According to government studies, last year women overall made approximately 77 cents to the dollar in compensation compared to men. Black women made 64 cents to the dollar. Hispanic women made even less—55 cents to the dollar. Most pay disparity isn’t due to base salaries; it’s due to other forms of compensation such as bonuses, incentive pay, commissions, and overtime.

Attempting to scrutinize the pay gap in bonuses, incentive pay, commissions, and overtime, the Office of Federal Contract Compliance Programs (OFCCP), part of the U.S. Department of Labor (DOL), has issued and proposed two new rules that increase pay transparency and change reporting requirements. Although the OFCCP helps make employment opportunities generated by federal dollars available to everyone regardless of race, gender, sexual orientation, or other non-merit-based considerations, its stringent compliance requirements are making doing business as a federal contractor more difficult.

Pay Transparency Rule

Effective January 11, 2016, the Pay Transparency Rule prohibits federal contractor and subcontractor employers from discriminating or retaliating against employees (or applicants for employment) who ask about, discuss, or disclose pay information.  The text of the OFCCP’s final Pay Transparancy Rule from the Federal Register is here.  Although employers are not required to affirmatively disclose pay information to employees and applicants, the Pay Transparency Rule prohibits adverse action against those who ask about or discuss pay.

Section 7 of the National Labor Relations Act already protects employees who discuss their wages and working conditions, but the Pay Transparency Rule extends these protections to applicants of federal contractors and all federal contractor employees, including supervisors. It also requires a Pay Transparency Policy Statement to be included in existing employee handbooks and disseminated either electronically or by posting it in conspicuous places for all employees and job applicants to view. The Policy Statement is available here.

Employers should start to prepare for compliance now by carefully reviewing company policies and handbooks and to amend provisions that tend to prohibit applicants or employees from discussing pay. It’s also time to train managers that adverse action cannot be taken against employees or applicants who inquire about, discuss, or disclose their pay.

Equal Pay Report (proposed rule)

Under this proposed rule, which is expected to be finalized by the end of 2015 and effective starting early 2017, covered employers–(with more than 100 employees and a federal contract, subcontract, or purchase order amounting to $50,000 or more that covers a period of at least 30 days) will be required to supplement their annual Employer Information Report (EEO-1 Report). The text of the Equal Pay Report notice of proposed rulemaking from the Federal Register can be found here.

While these employers are already required to report their total number of workers within a specific EEO-1 job category by race, ethnicity, and sex, the Equal Pay Report will require additional information: (1) total W-2 earnings for all workers in each job category by race, ethnicity, and sex; and (2) total hours worked for all workers in each job category by race, ethnicity, and sex. The OFCCP will use these reports to select employers for audits and investigations. These audits will compare not only base pay, but bonuses, incentive pay, commissions, and overtime as well.

Now is the time for employers to look at pay disparities (based on total W-2 earnings, not just base salaries) and conduct proactive pay analyses. Do not wait until the new EEO-1 Report is due. Can pay disparities be explained by education, performance, or tenure? If not, employers should look at performance ratings and other factors before bonuses are finalized. Conducting a pay analysis through counsel will help keep these reports privileged and out of the hands of the OFCCP, EEOC, and plaintiffs’ counsel.