Details about compensation analyses in audits
The Office of Federal Contract Compliance Programs (OFCCP) is responsible for enforcing the regulations and guidelines that ensure that federal contractors and subcontractors do not discriminate against any protected groups in their employment practices. One of the key areas that the OFCCP focuses on during compliance evaluations is compensation analysis.
In this post, we will take a detailed look at how the OFCCP conducts compensation analyses in audits.
The Many Steps of an OFCCP Compensation Analysis
The first step in an OFCCP compensation analysis is to gather data on the organization’s compensation practices. This can include information on the organization’s pay scales, job titles, and the qualifications and experience of employees. The OFCCP will also gather data on the demographics of the workforce, including information on the race, gender, and ethnicity of employees.
Once the data is collected, the OFCCP will conduct a statistical analysis to determine if there are any disparities in pay or compensation between different groups of employees. This analysis can include a variety of statistical techniques, such as regression analysis and chi-squared tests.
One of the key tools that the OFCCP uses in compensation analysis is the 80% rule. This rule states that if the selection rate for any protected group is less than 80% of the selection rate for the group with the highest rate, it is considered to be adverse impact. Adverse impact is not necessarily illegal, but it must be justified by the employer.
The OFCCP will also look at the organization’s job titles, pay scales, and qualifications and experience of employees to determine if there are any disparities in pay or compensation. For example, if two employees with similar qualifications and experience are in different job titles, but one is paid significantly more than the other, it may indicate a violation of the regulations.
If the OFCCP finds any disparities in pay or compensation during the analysis, the organization will be required to provide an explanation for the disparities and demonstrate that the pay and compensation practices are non-discriminatory. This can include providing documentation of job analyses, validation studies, and other information used to determine pay and compensation practices.
The OFCCP also expects federal contractors to conduct self-audits of their compensation practices on a regular basis. This can help to identify and correct any potential compliance issues before they are identified by the OFCCP during an audit.
Directive 2022-01 (Revision 1): Advancing Pay Equity Through Compensation Analysis
The OFCCP reiterated its commitment to enforcing pay equity compliance earlier this year with the release of Directive 2022-01: Pay Equity Audits and Directive 2022-01 (Revision 1): Advancing Pay Equity Through Compensation Analysis. This directive (and revision) emphasized that the OFCCP will request evidence that companies have conducted their required compensation analyses in desk audits pursuant to the regulations at 41 CFR 60-2.17(b)(3), which require an annual evaluation of:
“Compensation system(s) to determine whether there are gender-, race-, or ethnicity-based disparities”.
The directive explicitly states that the
“OFCCP will request that the contractor provide a complete copy of the pay equity audit(s) conducted pursuant to 2.17(b)(3) that shows all pay groupings that were evaluated, any variables used, and the results of the analyses, including any disparities found.”
It is imperative to understand that 1) an analysis is required and 2) running an analysis is only the first step if you have any disparities that are discovered by that analysis. Disparities must be investigated to determine the reason for the pay differences. If the difference is not based on legitimate, non-discriminatory reasons, it must be remedied.
You can read more about Directive 2022-01 (Revision 1) on our blog post here.
The OFCCP conducts compensation analyses in audits to ensure that federal contractors and subcontractors do not discriminate against any protected groups in their employment practices. This includes gathering data on the organization’s compensation practices, conducting statistical analysis, and looking at the job titles, pay scales, and qualifications and experience of employees. Organizations are expected to conduct self-audits of their compensation practices, and to provide explanations and non-discriminatory evidence in case of disparities found.
Compliance with OFCCP regulations and guidelines is important for any federal contractor, as noncompliance can result in fines and penalties.
Kairos OFCCP Compensation Analysis
Kairos’ OFCCP Compensation Analyses are designed to highlight issues OFCCP would find in a desk audit of your company’s Affirmative Action Plan’s job groups and job titles – and more – highlighting intersectional race/ethnicity and gender disparities. Our reports provide tools to enhance your review as well as insights into explanatory factors that may be driving disparities. Take the first step to reducing your risk in an audit by conducting a Kairos compensation analysis specifically designed for OFCCP compliance. Learn more about our OFCCP Compensation Analysis by visiting the “Compensation Analysis” section of our website.