Fundamentals of OFCCP Compliance

If you’re struggling with OFCCP compliance, you aren’t alone. 



If you’re struggling with OFCCP compliance, you aren’t alone. 

The Office of Federal Contract Compliance Programs has been busy in 2020, scheduling 1,538 supply and service compliance evaluations and completing 1,318. The number of conciliation agreements has generally decreased, but settlement amounts for financial agreements have increased over the years, from an average of $200,000 in 2007 to $900,000 in 2019.

Maintaining your contractual obligations can be challenging, but understanding the OFCCP’s goals and requirements can help you prepare for your audit.

Hundreds of HR professionals at organizations like yours are preparing for an upcoming OFCCP audit. Here’s what you need to know about complying with OFCCP regulations at your organization.

What Is the OFCCP?

The OFCCP is an agency within the U.S. Department of Labor. The OFCCP exists to ensure that qualifying federal contractors and subcontractors offer equal employment opportunities to all applicants and employees, regardless of personal identifying factors such as race, sex, disability or protected veteran status. The OFCCP monitors whether federal contractors are complying with their contractual affirmative action obligations. As an enforcement agency, it can check compliance through a compliance review process, otherwise known as an OFCCP audit.

Executive Order 11246

Executive Order 11246 applies to federal contractors, subcontractors and federally assisted construction contractors and subcontractors with more than $10,000 in government contracts. The order prohibits discrimination in employment decisions on the basis of sex, sexual orientation, gender identity, race, color, religion or national origin. It also requires covered contractors to take affirmative action to ensure equal opportunity is provided in every aspect of employment. Covered supply and service contractors holding a contract of $50,000 or more must prepare a written annual affirmative action plan under this executive order. 

In 2014, President Barack Obama issued Executive Order 13665, amending EO 11246 to prohibit contractors from discriminating against applicants and employees for asking about, discussing or disclosing their pay.

Section 503

The Rehabilitation Act of 1973, Section 503, covers employers with federal contracts or subcontracts that exceed $15,000, including construction contractors. These contractors must ensure nondiscrimination in employment on the basis of disability and take affirmative action to hire, retain and promote individuals with disabilities. Covered contractors holding a contract of $50,000 or more must prepare a written annual affirmative action plan for individuals with disabilities.

VEVRAA

The Vietnam Era Veterans’ Readjustment Assistance Act, or VEVRAA, requires federal contractors and subcontractors with contracts or subcontracts of $150,000 or more, including construction contractors, to ensure nondiscrimination in employment on the basis of protected veteran status and take affirmative action to employ and advance in employment disabled veterans, active-duty or wartime campaign badge veterans, Armed Forces Service Medal veterans and recently separated veterans (people discharged from the service in the past three years). Covered contractors holding a contract of $150,000 or more must prepare a written annual affirmative action plan for protected veterans.

Why Does the OFCCP Matter?

The OFCCP neutrally selects a group of contractors for audit every year. Through its enforcement process, the agency checks to ensure that the selected contractor is fulfilling its contractual affirmative action program (AAP) obligations by preparing plans regularly, maintaining plan compliance with regulations, collecting the requisite data, and completing analyses of collected data on an annual basis. During an OFCCP review, the OFCCP also reviews whether a contractor has engaged in any discriminatory hiring, promotion, termination or pay practices by evaluating detailed personnel activity and compensation data about all employees covered by the affirmative action plan under review.

The agency also can accept and investigate complaints from applicants and employees of qualifying federal contractors if they think that the contractor has discriminated against them, failed to provide reasonable accommodation or otherwise failed to engage in appropriate affirmative action efforts as required by their contract.

When an OFCCP compliance audit uncovers evidence of discrimination, the agency recovers money from the contractor at fault to repay applicants and employees for missing back pay and salary adjustments. The agency can also require that contractors establish hiring goals as part of any resolution, and although infrequently used, can debar non-compliant contractors from current or future federal contracting work. The OFCCP recovered $35.6 million in 2020 and more than $116 million between October 2016 and September 2020, the most collected in any four-year period on record.

What Documentation Are Federal Contractors Required to Maintain?

Qualifying federal contractors are required to maintain up-to-date AAPs and data regarding personnel decisions and other employment records. This data should be analyzed regularly to monitor for OFCCP compliance red flags.

Creating and Implementing an Affirmative Action Plan

Contractors of a certain size and contract level are obligated to create and maintain annual written AAPs. 41 CFR 60-2.1(b) states: “Each nonconstruction contractor must develop and maintain a written affirmative action program for each of its establishments if it has 50 or more employees.” 

Further, 41 CFR 60-2.1(d) states: “Contractors subject to the affirmative action program requirements must develop and maintain a written affirmative action program for each of their establishments. Each employee in the contractor’s workforce must be included in an affirmative action program. Each employee must be included in the affirmative action program of the establishment at which he or she works.”

Following through on your affirmative action plan supports compliance with contractual obligations. A qualified consultant can help you develop an effective plan that you can submit with confidence when your scheduled audit comes around.

Keeping and Analyzing Data

Covered federal contractors have detailed recordkeeping obligations and must perform annual analyses of their personnel activity, including applicant, hiring, promotions, terminations and compensation systems. Contractors also must evaluate their  workforce representation against expected availability to determine if annual placement goals should be established. Specific analyses also must be completed to evaluate a contractor’s progress in meeting government-established utilization goals for individuals with disabilities and hiring benchmarks for protected veterans.

Companies may conduct the necessary analyses and reports internally, or they may seek outside assistance. If you have limited resources or knowledge of affirmative action and related regulations, our recommendation is to obtain guidance. Since these laws can be complex, expert interpretation is often needed.

There is currently a proposal at the Office of Management and Budget that, if approved, will require that contractors file an annual report to OFCCP certifying that the contractor prepares and maintains all required affirmative action plans. Although the proposal is going through a public notice and comment period, we expect that OFCCP may seek to finalize this proposal quickly, which means contractors may be required to certify compliance as early as 2021.

How Do You Prepare for an OFCCP Audit?

If you’ve received your official OFCCP scheduling letter for your upcoming audit, don’t panic. In addition to scrutinizing your AAP, there are other items you can review in the 30 days prior to your plan submission.

  • Confirm your company currently maintains a facility with at least 50 employees at the address listed on the audit letter and the date your submission is due to the OFCCP.
  • Form a project team to assist with the AAP submission and follow-up questions. 
  • Review your entire AAP with an AAP consultant prior to submission. An expert can help you understand the types of questions OFCCP may ask you based on the personnel activity, compensation and other data you are about to submit, as well as help you prepare the best submission possible.
  • Check for technical compliance in postings, policies and statements. Remedy areas of compliance weakness within the 30-day submission period.

It’s important to understand and evaluate what the OFCCP is looking for in your initial submission and at subsequent stages of the audit process. OFCCP focuses on three major areas during an establishment review:

  • Technical compliance: Confirms compliance with all required AAP requirements, such as proof of listing with the state employment service delivery system and policies documentation.
  • Personnel activity: Requires data regarding hiring, promotion and termination activity to evaluate any potential selection disparities based on race or gender that may be evidence of possible discrimination.
  • Compensation: Requires specific information on how pay decisions are made to identify possible pay equity concerns.

For the purpose of preserving health and safety during the pandemic, you may receive your OFCCP scheduling letter via email, and “on-site” visits may be conducted virtually.

Types of OFCCP Audits

OFCCP audits can take several forms, ranging from compliance checks, the simplest type of review, to establishment reviews, which are more comprehensive. During focused reviews, OFCCP compliance officers probe a specific area for compliance, such as compliance with Section 503 or VEVRAA. Accommodations focused and promotions focused reviews will be conducted for the first time in 2021, having been introduced in the most recent Corporate Scheduling Announcement Lists (CSAL). 

All OFCCP audits begin with an initial submission from the contractor via email or mail. Depending on the type of review, OFCCP may also schedule an on-site visit. 

Most onsite visits include the following elements:

  1. An opening meeting between OFCCP and company officials.
  2. Facility tour.
  3. Management employee interviews.
  4. Non-managerial employee interviews.
  5. Review of written documents.
  6. A closing meeting between OFCCP and company officials.

OFCCP also often asks for additional documents either before, during or after an on-site review.

OFCCP Compliance Checks

A compliance check is an examination to determine whether a contractor maintains certain records required by Executive Order 11246, Section 503 and VEVRAA regulations. Compliance checks generally are the simplest type of review initiated by the OFCCP.

Establishment Reviews

Establishment reviews are a comprehensive analysis and evaluation of the employment practices of the contractor, including the contractor’s written AAP and the results of the contractor’s affirmative action efforts. Establishment reviews include functional affirmative action program (FAAP) reviews and corporate management compliance evaluations, as well as reviews of individual contractor establishments or locations. An establishment review may proceed in three stages: 

  1. Desk audit.
  2. On-site review (typically triggered by a red flag in your desk audit).
  3. Off-site analysis.

503 Focused Reviews

Section 503 focused reviews include a comprehensive review of contractor(s) policies and procedures with regard only to Section 503. The review will include interviews with managers responsible for equal employment opportunity and Section 503 compliance as well as employees affected by those policies. OFCCP may also seek to evaluate hiring and compensation data, as well as the handling of accommodation requests, to ensure that individuals with disabilities are not being discriminated against in employment.

Accommodations Focused Reviews

Accommodations focused reviews will examine how contractors are addressing disability and religious accommodations. Compliance officers will examine contractor policies and procedures related solely to religious and disability accommodations. The OFCCP specifically will review documentation relating to accommodation requests and dispositions/resolutions, emphasizing denial(s) of accommodation. Expect the review to include interviews with managers responsible for or involved in the accommodation process, along with interviews of affected employees and applicants.

Promotions Focused Reviews

Promotions focused reviews examine whether contractors’ promotions practices and procedures comply with obligations under OFCCP. Compliance officers will review, among other things, contractor policies and procedures, employee personnel files, and personnel data tracking contractors’ promotion decisions. Compliance officers will also conduct interviews with managers responsible for promotion decisions and, if applicable, with affected employees. OFCCP may also evaluate hiring and compensation policies, procedures, and data, as appropriate, to determine if qualified applicants are being steered into lower-paying positions with limited upward mobility or otherwise prevented from advancing professionally.

VEVRAA Focused Reviews

In a VEVRAA focused review, OFCCP will review policies and practices of a contractor related solely to VEVRAA compliance. The review will include interviews with managers responsible for equal employment opportunity and VEVRAA compliance, as well as employees affected by those policies. OFCCP may also evaluate hiring and compensation data, as well as the handling of accommodation requests, to ensure that protected veterans are not being discriminated against in employment.

Overall, the trend in affirmative action compliance is increasing requirements and more in-depth investigations in audits. If you want to  do the “right thing” and also successfully survive an OFCCP audit, make sure you comply with all of your affirmative action requirements and become more proactive in analyzing and understanding your personnel actions and compensation decisions. Most importantly, understand what your AAP says about your organization and what follow-up questions OFCCP may have if your plan was audited. The stakes are higher than ever, and no contractor can afford to be unprepared. 

Resolutions and Penalties for Non-Compliance

A compliance review can end in a notice of compliance, which signals that the agency didn’t find any apparent violations of technical requirements, instances of discrimination or pay equity concerns. But audits can also end with the issuance of a notice of violation, which can take two forms:

Technical violation, such as using the wrong language on a purchase order. These are typically resolved via a conciliation agreement, which is a formal document posted to the OFCCP’s website. You will be asked to correct the violation and will be monitored more closely for future infractions via monitoring reports submitted to the agency for a period following the violation. There is generally no financial penalty associated with technical violations.

Discrimination or failure to pay equitably. This type of violation is significantly more serious than technical violations. If it’s possible to financially remunerate the victims of discrimination or failure to pay, the contractor can settle voluntarily through a conciliation agreement. If the contractor doesn’t settle voluntarily, the OFCCP may file an administrative complaint with the Department of Labor Administrative Review Board. Just like a regular court case, arguments are heard, evidence is shared, and the contractor is given the opportunity to make their case before an administrative law judge. If the judge rules in favor of the OFCCP, then the agency determines how much the contractor owes in damages. 

What OFCCP Compliance Resources Are Available?

Dealing with regulations from the OFCCP can be intimidating, but there are several resources available to make fulfilling your contractual obligations more manageable and less stressful. You don’t have to do this alone. Here are some helpful resources:

  • You can contact the OFCCP directly for compliance assistance. This will not trigger an audit, so don’t hesitate to reach out to the agency directly.
  • The OFCCP’s Technical Assistance Guide for Supply and Service Audits provides helpful information on keeping up with your AAP between compliance audits.
  • The OFCCP’s Employment Resource Referral Directory helps you identify local organizations that can provide qualified applicants from minority groups to help you meet your hiring benchmarks.
  • The OFCCP Contractor Compliance Institute offers free courses and tools to help you remain OFCCP-compliant.
  • Consultants can provide crucial guidance and expertise. Reach out to Berkshire Associates for assistance with upcoming audits, consulting between audits and everything related to OFCCP compliance.

Meeting OFCCP standards for data collection and analysis, as well as preparing for and passing your audit, are challenging prospects. But with the right team and expertise behind you, your organization can be prepared for any audits that come your way.

Lynn A. Clements, Director, Audit and HR Services
Lynn A. Clements, Director, Audit and HR Services
As Director Audit and HR Services for Berkshire, Lynn provides guidance on regulatory strategies, and conducts analyses and expert interpretation of Office of Federal Contract Compliance Programs (OFCCP) policies and requirements.

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