OFCCP Releases New Compensation Directive for Government Contractors

April 2nd, 2013 by

CAI’s Manager for Affirmative Action Services, Kaleigh Ferraro, shares the latest updates from the OFCCP. Make sure you are compliant.

Kaleigh blogEffective February 28, 2013, the Office of Federal Contract Compliance Programs (OFCCP) officially rescinded their previous guidelines on compensation. This rescission comes as no surprise since they had published in January 2011 a Notice of Proposed Rescission. The OFCCP stated the previous guidelines were too limiting and “constrained OFCCP’s ability to investigate pay discrimination to the full extent permitted by law.” These previous guidelines also conflicted with other government agencies’ investigated pay discrepancies.

The OFCCP replaced the rescinded guidelines with Directive 307, which is supposed to provide contractors clear insight into how the OFCCP will conduct compensation reviews during audits. However, this “clear guidance” doesn’t really live up to this billing. What it actually does is list multiple protocols and factors the OFCCP may use during a compensation review. The OFCCP makes it clear they may use any number of these methodologies during audits and they will be determined on a case-by-case basis. This of course, gives the OFCCP a great deal of flexibility during investigations and makes it extremely difficult for contractors to determine if they are “compliant” based on the OFCCP’s methods.

The consequence of this new Directive is that it affects contractors’ compensation policies/procedures and data at both the macro and micro levels. Employers must be able to address how their practices influence compensation, as well as prepare for specific individual analysis. The changes to the compensation review procedures have the potential to cause companies additional angst during audits.

The following is a high level overview of some of the changes and the issues they may cause employers:

  • There are eight possible “steps” to be taken when conducting the compensation portion of an OFCCP audit and potentially additional consideration factors within the steps.
    • It is unclear which “step” the OFCCP will actually use during an investigation and/or the progression through any and all of these steps. The OFCCP also may change direction at any point during their review.
  • The OFCCP has indicated that several of their analyses will be conducted by broad groupings of employees and not just at the position title level.
    • With wide groupings such as pay grades, AAP job groups or pay analysis groupings being used for analysis, there is a greater opportunity for pay discrepancies to be identified during the OFCCP’s investigation.
  • Any documentation regarding company policies or practices that may be related to compensation may be called into question during the OFCCP’s review. Examples include but are not limited to performance systems, commission, overtime hours, training, etc.
    • This more detailed review of company practices will likely cause OFCCP to uncover issues with inconsistent pay practices as well as other employment policies.
  • Regardless of findings and whether or not an issue is identified during previous “steps” or reviews, the OFCCP has indicated they may continue their investigation into contractors’ compensation.
    • This seems to indicate that OFCCP audits will be comprehensive and involve many steps and reviews and will likely be a long and drawn-out (and potentially expensive) process.

The Directive seems to serve as an indication that the compensation reviews conducted by the OFCCP will cause many challenges among the contractor community, especially initially. To review Directive 307 in its entirety, visit http://j.mp/pd-gc.

If you would like to discuss these new guidelines in detail and the potential impact on your organization, please contact me directly at 919‑713‑5241 or kaleigh.ferraro@capital.org. CAI provides AAP plan preparation, OFCCP audit assistance, onsite training and webinars for hundreds of companies each year. We are happy to share our expertise with you!

 

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