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U.S. Labor Department Issues Guidance for Analysis of Compensation Practices

    Client Alerts
  • September 20, 2018

The U.S. Department of Labor’s Office of Federal Contract Compliance Programs has made the review of federal contractor’s compensation practices a top enforcement priority. On August 24, OFCCP issued a new directive explaining to contractors how such compliance audits will review potential compensation discrimination on the basis of sex and race. The agency said that the directive is intended to allow contractors to perform self-audits to identify and correct pay disparity issues before OFCCP initiates enforcement actions.

The directive states that OFCCP will continue to use statistical analyses to determine a prima facie case of discrimination. If such disparity is identified, the agency will look for non-statistical evidence of discrimination (i.e., witness interviews, documents). The agency will be less inclined to pursue enforcement action against an employer where the only evidence of discrimination arises from the statistical analysis.

The directive then explains how OFCCP groups different job titles for purposes of developing pay analysis groupings (PAGs). The PAGs attempt to mirror the employer’s own compensation structure. In the absence of meaningful PAGs, the agency will fall back on EEO-1 or affirmative action plan job groupings for purposes of the analysis. If a statistically significant disparate impact is identified, OFCCP will them perform a regression analysis to control for possible non-discriminatory factors creating the disparity.

This directive should assist employers in both self-audits and in response to OFCCP desk audits on compensation practices. The agency says that it is shifting its enforcement model to one that is more transparent and cooperative with federal contractors selected for audits.