Contractors Get Much-Needed Clarity on Audits

OFCCP lays out its approach on compensation compliance evaluations

Every year, the federal government audits contractors and subcontractors for data showing that they aren’t engaging in pay discrimination. But companies are often mystified as to whether they’re presenting their pay data analysis right according to the government.

That pay data audit process might have gotten a little less opaque thanks to some new guidance the Office of Federal Contract Compliance Programs handed down last month. On Aug. 24 the OFCCP, which oversees contractors’ compliance with the government’s affirmative action requirements, issued Directive 2018-5, which aims to make the agency’s audit process more transparent and consistent. This comes after the OFCCP issued other guidance earlier this year including a directive explaining how it selects contractors for audit. Local attorneys who work with contractors on pay equity issues say the directive is another sign the OFCCP is making good on its recent promises of better transparency and clarity.

Among other illuminating details in Directive 2018-5, the OFCCP described the reasoning it uses when evaluating the compensation data it receives from contractors it audits, including how it weighs statistical and anecdotal evidence of possible pay disparities. The directive also offered guidance on how contractors can conduct their annual self-audits more meaningfully “so that they can proactively identify and address issues with their compensation practices.” The new directive rescinds Directive 307, the OFCCP’s 2013 guidance on the topic.

Executive Order 11246, signed back in 1965, requires contractors to “ensure that applicants are employed, and … treated during employment, without regard to their race, color, religion, sex, sexual orientation, gender identity, or national origin.”

Affirmative action plans outline the steps the employer takes to ensure the racial and gender demographic of its workforce reflects that of the populations it hires from and that it doesn’t have pay disparities by race or gender among employees. Federal contractors and subcontractors must adhere to AAP requirements if they have 50 or more employees and a contract worth $50,000 or more.

Until recently, contractors didn’t have much direction on how they should present their compensation analysis to the OFCCP for a compliance audit. Under Directive 307, the OFCCP gave companies a wide berth for deciding how they might crunch the numbers and group employees together, but that free rein came at the expense of clarity: oftentimes companies weren’t sure if the government would approve of or understand their model.

To read this story and other complete articles featured in the September 10, 2018 print edition of Law Week Colorado, copies are available for purchase online.