Federal contractors may soon be required to prepare and submit an Equal Pay Report on employee compensation to the OFCCP. What do contractors need to know about the new data requirements behind this proposed report?
On August 6, the Department of Labor’s Office of Federal Contractor Compliance Programs (OFCCP) issued a Notice of Proposed Rulemaking (NPRM) requiring federal contractors and subcontractors with over 100 employees to prepare an “Equal Pay Report” on employee compensation.
This new proposed rule reflects the Obama administration’s persistent focus on equal pay, beginning with the President’s first signed piece of legislation, the Lilly Ledbetter Fair Pay Act, and ending with Mr. Obama’s April 8, 2014 Presidential Memorandum “Advancing Pay Equality Through Compensation Data Collection.” In the Memorandum, the President directed the Department of Labor to:
1. Focus enforcement resources on entities reporting data that appear to show potential discrepancies
2. Develop a report that minimizes the burden on federal contractors and subcontractors, particularly smaller business and nonprofits
3. Encourage voluntary compliance with federal pay laws
A “Critical Tool”
The new report would be a supplement to the existing EEO-1 Report, using W-2 earnings as the source of the compensation data, and supplementing the EEO-1 Report via two variables containing the additional information on compensation. Contractors would file the report for each establishment, regardless of size, including the headquarters location. The Equal Pay data would be summarized by sex, race, ethnicity, specific job categories, as well as other “relevant data points” such as hours worked and the number of employees. As with the EEO–1 Report, both fulltime and part-time employees would be included in the Equal Pay Report. In addition, the Equal Pay Report would include the same workforce demographic data (e.g., the identical seven race and ethnicity categories, sex, and company identification information), the same ten EEO–1 job categories, the same exemptions, and the same definition of ‘‘employee.’’ Individual employee pay data will not be required. Post-secondary institutions filing the Integrated Postsecondary Education Data systems (IPEDS) report would also use W-2 earnings and file the OFCCP’s proposed Equal Pay Report, under the NPRM proposal.
The goal of the Equal Pay Report is twofold. First, it is intended to encourage equal pay compliance by contractors. Second, the agency intends to differentiate between organizations with potential pay violations and those that reveal no evidence of pay violations, thereby allowing the OFCCP to efficiently use enforcement resources.
In regard to the first goal, the OFCCP has stated that routinely sharing aggregated compensation data at the industry-level and/or labor market level will allow federal contractors to compare their compensation structures to others in the same industry, and make voluntary adjustments in their policies and practices.
In regard to the second goal, the OFCCP anticipates using contractor summary compensation data to establish “industry standards for identifying potential discrimination”… and to then prioritize and schedule contractors for compliance evaluations based on the difference between a contractor’s pay compared to industry standards.”
The contractor community has already raised a variety of substantial concerns with the proposed rule. These concerns include –
1. confidentiality of the transmitted data (to be transmitted via a web-based portal)
2. burden associated with generating the new reports
3. measurement questions (e.g. hours worked for exempt employees, changes in jobs)
In addition, the data requirements prompt several interpretation and implementation questions:
1. How will a contractor provide these data when their AAP year does not correspond to a calendar year?
2. How will a contractor account for hours worked for exempt employees, especially when those exempt employees only work part time?
3. How will the contractor account for non-pecuniary forms of pay (if at all)?
As labor economists, we have focused on the usefulness of the collected data. Contrasting the data available in the proposed Equal Pay Reports with the data typically required for a rigorous compensation analysis is clarifying. The data collected is generally not adequate to draw any kind of meaningful conclusion on compensation disparities at a contractor facility. Consider the following table:
OFCCP Data Collection Tool
Rigorous Compensation Analysis
Utilizes individual level data
One (crude) control variable
Includes set of control factors accounting for employer's decision making process
Compensation measure is a mixture of earnings
Examines each form of compensation separately
Blends exempt and nonexempt employees, among other inappropriate comparisons
Ensures that all observations in an analysis are comparable
As this table illustrates:
1. W-2 earning is a problematic measure of compensation for a compensation adverse impact study.
2. Observed differences are likely attributable to differences in legitimate non-discriminatory factors – which are not available in the Equal Pay Report
3. EEO-1 occupation categories are generally way too broad to the useful in a compensation analysis. These groupings are simply too large to comport with any notion of limiting comparisons to similarly situated employees. Indeed, most of the EEO-1 categories include more than 50 Census occupation codes. The massive ‘Professional’ category, for example, contains more than 250 occupations, including a range of clearly dissimilar jobs. Consider that Landscape Architects, Umpires and Doctors all fall under this one code.
Although the OFCCP has indicated the Equal Pay Reports will only be used to prioritize contractors for review, not for drawing conclusions as to disparate impact; it appears that the data collected is sufficiently limited that even this more modest goal looks challenging – generating outcomes that are likely unreliable and potentially unfair.
As a result of the Equal Pay Report provisions, as they currently exist, the following is likely to occur:
• First, facilities with relatively high job segregation (especially by gender) will get more scheduling letters.
• Second, there will be an increased (even more) focus on job steering as a form of compensation discrimination.
• Third, some contractors may feel obliged to embark on more rigorous compensation analyses and these analyses may also include examinations designed to rebut job steering claims.
Complementary EEOC Compensation Data Collection Effort
The EEOC has been pursuing its own compensation data collection project, relying upon guidelines provided by the National Research Council (NRC) of the National Academies Committee on National Statistics. Published in 2012 the study advised the EEOC to first implement a “comprehensive plan” prior to collecting any compensation data; second commission an “independent contractor” to conduct a pilot study to test the plan and collection processes; third, assure the agency is has the infrastructure needed to collect and analyze the data adequately; fourth, focus on rates of pay, rather than actual compensation, and analyze meaningful statistical measures; fifth, implement sophisticated data security protocols to ensure that identities are protected without compromising need to analyze data across disparate data sources; and sixth, seek broader legislative data protections. OFCCP acknowledged EEOC’s work, and stated its intention of coordinating its own initiative with EEOC.