What OFCCP's New Scheduling Letter Means for Compensation

On August 25^th, OFCCP announced the approval of the new Supply and Service Scheduling Letter and itemized Listing, which expands the data that federal contractors must submit to the OFCCP during an audit. Some of the significant changes are directly related to compensation data, compensation decisions, and documentation regarding compensation analysis. The OFCCP also updated their Scheduling letter and Itemized listing FAQ to reflect these new changes.

There were significant changes made to Item 19, the itemized listing that requires employee-level compensation data. There has also been the addition of Item 22, which requires contractors to provide documentation of their fulfillment of 41 CFR 60-2.17(b)(3), the requirement to review compensation systems to determine whether there are gender, race, or ethnicity-based disparities. Below is a further breakdown of the changes:

Item 19:

• Two Years of Compensation Data: Contractors will now have to provide OFCCP with two years of employee compensation data for all employees as of (1) the date of the organizational display or workforce analysis and (2) as of the date of the prior year’s organizational display or workforce data. Previously, contractors were only required to provide 1 year of data.
• Base Pay and Other Compensation: The new Scheduling Letter makes it clear that contractors must provide the following pay data for each employee: base salary and/or wage rate, annualized base compensation, and other compensation to salary, such as bonuses, incentives, commissions, merit increases, locality pay or overtime. The previous Scheduling Letter said that other compensation should be provided, leading many practitioners and contractors to conclude that this data was optional.
• Pay Factors: Contractors are now required to provide relevant data on the factors that are used to determine employee compensation such as “education, experience, time in current position, duty location, geographic differentials, performance ratings, department or function, job families and/or subfamilies, and salary level/band/range/grade.” The prior Scheduling Letter requested similar information on an optional basis.
• Pay Policies: Additionally, contractors are required to “provide documentation and policies related to the contractors’ compensation practices, including those that explain the factors and the reasoning used to determine compensation (e.g., policies, guidance, or trainings regarding initial compensation decisions, compensation adjustments, the use of salary history in setting pay, job architecture, salary calibration, salary benchmarking, compensation review and approval, etc.).” The prior Scheduling Letter stated the pay policy information should be provided but the new letter makes clear that OFCCP expects this information to be provided with a contractor’s initial submission.

Item 22: This is a new item that requires contractors to “provide documentation the contractor has satisfied its obligation to evaluate its ‘compensation system(s) to determine whether there are gender-, race-, or ethnicity-based disparities’”, which is required by 41 CFR 60-2.17(b)(3). The documentation is required must have the following:

1. When the compensation analysis was completed;
2. The number of employees the compensation analysis included and the number and categories of employees the compensation analysis excluded;
3. Which forms of compensation were analyzed and, where applicable, how the different forms of compensation were separated for combined for analysis (e.g., base pay alone, base pay combined with bonuses, etc.);
4. That compensation was analyzed by gender, race, and ethnicity, and;
5. The method of analysis employed by the contractor (e.g., multiple regression analysis, decomposition regression analysis, meta-analytic tests of z-scores, compa-ratio regression analysis, rank-sums tests, career-stall analysis, average pay ratio, cohort analysis, etc.).

This new Scheduling Letter is bringing extensive changes to the amount and type of compensation related data that federal contractors are required to provide the OFCCP during an audit. With the inclusion of more data, the OFCCP can conduct more analyses to identify any disparity. Contractors should prepare to address the new requirements of the Scheduling Letter in one of two ways: (1) conduct robust analyses of pay data to identify and prepare a defense for identified disparities before undergoing an audit or (2) conduct a proactive pay equity to identify and remediate disparities.