Federal Government takes Aim at contractor pay practices

Federal contractors face unique challenges when it comes to compensating employees on an equal basis.  There are often pay gaps among employees who, on paper, seem relatively similar.  But such factors as competing for scarce talent during the RFP process, having to add new staff on very short notice, or replacing employees who unexpectedly leave or who turn out to be poor performers are all factors that can contribute to unintentional pay disparity among employees. To make matters worse, contractors are now facing a renewed push by the federal government to root out and get rid of unwanted pay disparity, particularly as it pertains to women and minorities. What is driving this trend, and are you prepared?

According to the White House, the pay gap continues to persist for women and minorities. For example, full-time working women earn on average 77% of what their male counterparts earn. In a recent case, a healthcare contractor was found guilty of discriminating against 38 female employees for paying the women 70 cents less per hour than their similar male counterparts.  A review by the Office of Federal Contract Compliance Programs (“OFCCP”) found that from 2010 to 2012 the contractor had failed to pay certain female employees at the same rate as their male counterparts. Consequently, the healthcare contractor had to pay the affected women $190,000 in lost wages, interest and salary adjustments.

Signed in 1965, Executive Order 11246 mandates that federal contractors must not discriminate in pay or other forms of compensation on the basis of sex and the Equal Pay Act prohibits pay discrimination based on sex and states that men and women must be paid equally for substantially equal work performed in the same establishment. But still today pay disparities persist. Employer’s policies and pay practices may seem non-discriminatory or neutral but compensation audits often reveal otherwise.

As such, the OFCCP has been pressed to seek out pay disparities in the workplace, which arguably began with the passage of the Lilly Ledbetter Fair Pay Act (“Act”) — the very first bill that President Obama signed into law. The Act extends the statute of limitations for workers bringing pay disparity cases against their employers, thereby giving workers more time to file lawsuits.

While the Act applies to all private sector employers, the administration has shifted its focus to government contactors’ pay practices. Several Executive Orders and agency rules issued within the last few years are specifically aimed at creating equal pay and wage transparency in the workplace.

Non-Retaliation for Disclosure of Compensation Information– Prohibits Federal contractors and subcontractors from discharging or in any other manner discriminating against any employee or applicant for employment because such employee or applicant has inquired about, discussed, or disclosed the compensation of the employee or applicant or another employee or applicant.

Minimum Wage for Contractors- Established a minimum wage for Federal contractors and subcontractors increasing the minimum wage to $10.10 an hour to employees under contracts that arose out of solicitations issued after January 1, 2015.

Fair Pay and Safe Workplaces- Contractors seeking new contracts with the federal government that have an estimated value exceeding $500,000 must disclose any labor law violations against the company in the preceding 3 years relating to civil rights, safety and health, collective bargaining, wage and hour, and family and medical leave obligations. The order further requires covered contractors to disclose information necessary for employees to verify the accuracy of their paychecks. The comment period for the proposed regulations has once again been extended until August 26, 2015.

Equal Pay Report- Will  require federal contractors and subcontractors with 100 or more employees to submit an annual report to the OFCCP detailing employee compensation by sex, race, ethnicity, and specified job categories.

President Obama has even established a National Equal Pay Enforcement Task Force which consists of professionals at the U.S. Equal Employment Opportunity Commission (“EEOC”), the Department of Justice (“DOJ”), the Department of Labor (“DOL”) and the Office of Personnel Management (“OPM”) to enforce equal pay laws.  The task force is charged with, among other things, streamlining communication and information exchange among agencies to improve investigation and enforcement abilities with respect to pay disparities.

And let’s not forget the National Labor Relations Board (“NLRB”) who has also been cracking down on non-unionized employers for policies that prevent employees from discussing compensation, conditions of employment, or benefits with other employees. Section 7 of the NLRA states, “Employees shall have the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection, and shall also have the right to refrain from any or all such activities.” Further, Section 8 of the NLRA reinforces employees’ rights by making it an unfair labor practice to violate Section 7 rights, thereby making an employer policy that prohibits salary discussions unlawful.

It remains to be seen what the future holds, but what we do know is that the OFCCP has already identified several strategic goals for FY 2016, one of which includes identifying and addressing systemic pay discrimination to help narrow pay gaps based on sex and race that still persist among federal contractors.

Demographic trends and technology changes are fostering pay equity conversations on a large scale and, in response the federal government has taken a renewed interest in enforcing salary equality among all companies – but particularly among federal contractors. Contractors should be attuned with their pay practices and policies as various agencies turn their investigative and audit resources toward achieving greater pay equity.


C2 provides strategic HR outsourcing to clients who want to develop optimal workforce strategies and solutions to allow them to be more competitive and profitable. C2 blog posts are intended for educational and informational purposes only.


Department of Labor Extends Commentary Period for the Equal Pay Report

The U.S. Department of Labor announced a 60-day commentary extension period for its Equal Pay Report proposed ruling through January 5, 2015. The proposed rule will require federal contractors and subcontractors with more than 100 employees and $50,000 in contracts lasting at least 30 days to submit employee annual compensation by sex, race, ethnicity, and specified job categories as well as hours worked and the number of employees, to the Office of Federal Contract Compliance Programs (OFCCP).

The Equal Pay Reporting tool will enable the OFCCP to direct its enforcement efforts towards contractors and subcontractors whose summary compensation data suggest potential pay violations.

The comment period which was originally to close on November 6, 2014 will now be extended through January 5, 2015. To read and comment on the proposed rule, please visit http://www.dol.gov/ofccp/EPR.


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