OFCCP’s New Compensation Directive – What You Need to Know

OFCCP’s new Directive on how the OFCCP will review federal contractors’ compensation practices during a compliance evaluation stresses a commitment to transparency and outlines how the Agency it will review data, group employees for analytical purposes, perform statistical analyses, and communicate findings with federal contractors.

Data Request and Review Procedures

During a compliance evaluation, contractors provide employee-level data to the Agency for review. According to the Directive, the Agency will review the data to ensure the contractor has submitted everything requested in the scheduling letter and itemized listing. The compliance officer will request any missing information. Contractors who fail to respond to the request within seven business days may be at risk of receiving a Show Cause Notice.

Similarly-Situated Analysis Groupings

Once contractors submit data to OFCCP, the Agency will cluster employees into similarly-situated groups for analytical purposes. The Agency defines similarly-situated employees as those “who would be expected to be paid the same based on (a) job similarity (e.g., tasks performed, skills required, effort, responsibility working conditions and complexity); and (b) other objective factors such as minimum qualifications or certifications.” The Agency will prepare a statistical analysis controlling for differences among members of a pay analysis group (PAG) and individual employee characteristics.

Welcome news: the Agency will strive to prepare PAGs that mirror a contractor’s compensation system. However, the Directive makes clear, the Agency can do so only if contractors provide information regarding their compensation hierarchy and job structure that will enable OFCCP to develop meaningful analyses. If the Agency does not have information regarding the contractor’s compensation system, it will conduct its preliminary analysis using EEO-1 or AAP job groups as units of analyses and control for appropriate variables.

Statistical Methodology

The Directive also details how the Agency will prepare its statistical analyses. Knowing this will allow contractors to prepare their own proactive analyses in anticipation of an audit. For example, the Agency will analyze base pay separate from total compensation and use age as a proxy for prior experience in its preliminary analysis.

Findings, Transparency, Conciliation

The Agency has committed to the following practices to facilitate transparency, consistency, and resolution of discrimination findings through conciliation:

  1. Upon completion of a desk audit, OFCCP will notify contractors, in writing, of the general nature of any preliminary compensation disparities the Agency will continue to investigate;
  2. Any Pre-Determination Notice for preliminary compensation findings will be accompanied by the individual-level data that will enable contractors to replicate the Agency’s formation of PAGs and regression results; and
  3. OFCCP will include representatives from its Branch of Expert Services to facilitate conciliation discussions.

Historically, the Agency often did not share their databases or methodology with contractors during the conciliation process. Moreover, Agency representatives involved in the conciliation process were unable to speak to the intricacies of the statistical models utilized by OFCCP statisticians. This increased transparency may improve the conciliation process by giving contractors the information necessary to make informed decisions regarding conciliation.

Looking Ahead

The transparency outlined in the Directive will better equip contractors to conduct their own proactive analyses and conciliate with the Agency. We will monitor how the Agency implements the practices in the Directive and report on developments.

For a deeper dive in the technical aspects of the Directive, please visit our Affirmative Action & OFCCP Law Advisor blog.

The Jackson Lewis webinar on the Directive will be held on September 19, 2018. Click here to register.

Crossing the Pay Gap: Tips for Employers Considering Pay Adjustments to Achieve Pay Equity

With the #MeToo and #TimesUp movements re-energizing the focus on #EqualPay, employers increasingly may find themselves facing questions about how they are paying employees and what they are doing to help close the pay gap. A growing number of companies are adjusting their compensation programs to address pay equity concerns. In recent months, several large companies announced broad overhauls of pay and bonus plans in an effort to eliminate potential discrimination and achieve pay parity.

General considerations for employers before making large-scale changes to compensation plans include:

  • Ensure Consensus Among Internal Stakeholders. All appropriate internal stakeholders should be informed and aligned on the direction the organization wants to take.
  • Conduct a Privileged Pay Equity Analysis. Employers should take a careful look at their current pay system with the assistance of legal counsel. Such an analysis should include review of the pay process itself as well as compensation to determine if a pay gap exists in the first place and needs to or should be addressed. A thorough and sound analysis should identify problematic pay gaps, whether adjustments may be needed, and if so, in what areas and for whom.
  •  Do Not Discriminate in Making Pay Adjustments. The Equal Pay Act expressly provides that pay for male employees cannot be reduced to correct a pay gap. In addition, federal and state laws prohibit making pay decisions on the basis of gender or other protected characteristics. Accordingly, pay adjustments should be designed to address unexplained pay gaps, rather than be based on gender. This means that male employees as well as female employees may receive pay adjustments.
  • Consider the Appropriate Communication Strategy. Implementing pay equity adjustments requires careful consideration of the content of internal and external communications, as well as ensuring input from all appropriate stakeholders.

For assistance with compliance with federal and state pay discrimination laws, please contact a Jackson Lewis attorney or our Pay Equity Group.

Protest Challenges Pay Discrimination Behind the Lens

Since the start of the “Times Up” and “Me Too” movements, the spotlight has remained on the gender-based wage disparities existing between female and male actors that work on the same cinematic productions, yet receive unequal pay. However, many in Hollywood feel that women who work behind the scenes in film production or as part of the “below the line” crew, such as in script production, make-up and costume creation, pre- or post-production film editing, and graphics and art design, should not be overlooked.

 Reel Equity, a group of film industry professionals and their allies, has petitioned the heads of various production companies and studios to address wage disparities and pay discrimination in film and television production. Several high-profile Hollywood media moguls, as well as such affinity groups as Women in Film, the ACLU of Southern California, the National Women’s Law Center, Equal Rights Advocates, and Women in Media, as well as other organizations, have already endorsed the petition.

 The group’s petition was based on a recent study commissioned by Working IDEAL, an organization advising companies on diversity, inclusion, and equity counseling and initiatives. Working IDEAL conducted an in-depth assessment of the compensation structure for four majority female positions involved in film and television production. The study concluded that, despite the breadth of California’s Fair Pay Act (which took effect in January 2017 and is arguably one of the most expansive pay equity measures in the United States), women in several of these crafts “are [still] paid hundreds or even thousands of dollars per week less than counterparts in comparable male-dominated crafts.” Many women interviewed for the study also reported concerns of harassment and stereotyping affecting their compensation.

 As pay discrimination issues continue to gain traction in various industries, employers should evaluate their obligations under their respective pay equity measures and ensure compliance with state, local, and federal laws. Additionally, employers may consider conducting a thorough review of their compensation structures to identify and address any potential disparities.

 Attorneys from our Pay Equity Resource Group are able to provide strategic advice on pay equity issues and evaluations.

Mind the (Gender & Race) Gap

When we think about the “pay gap,” often only the disparity between genders comes to mind – the disparity in pay between all males and all females. It is not the only gap employers should be mindful of. For example, Black Women’s Equal Pay Day, which this year fell on August 7, shines a spotlight on wage inequities based on race and gender.  Black Women’s Equal Pay Day marks how long a black woman has to work into 2018 to earn the same amount as a white male. On August 7, news stations published articles, #BlackWomensEqualPayDay was trending on Twitter, and celebrities spoke out about the issue. Pay equity has been a hot-button issue, especially at the state and local levels.

Pay equity by race and gender has been the subject of state fair pay laws. The laws passed in New Jersey, Oregon, and California, for example, prohibit pay discrimination not only on the basis of sex, but also on the basis of other protected characteristics, including race.

What does this mean for employers? Mind the gap. While suggested actions depend on the state(s) in which each employer operates, as each state law is different, employers can consider taking some general steps:

  • Understand how compensation is set and strive for consistency in carrying out compensation policies.
  • Document the reasons for pay decisions, as appropriate, in case they are challenged. If Amy is paid less than others with a similar job because Amy doesn’t have the same certificates, for example, be sure to note that Amy doesn’t have the preferred certificates. Be ready to defend disparities in pay with valid reasons.
  • Consider conducting a privileged, proactive pay equity analysis with qualified legal counsel to identify and resolve potential issues before they arise.

Please contact Jackson Lewis for compliance and other assistance.

Physician Pay Equity Issues Are Under the Microscope

As our Healthcare Workplace Update reported on June 21, and as is the case across many industries, issues related to physician pay equity are receiving increased attention nationwide.

Doximity’s 2018 Physician Compensation Report (its second annual report) contained key national findings on the gender wage gap that point to widespread disparities in physician compensation. Please find the rest of this article in our Healthcare Workplace Update here.

New Jersey Issues Equal Pay Data Reporting Instructions and Forms

The New Jersey Department of Labor and Workforce Development has issued two reporting forms for the new Diane B. Allen Equal Pay Act: Contracts for Qualifying Services and Contracts for Public Works. To assist contractors with filing the forms, the state also has issued Instructions.

The Equal Pay Act went into effect on July 1, 2018. Among many provisions, the Act requires pay data reporting by employers that provide services to New Jersey and its agencies or that perform construction work on New Jersey public works projects.

  • Service Contractors: Every employer (including those outside New Jersey) providing services to the state or any state agency or instrumentality must report compensation and hours worked data for those employed in in the state working in connection with the contract.
    • The data provided must include: gender, race, job title, ethnicity, occupational and job category (EEO-1 Code), and total compensation.
  • Public Works Contractors: Similarly, every employer (including those outside New Jersey) that enters into a public works contract (not including contracts for goods or products) must provide data. Bottom line: public works contractors must add employee sex, race, and ethnicity data to their weekly Prevailing Wage Act reports.

The Instructions add some clarifying information:

  • As with EEO-1 reports, contractors providing services must file reports annually by March 31 for the preceding year, using employment figures from any pay period in October through December.
  • Also consistent with EEO-1 reporting, if an employee declines to voluntarily self-identify sex, race, or ethnicity, the contractor must use employment records or observer identification to provide the identification.
  • Regarding sex (gender), the state allows a “non-binary category.”
  • For service contractors, the pay data reporting requirements revive those proposed for EEO-1 pay data reporting, which the Trump Administration subsequently rejected.
    • Contractors report for each employee annual earnings from the federal W-2 form, Box 1.
    • Contractors report employee earnings in 12 pay bands.
    • For employees that are not exempt from the Fair Labor Standards Act (FLSA), employers must report the actual number of hours worked by each employee.
    • For FLSA-exempt employees, contractors may report actual hours worked (if tracked) or proxy numbers of 40 hours and 20 hours per week for full- and part-time employees, respectfully.

The Equal Pay Act is not clear regarding how the Department or the Division of Civil Rights may proactively use reported pay data. However, the Department will make the data available, upon request, to “anyone who is or was an employee of the employer during the period of any of the contracts between the employer and any public body, or [to] any authorized representative of the employee.” Thus, regardless of how the state may proactively use the reported pay data, your employees will have access to it for their own purposes.

Please review the actions we suggest employers take to proactively prepare for the Act’s requirements. Jackson Lewis attorneys are available to assist employers as they navigate the Diane B. Allen Equal Pay Act, including pay data reporting.

California Clarifies Ambiguous Language of Salary History Ban

California has enacted new legislation aimed at clarifying its law banning an employer from inquiring about a job applicant’s salary history information.

Assembly Bill 168 (codified as Labor Code Section 432.3) prohibits employers from seeking salary history of applicants for employment. Designed to eradicate the wage gap, AB 168 also requires employers to provide applicants, upon reasonable request, with the pay scale for the position.

Since the salary history ban’s enactment in January 2018, employers have struggled to understand the restrictions it imposes, as it fails to define key terms, such as “applicant,” “reasonable request,” and “pay scale.” On July 18, 2018, Governor Jerry Brown signed into law Assembly Bill 2282 to clarify the intended meaning of these terms.

AB 2282 defines “applicant” or “applicant for employment” as an individual who is seeking employment with the employer and is not currently employed with that employer in any capacity or position.

It defines “pay scale” as a salary or hourly range and provides that a “reasonable request” for such pay scale is a request made after an applicant has completed an initial interview.

AB 2282 additionally seeks to address the legality of an employer’s questions related to an applicant’s expected salary. Although several local ordinances adopting salary history bans permitted employers to inquire about such information, AB 168 was silent on the issue. AB 2282 expressly provides that employers are not prohibited from asking an applicant about his or her salary expectation for the position being applied for.

Finally, AB 2282 authorizes employers to consider a current employee’s existing salary when making a compensation decision, so long as any disparity resulting from that decision is justified by a seniority system, merit system, or other bona fide factor unrelated to the employee’s sex, race, or ethnicity.

Employers should revisit and revise their hiring practices and policies to ensure compliance with the laws in the states in which they operate. Jackson Lewis attorneys will continue to monitor pay equity developments. Please contact us with any questions about the potential implications of AB 2282 or other legal developments.

What Employers Need to Know about San Francisco’s Salary History Ordinance

San Francisco’s “Parity in Pay Ordinance,” prohibiting employers from inquiring about a job applicant’s salary history, took effect on July 1, 2018. This post discussed significant provisions of the ordinance as well as key considerations for employers to ensure compliance with the new regulation.

The San Francisco measure follows several states’ and cities’ enactment of similar regulations designed to address wage disparities. See Considerations for Employers in Massachusetts, Countdown to New Jersey’s Diane B. Allen Equal Pay Act, and Connecticut Bans Inquiries into Applicants’ Wage and Salary History. Following the passage of San Francisco’s Parity in Pay Ordinance, California’s Equal Pay Act (EPA) was amended in 2017 to prohibit employers from asking job applicants about salary history.  The California salary history prohibition largely mirrors the San Francisco ordinance with some differences, as noted below.

What employers are affected?

  • Employers who conduct business in San Francisco are governed by the ordinance.

What types of inquiries are prohibited?

  • Employers may not inquire about or consider the current or prior salary history of a job applicant in determining whether to hire the applicant or the salary to offer them.

What if an applicant volunteers his or her salary history information?

  • The bar applies even if an applicant voluntarily discloses his or her prior salary history. Employers are prohibited from using the information, regardless of whether it is voluntarily disclosed, when making hiring or promotion decisions.

What if I am asked by another employer to share a former employee’s salary information?

  • Under the ordinance, employers are prohibited from disclosing a current or former employee’s salary history without authorization from the employee, unless the salary history is publicly available or the disclosure is required by law. Employers should exercise caution when responding to salary history inquiries to ensure compliance with this prohibition. Employers may conduct background checks that may disclose salary information, but are prohibited from using such information in considering the applicant for the position.

As an employer, am I required to notify employees of this change in the law?

  • Employers are required to post notice of the ordinance at the job or on the worksite.

What happens if I am accused of violating the ordinance?

  • Employers have a one-year grace period – until July 2019 – in which they will be issued a warning and notice to correct any suspected violations. Employers may also appeal Office of Labor Standards Enforcement (OLSE) determinations to a hearing officer.

Can I discuss salary expectations with potential applicants?

  • Notably, the San Francisco ordinance differs from California’s Equal Pay Act in that it specifically states that employers may engage in discussions with applicants about salary expectations, as long as all other provisions of the ordinance are followed. California’s EPA, similar to the ordinance in most other regards, is silent on this issue.

What should I do now?

Employers should stay up to date on pay equity developments and regularly revisit and revise their hiring practices and policies to ensure compliance with the law. Consider retraining all employees involved in the hiring process on the provisions of the law. Consult with a member of Jackson Lewis’ Pay Equity Group for assistance with evaluating and revising your policies.

Hawaii on Board with Pay Transparency and Salary History Ban

Hawaii will be joining the salary history ban trend beginning in 2019. On July 5, Governor David Ige signed into law a bill seeking to address the pay disparity between men and women who perform similar work.

Effective January 1, 2019, Hawaii employers with at least one employee in the state may not ask a job applicant about his or her salary history or rely on the applicant’s salary history in determining salary, benefits, or other compensation during the hiring process or negotiation of an employment contract. Employers also may not bar employees from disclosing their wages or discussing or inquiring about the wages of other employees.

The new law expressly permits certain inquiries. An employer may discuss compensation and benefit expectations with the job applicant and inform the applicant of the proposed or anticipated salary or salary range for the position. The law also provides that “any objective measure of the applicant’s productivity, such as revenue, sales or other production reports” may be discussed with the applicant.

If an applicant “voluntarily and without prompting” discloses salary history information, the employer may consider salary history in determining the applicant’s salary and benefits and may verify the salary history. But employers using such “voluntarily” disclosed salary history information to set compensation must exercise caution because of the risk of litigation over whether the job applicant made a truly voluntary disclosure.

The administrative processes and remedies afforded individuals under Chapter 378 on unlawful discriminatory practices will apply to the salary history ban.

To ensure compliance with the law’s requirements, employers should consider the following best practices:

  1. Remove salary history questions from application forms, interview questions and hiring documents.
  2. Train managers not to ask about an applicant’s pay history during the pre-employment process – when they are screening or interviewing applicants.
  3. Don’t ask for or provide salary history information during reference checks; included in this restriction is other third parties, such as staffing agencies, acting on behalf of the employer.
  4. Remove any prohibitions about salary discussions by employees from written policies.

In addition, for employers who operate in multiple jurisdictions, consider having a uniform practice across all jurisdictions by removing salary history questions during the pre-hire process.

Finally, to help set salaries that are appropriate for the market, consider using salary bands and external resources to research the market value of the position for which you are hiring, and conduct regular audits of your pay practices to ensure internal and external pay equity.

Please contact Jackson Lewis for compliance and other assistance.

Considerations for Employers in Massachusetts

Like New Jersey’s Diane B. Allen Equal Pay Act, the Massachusetts Equal Pay Act (MEPA) amendments went into effect on July 1, 2018. Regarded as one of the first comprehensive fair pay laws to be passed at the state level, MEPA has served as not only as a catalyst, but a model, for the patchwork of fair pay laws being enacted across the nation.

Outlined below are some of the law’s main components and best practices employers can implement to comply and mitigate risk.

Comparable Work

MEPA requires equal pay for “comparable work.” Under MEPA, “comparable work” is defined as work that “requires substantially similar skill, effort, and responsibility.” This expands the pool of comparators for equal pay claims beyond those in the same job title or function.

  • Tip: Consider which jobs may be “comparable,” despite not being the same. The Attorney General Guidance notes that comparable jobs can span functional areas or business units. Think broadly!

Permissible Differences in Pay

MEPA significantly limits defenses employers can use to justify differences in pay for comparable work. Under MEPA, differences can be explained only by:

  1. A seniority system;
  2. A merit system;
  3. A system measuring earnings by quantity or quality of production;
  4. Geographic location;
  5. Education, training or experience; and
  6. Travel that is a regular and necessary part of the job.
  • Tip: Be ready to prove a valid reason for pay differences. Noticeably absent from the list above is salary history – salary history cannot be used to justify any difference in compensation. Any differences should fall within one of the six buckets above. Train your hiring managers and HR staff accordingly.

Salary History

Employers cannot seek salary history information from a prospective employee unless it is to confirm wage or salary information that has been shared voluntarily by the employee or after an offer of employment has been made.

  • Tip: Plain and simple – do not ask about salary history. Ensure that the question is removed from applications and interview question templates. Communicate this new rule to all managers involved in the hiring process.

Self-Evaluation Defense

Under MEPA, employers can establish an affirmative defense against liability if they conduct a reasonable and good faith self-evaluation of their pay practices. This evaluation must be within the previous three years before an employee files an action and employers must be able to show reasonable progress toward eliminating discriminatory wage differentials.

  • Tip: Consult with counsel and consider conducting a privileged pay analysis to mitigate risk should an employee bring a claim. Also ensure that organizational leaders are on board to make pay adjustments, if determined necessary.

Please contact Jackson Lewis with any questions about MEPA.