For years, the Office of Federal Contract Compliance Programs (OFCCP) talked the talk when it came to preventing discrimination in compensation. Now, it is walking the walk.

OFCCP has proposed rules meant to help meet a goal of the Bush administration's Equal Pay Initiative: to provide contractors with the necessary tools to assess and "improve" their pay policies.

The rule also will help fulfill the goal of increasing the number of federal contractors brought into compliance by allowing OFCCP to more effectively monitor the pay practices of federal contractors.

What does the rule do?

The proposed rule establishes guidelines for determining which employees are "similarly situated" for purposes of comparing contractor pay decisions; and adopts the use of multiple regression analyses to identify disparities in compensation. Notably, the proposed rule rejects the compensation analyses previously used "informally" by certain regions of the OFCCP, including the so-called Dubray Method or "pay-grade" analysis.

The rule will allow contractors with fewer than 250 employees to choose their own form of compensation analysis. However, the evaluation must be annually performed on groups of employees that are similarly situated employee groupings (SSEGs). SSEGS should have at least 30 employees and be based on similar work, responsibility, skills, and qualifications. Records must be kept that either justify the discrepancies in compensation or reflect any pay adjustments that are made to remedy any disparities. Employees with greater than 250 employees are required to perform multiple regression analysis, a complicated statistical formula, best handled by a professional statistician or a specially designed program.

If the contractor determines that disparities exist, the contractor must investigate any statistically significant compensation disparities produced by it own evaluation analyses. In addition, contractors are required to create and retain all documents and data, and make all of the documents and data referenced available to OFCCP during a compliance review.

Contractors beware

Contractors should be prepared for the OFCCP's increased focus on compensation discrimination. In order to prepare for potential audits, contractors would be well advised to track and document factors that affect compensation in the company, develop an evaluation system for the compensation system within the organization and correct pay disparities that present a risk of legal action.

View more resources on Government Contractors.

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