The Office of Federal Contract Compliance Programs (OFCCP) published a notice in the Federal Register on Sunday, November 20, 2022 announcing major proposed changes to the agency’s standard audit scheduling letter. Not only does receipt of this letter signal the official start of a compliance review (“audit”), it also effectively serves as a subpoena for documents and information that must be turned over to the agency within 30 calendar days.
And the changes are significant and impactful. Four new items have been added to the Itemized Listing, bringing the total there to 26, and several existing items have been expanded to explicitly request vastly more information, documents, and data.
Some highlights include an attempt to initiate “campus-wide” audits of higher education institutions and corporate campus locations, doubling the amount of compensation data that must be produced, and the submission of “promotions” by type (“competitive” and “non-competitive”).
Below is a summary of the agency’s proposed changes. For the brave, we have provided a much deeper-dive into the OFCCP’s proposal here.
The OFCCP is accepting public comments through January 20, 2023. Comments should be submitted online here.
One of the most concerning of the proposed changes involves compensation, which involves all contractors and has been an area of increasing focus for the OFCCP, so we’ll start there. The agency wants a little bit of salary history and a lot of information about how your organization sets pay and analyzes compensation systems.
Second Compensation Snapshot
The agency is proposing to require contractors to submit a second compensation snapshot, this one representing the employees as of the start of the prior AAP cycle. This will allow the OFCCP to look at a partial history for each employee, a “salary history snapshot” if you will, of an arbitrary time period that will likely skew the data and lead to unnecessary follow-up questions and requests, and the chasing-down of red herrings. The date, reason, and amount of each employees’ last pay increase and any additional increases that may have happened during the prior AAP cycle might be more useful, but that is not what the agency is proposing here.
“Shoulds” Changing To “Musts”
The current Itemized Listing paragraph #19 requires the production of a single compensation snapshot as of the start of your current AAP cycle reflecting each employees’ base salary or wage rate, and their average hours worked per week. And contractors are given the option to also include other forms of compensation (bonuses, incentives, commissions, etc.), information regarding the factors used to set pay, and any relevant compensation policies, practices, or procedures that will help the agency understand your compensation system(s).
The proposed Itemized Listing would make the submission of all of those things mandatory. The OFCCP is discovering that, when it comes to compensation, there is always more to the story. So they want more of that story up front. Today, the agency is primarily interested in the results of sophisticated statistical analyses of your pay data. This would allow the OFCCP to test the degree to which your stated policies and practices are actually implemented and whether and to what extent they are being applied uniformly, potentially opening another avenue for the agency to pursue compensation discrimination allegations.
The OFCCP is still under the impression that the agency’s regulations require contractors to perform an “in-depth analysis” of compensation each year (by citing to a section of the regulations traditionally interpreted to only apply if and when a placement goal is set for a particular AAP job group). And the agency is still trying to sell the notion that such analyses must be statistical in nature. But instead of updating the underlying regulations to reflect the agency’s (re)interpretation, they continue to try to “codify” their stance through unenforceable sub-regulatory guidance.
And so the agency is proposing to align the Itemized Listing with their current compensation directive. They are “strongly encouraging” contractors to perform statistical analyses of their pay data, and they want to see those analyses in an audit. If you perform such analyses under some sort of legal privilege to protect them from disclosure, you can maintain the confidentiality of those analyses so long as you have something to turn over that is “compliant” with the regulations.
Not only does the agency want to see a compensation analysis, they want you to tell them all about it. When was it performed? What forms of compensation were analyzed and for whom? What methodology was used? If that change goes through and contractors don’t take it seriously, they could be handing the agency ammunition for declaring the contractor’s analyses “unreasonable” and substituting their own, alternative analyses. And if the OFCCP is unable to recreate your analyses and results from the information and data you provide, there will likely be questions about that as well.
The proposed Scheduling Letter and Itemized Listing would add “post-secondary institutions” (emphasis added) as a new entity type for audit purposes (in addition to physical location and business function) marking the first time in a while the agency has taken a serious run at organization-wide audits. If the agency pulls the audit bingo ball for a college or university campus location, they want to initiate an audit of the entire school campus (whether or not the institution actually prepares campus-wide plans, which is an option, not a requirement).
The agency is also proposing to do the same any time they audit a location that turns out to be part of a “campus-like setting,” such as a corporate campus, expanding the traditional scope of a corporate headquarters audit (officially called a “Corporate Management Compliance Evaluation,” or “CMCE”). But it wouldn’t necessarily be limited to corporate headquarters locations and would apply to all locations that comprise a “campus-like setting” in the same city and state.
With regard to higher education institutions, it appears that the agency is being explicit in its intent to audit the entire campus. For other organizations, their intentions are less clear. The Scheduling Letter would still be addressed to a specific physical work location and the agency claims that the audit information on “other” campus locations is merely meant to bolster the agency’s understanding of your operations by providing context. But they describe that understanding as the result of a “holistic review,” implying that they intend to use the information for more than context.
“Promotions” (and More Compensation Data)
There are at least two broad categories of “promotions” at most organizations: “non-competitive” and “competitive.” The former are often described as “tap-on-the-shoulder” promotions or “progressions,” and typically result from an employee reaching pre-set milestones to advance to the next level of the job, whether or not there is an “opening” to be filled. The latter result from a selection process in which the employee competes against other candidates for the position, much like a new hire situation. These two types of promotions should be analyzed separately for AAP purposes if those analyses are to have any meaning at all, but the regulations are silent on the matter.
The OFCCP is hoping to clarify that by requiring contractors to submit separate promotion summaries, along with the “pools” for each type. In addition, they want to know the job, supervisor, and pay for each employee before and after the promotion. That would open another avenue for potential violations. Currently, the agency can only analyze the fact of promotions happening and to whom. With this proposed change, they would have information that could be used to determine whether or not promotions benefited people more or less (at least financially) based on protected characteristics.
Other “Fun” Changes
There is a LOT packed into this proposal. Above are what we have identified as the “biggest” or most consequential, but all of them are material and deserve attention. The full analysis is available here, but below is a quick summary.
If it wasn’t written down, it might as well never have happened, at least in OFCCP Land. The “thing” you are supposed to do is no longer sufficient proof that it was done, apparently, and the agency wants to know how the sausage was made. So the proposed revised Scheduling Letter and Itemized Listing ask for all your receipts.
You are required to perform a “utilization analysis” (officially the “comparison of incumbency to availability”). The OFCCP doesn’t just want to see the results, they want to know what Census job codes you assigned, recruiting areas identified, “feeder” jobs, and the “weight” given to each availability factor. They want to see your resulting “action plans.” They want to see the details of your review of good-faith efforts. They’re really hung up on how you are setting your veteran hiring benchmark (is anyone using the five-factor method?!?). They want to know how you are classifying “voluntary” and “involuntary” terminations. And like everyone else, they are trying to figure out what a “review of personnel processes” should actually look like.
Policies and Practices
Do you have any formal, written policies, practices, or procedures that either do or could impact equal employment opportunity? The OFCCP wants to see them all. Employee policies, management practices, HR procedures, trainings, arbitration agreements, etc. If you’re unionized, you’re already turning over copies of your relevant collective bargaining agreements and this is an extension of that. They want to know what is influencing or controlling your employment decisions and they want to be able to test the degree to which those policies and practices are applied uniformly.
They’re also particularly interested in any automated selection software you might be using and how it works, particularly when it comes to the use of “artificial intelligence” or selection algorithms (not the same things, but we can geek out on that distinction later). The assumption here seems to be that these systems are probably discriminatory unless they have been properly and recently validated.
The OFCCP likes to see your EEO-1 reports. They have to verify compliance with the filing requirement, and they like to use multiple years’ worth of reports to perform some sort of trend analysis that they refuse to share or talk much about. But they are also turning a lot of focus to higher education institutions, which do not file EEO-1 reports. What to do?
They do file IPEDS reports, which are pretty similar to the EEO-1, so the OFCCP is proposing to require higher ed institutions to submit those instead—three years’ worth. Trouble is, the agency is not being forthright about their authority here. They have no enforcement mandate with regard to verifying the filing requirement itself is being met like they do with the EEO-1, and they are not really bothering to articulate why they want three years’ worth of reports or how they intend to use that data.
Miscellany and Oddities
For some reason the OFCCP is clarifying that when they audit you, they want your current year veteran hiring benchmark, not the one you set at the start of the prior AAP cycle. They are explicitly asking you not to submit your prior year benchmark, the one they need to evaluate whether or not that benchmark was met (and therefore whether or not an action plan is required). That’s just… odd. They need both.
They want you to prepare a Job Group Analysis that breaks down the headcounts by individual race/ethnicity. The regulations do not require this, and you are already submitting sufficient data for the OFCCP to create this themselves through a simple pivot table, but they would really prefer you prepare it for them. Frankly, if you’re not preparing that document for yourself, you’re just making your AAP preparation process harder than it needs to be.
Is there more? You betcha. Our detailed analysis runs about 17 pages or so, but this should give you the broad strokes. To read the full analysis, download the PDF here. And as always, if you have questions or just need to scream, feel free to contact us here at BCGi@Biddle.com.