OFCCP Publishes Standards for Compensation Discrimination

William H. Pickering

On June 16, the OFCCP published formal standards for evaluating federal contractors' compensation practices during compliance reviews. These standards require employers to analyze compensation by comparing amounts paid to employees who are similarly situated.  The OFCCP considers employees to be similarly situated if their positions involve similar job content, skills, qualifications, and responsibility. The new standards reject the grouping of employees by pay grades unless those grades are composed of similarly situated positions.

The standards state that systemic compensation discrimination exists where there are statistically significant compensation disparities between similarly situated employees after taking into account legitimate factors which influence compensation, such as education, prior work experience, performance, productivity, and time in job. A statistically significant disparity occurs at a level of two or more standard deviations, based on measures of statistical significance that are generally accepted in the statistics profession.  The OFCCP will also consider whether there is anecdotal evidence of compensation discrimination in determining whether to issue a Notice of Violation.

The OFCCP also published guidelines that contractors may use to evaluate their compensation practices. If a contractor properly implements these evaluation methods, the OFCCP will consider the contractor's compensation practices to be in compliance with Executive Order 11246. Under these voluntary guidelines, contractors have the choice of any statistical analysis that accounts for factors that legitimately affect compensation and that are generally recognized as appropriate in the statistics profession.

A contractor's decision not to implement an evaluation program that meets the guidelines will not be used by the OFCCP in assessing compliance. However, a contractor who fails to adopt any self evaluation method may be cited for non-compliance with 41 C.F.R. 60-2.17(b)(3). 

These new standards make clear that the OFCCP's compliance reviews will focus on compensation practices.  Contractors should conduct regular evaluations of their compensation systems, using appropriate methods of analysis, and correct all compensation disparities. Those contractors who fail to do so until the OFCCP's notice of  compliance review arrives will likely find it is too late to identify and correct problems, and they increase the likelihood of an on-site investigation.

If you would like further information about compliance with these or other OFCCP standards, please do not hesitate to contact Bill Pickering at wpickering@cbslawfirm.com