employees. The directive also affirms OFCCP's enforcement of Title VII's principles that prohibit discrimination based on disparate treatment (intentional discrimination) or disparate impact (neutral policy that negatively impacts the protected class) theories. Therefore, contractors should safeguard against attempts by the OFCCP to base a violation upon the Equal Pay Act, which does not require a finding of discrimination. 

Contractors that have experience with OFCCP may not experience a difference in the manner in which OFCCP seeks additional compensation data and otherwise conducts an investigation; however, the directive provides helpful guidelines of which a contractor should be aware.