The U.S. Department of Labor’s Office of Federal Contract Compliance Programs (“OFCCP”) has significantly increased its focus on employers’ compensation systems during scheduled affirmative action compliance audits. In fiscal year 2011, OFCCP had 27 compliance evaluations with pay provisions for alleged compensation disparities, totaling $1.06 million in monetary benefits. In 2010, OFCCP reached 10 settlements for alleged bias in compensation. These are significant increases from 2009 and 2008; only two findings of alleged compensation discrimination were found in 2009 and zero in 2008.
Under Executive Order 11246, Federal contractors are required to conduct self-audits of their pay systems to identify potential gender or race based disparities. If pay disparities are found, contractors are expected to correct the disparities prior to any potential government audit. In light of the OFCCP’s increased scrutiny of compensation systems, contractors need to protect themselves by collecting and storing detailed data on factors affecting employees’ pay, such as years of prior job experience, time at the company, time in the position, education, performance ratings, pay grade or level, and additional compensation (commissions, bonuses, incentives, overtime, etc.). Federal contractors should also be sure to preserve all salary records for employees, to allow for the creation of a salary history for individual employees. In addition, contractors should have written compensation guidelines, as well as defined polices influencing compensation, such as the impact of performance evaluations on compensation.
It is expected that OFCCP’s heightened focus on compensation will continue to grow. To avoid significant back pay awards based on perceived pay disparities due to race or gender, employers must be proactive in self-auditing their compensation practices and making appropriate adjustments prior to any government review.