On August 6, 2014, OFCCP issued a Notice of Proposed Rulemaking (NPRM) which will require covered Federal contractors and subcontractors with more than 100 employees to submit an Equal Pay Report (EPR) regarding employee compensation. As explained in the proposed rule, the EPR will require Federal contractors and subcontractors to report annual compensation data by race, sex, ethnicity, and specified job categories. This report will enable OFCCP to assess a broad range of compensation-related employment practices (i.e., differences in promotion, placement, job assignment, and pay) to prioritize contractors for compliance evaluations when compensation differences do not fall within an “acceptable range” compared to the industry standard. OFCCP plans to harmonize the EPR with existing EEO-1 reporting requirements. This synchronization will involve sharing the same workforce demographic data, EEO-1 job categories, exemptions, and definition of employee (EPR NPRM, 31). Conflicts may arise, however, if the use of two different definitions of employee for EEO-1/EPR and AAP reports, and two - to potentially three - employee snapshot dates produce discrepant employee counts.
To quickly review, the EEO-1 (and EPR) definition of employee found in the EEO-1 Instruction Booklet includes all individuals on payroll for purposes of Social Security taxes, except individuals whose work is considered to be of a casual or temporary nature, or individuals who were hired through a hiring hall or other referral arrangement. OFCCP’s definition of employee for AAP purposes, on the other hand, is much broader and tends to err on the side of inclusion, capturing both part-time and temporary employees. In the recently released FAQ on employer-employee relationships, OFCCP stated that contractors should evaluate a worker’s relationship with a contractor on a case-by-case basis through an assessment of 12 Darden factors. Contractors are urged to ensure their definition of employee is consistent across AAP and EEO-1 reporting, though this usually proves more difficult in practice. To complicate these matters even more, the EPR NPRM proposes that contractors may need to adopt an additional snapshot date to be in compliance.
In the NPRM submitted to the Office of Information and Regulatory Affairs (OIRA) for Information Collection Request (ICR) approval, OFCCP proposed that the EPR would use the same employee snapshot/population as the one used for EEO-1 reporting. Let’s first stop to compare the AAP and EEO-1/EPR snapshot dates. For AAP purposes, a contractor’s snapshot would depend on their plan date. For a February 1 plan, for instance, their employee snapshot would be January 31, 2015, and would include all personnel activity from February 1, 2014 to January 31, 2015. However, the EEO-1/EPR employee snapshot would be taken anytime from July 1, 2014 to the end of September 2014. The EPR will include all W2 earnings from the entire calendar year (January 1, 2014 to December 31, 2014) for the same employee population captured in the EEO-1 report. In other words, individuals who are no longer with the company in December of 2014 would still be included in the EPR because the snapshot occurred months prior in the July-September time frame. OFCCP mentioned the possibility of a third snapshot date in the NPRM, which would create an end-of-year snapshot to capture W-2 earnings data. Therefore, two snapshot dates would be required and need to be taken approximately four months apart from each other. For this reason, it would be advantageous for contractors to submit comments during the public comment period communicating the expected burden of adopting this additional snapshot date.
Thus far, we have presented two separate definitions of employee that contractors must honor in order to achieve compliance with EEO-1/EPR and AAP obligations. Furthermore, we have also discussed the potential for up to three snapshot dates. Whether the implications of these obligations are deemed good or bad will depend on OFCCP’s ultimate use of the EPR. If OFCCP uses the EPR in the manner described in the NPRM – to generate a prioritized scheduling list for compliance evaluations – then the implications for contractors will be minimal. If OFCCP decides to use the EPR information during a compliance evaluation, however, this would create a huge burden for contractors to explain differences between the reports.
In the end, contractors need to take OFCCP’s word for it and trust the process, as all of these conditions depend on how the agency chooses to implement the Equal Pay Report. Our advice: don’t panic and make any rash changes to the way you are currently analyzing pay in your organization. If the report is used in the manner described in the NPRM, then it will not make sense to make personnel decisions (e.g. related to compensation, selection, promotion, etc.) based on this data. If you are conducting EEO pay analyses, continue to do so as you always have, and contact your EEO expert for guidance.
By Jeffrey Henderson, M.P.S, Analyst and Brittany Dian, M.S., Analyst at DCI Consulting Group
