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OFCCP Issues New Standards and Self-Evaluation Guidelines for Evaluating Discriminatory Compensation

September 27, 2006

The U.S. Department of Labor’s Office of Federal Contract Compliance Program (OFCCP) regulates federal contractors and sub-contractors. OFCCP requires covered federal contractors to collect gender, race, and ethnicity data on applicants and employees so OFCCP can ensure nondiscrimination and affirmative action under Executive Order 11246. OFCCP recently issued Standards for Systemic Compensation Discrimination and Voluntary Guidelines for Self-Evaluation of Compensation Practices. Both issuances are effective immediately.

The new interpretative Standards are critical to the agency’s compliance review process as they establish uniform standards and methodologies for evaluating contractor compensation practices. There are two major components to the Standards. First, in determining whether women and minorities are compensated the same as men and non-minorities, OFCCP will examine whether the employees are “similarly situated.” This analysis will focus on similarities in job content, skills and qualifications, and responsibility levels. The second component requires a statistical analysis known as multiple regression. Systemic compensation discrimination will be found where there are statistically significant disparities between similarly situated employees, after taking into account legitimate factors affecting compensation such as education, prior work experience, performance, productivity, location, and seniority. OFCCP will only issue a Notice of Violation based on these Standards. Accordingly, employers should review their compensation practices under OFCCP’s new Standards to ensure their job wage-rate decisions do not adversely affect employees in one particular gender, race or ethnic class.

In addition to the systemic compensation Standards, OFCCP also issued Voluntary Guidelines contractors can use to perform annual self-audits of their pay practices to determine if there are pay disparities based on gender, race or ethnicity. The Guidelines provide compliance incentives for contractors who adopt OFCCP’s suggested methodologies as part of their self-auditing process. For example, if a contractor, in good faith, reasonably implements the evaluation methods outlined in the Guidelines, and promptly makes all necessary compensation adjustments identified during the audit, OFCCP will deem the contractor’s compensation practices to be legally compliant.

The Standards for Systemic Compensation Discrimination can be viewed at www.dol.gov/esa/regs/fedreg/notices/2006005458.htm. The Voluntary Guidelines for Self-Evaluation of Compensation Practices can be viewed at www.dol.gov/esa/regs/fedreg/notices/20006005457.htm.