What Total Rewards Leaders Need to Know About the New OFCCP Compensation Audit Requirements

| September 20, 2023 | 6 min read
What Total Rewards needs to know about changes to the OFCCP scheduling letter for compensation audits

The U.S. Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) recently overhauled its audit kick-off process, expanding both the breadth and depth of the data and documents requested during the kick-off of an OFCCP audit. While the changes impact every function that touches the OFCCP audit process (aka all HR functions), the new requirements have an outsized impact on Total Rewards and others responsible for the pay equity analysis. Below, we break down the changes and how Syndio can help with each.

 

What is the OFCCP scheduling letter?

Employers with at least 50 employees who provide at least $50,000 in goods or services to the U.S. federal government are required to prepare annual Affirmative Action Plans (AAPs) and are subject to audit by OFCCP.

OFCCP audits are kicked off with a scheduling letter.  Within this scheduling letter is a standard, itemized listing of data and documents that an employer must submit to the OFCCP within 30 days of the start of the audit. On August 25, 2023, the OFCCP finalized long-anticipated amendments to the standard scheduling letter and itemized listing. The changes are extensive and immediate, especially for Total Rewards leaders. 

Now, within 30 days of receiving notice of an audit, employers will have to prove to OFCCP that they conducted an annual pay equity analysis, disclose detailed information about how they set pay, and much more. Because you need to provide more precise data up front, you can’t wait until you get an audit notice that will be too late. You won’t be able to get everything done in 30 days, so you need to be prepared ahead of time.

 

What are the major changes and how can Syndio help?

While the changes to the scheduling letter and itemized listing are extensive, we wanted to highlight changes that specifically relate to pay equity.

Here are five changes Total Rewards, legal, and compliance teams should be aware of to remain in compliance with the revised procedures. It’s a complex maze, but PayEQ can help you navigate this complexity. You can use PayEQ to both conduct a privileged pay analysis — and prove it to OFCCP.  

 

1. OFCCP joins the transparency era and  demands pay explainability.

The OFCCP is requiring that employers provide more data and more documents right up front that explain how employers compensate their employees.

Prior to the scheduling letter and itemized listing revisions, employers were required to submit employee-level compensation data to OFCCP at the start of an audit for all employees in what is known as the “Item 19” submission.  Employers had to provide gender, race/ethnicity, hire date, job title, EEO-1 Category, and affirmative action plan job group for each employee in the establishment under audit.  This does not change with the revised scheduling letter.

But OFCCP added a substantial additional request. Now employers are required — not just permitted (as with the prior scheduling letter) — to provide “relevant data on the factors used to determine employee compensation such as education, experience, time in current position, duty location, geographical differentials, performance ratings, department or function, job families and/or subfamilies, and salary level/band/range/grade.”

The OFCCP is also now much more specific about its requests around compensation policies and practices. Previously, OFCCP requested policies related to the employer’s compensation practices. Now it is also requesting documentation: “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 combined request for a) factors that determine pay and b) policies and documentation that explain the factors and reasoning used to determine pay makes it clear that OFCCP has joined the pay transparency era. This creates a new and urgent requirement for every employer: pay explainability. Now you must be able to clearly communicate to OFCCP how your organization determines pay, how you apply it to individual employees, and whether that pay is equitable and consistent. 

How Syndio helps: In the PayEQ® platform you can analyze the valid reasons you pay employees differently from one another so you can speak with certainty as to the factors that impact pay. Pay Policy Analytics is a patent-pending software solution that holds up a mirror to your pay policies. The software gives you a precise and always-on view of how pay policies, gender or race, and random noise impact compensation — for every group and the company as a whole.

 

 

 

2. OFCCP requires more forms of compensation and continues focus on “zooming in/out.”

The revisions to the scheduling letter also require employers to provide more granular compensation data.

Prior to the August 2023 revision, employers were required to provide employee-level base salary and/or wage rate and hours worked in a typical work week in the Item 19 submission. Employers were asked — but not required to — provide separate columns of data for other adjustments to salary such as bonuses, incentives, commissions, merit increases, locality pay or overtime.

The revised scheduling letter requires that employers provide the base salary and/or wage rate, annualized base compensation, hours worked in a typical work week, and compensation adjustments to salary such as bonuses, incentives, commissions, merit increases, locality pay or overtime, provided separately. 

This request for more refined and granular data comes on top of statements from OFCCP’s Director of Enforcement at the July 2023 NILG conference that OFCCP is analyzing multiple forms of compensation — base pay, total compensation, as well as individual pay components, such as bonuses and stock incentives — and using multiple, different grouping schemas. OFCCP further notes it will “zoom in and out” to evaluate pay narrowly (for example, by job) and in broader groupings (for example, by job family group or EEO-1 category).

How Syndio helps: We frequently hear from customers that they really like being able to  easily analyze pay at different levels of granularity and look at different forms of compensation within the PayEQ platform. With PayEQ, you can zoom out and look at everyone by EEO-1 category or zoom way in and examine by job.

 

 

 

3. OFCCP doubles the pay data.

The revised scheduling letter and itemized listing expand compensation data collection to require that employers provide the specified information in the “Item 19” request as of not one but two “snapshot” dates.  Having to provide two years worth of data, rather than just one adds to the complexity of the information required to be gathered, understood, and submitted to OFCCP

How Syndio helps:  You can create and maintain separate workspaces in Syndio’s platform, allowing you to easily analyze the data. You can also download the data needed for your Item 19 submission, saving time and effort.

 

 

 

4. OFCCP enters the information era.

Not only is the OFCCP requiring more data, but they are requiring it be submitted electronically. The revised scheduling letter and itemized listing require that if your compensation data is electronically accessible, it must be submitted electronically. While this was true prior to the revisions, now information can officially be either emailed to the OFCCP or provided to the OFCCP in a secured file transfer system, Kiteworks.

How Syndio helps:  With Syndio, you can easily download the Item 19 submission for electronic delivery to OFCCP.

 

 

5. Employers must prove they conducted an annual compensation review.

OFCCP has long required that employers conduct an annual “in-depth analyses” of their “[c]ompensation system(s)” per the regulations found at 41 C.F.R. § 60-2.17(b)(3).  Now they must prove it.

Revisions to the scheduling letter and itemized listing now require that employers produce detailed “[d]ocumentation that the contractor has satisfied its obligation.”  This new requirement requires that employers provide documentation that demonstrates at least the following:

  • When the compensation analysis was completed;
  • The number of employees the compensation analysis included and the number and categories of employees the compensation analysis excluded;
  • Which forms of compensation were analyzed and, where applicable, how the different forms of compensation were separated or combined for analysis (e.g., base pay alone, base pay combined with bonuses, etc.);
  • That compensation was analyzed by gender, race, and ethnicity; and
  • The method of analysis (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.).

The changes to the scheduling letter and itemized listing echo and reinforce OFCCP’s Revised Directive 2022-01, dated August 18, 2022, which provided guidance as to how OFCCP will evaluate federal contractors’ compliance with compensation analysis obligations and how employers can prove that they conducted analyses while maintaining privilege. (Learn more in How You Can Demonstrate Your Compensation Compliance and Maintain Attorney-Client Privilege).

How Syndio helps: Syndio can help you prepare a redacted version of your privileged compensation analysis, provide a template or prepare a detailed affidavit showing that the employer conducted its compensation review, which is available right in the Syndio PayEQ platform. Our team of expert advisors can also conduct a compliance-focused analysis outside of the platform.

 

The previous “musts” (1 year of data) The new “musts” (2 years of data)
  • Employee identifier
  • Gender and race/ethnicity
  • Hire date
  • Job title
  • EEO-1 category
  • AAP job group
  • Compensation data
  • Some compensation policies
  • Everything else was optional
  • Name or employee identifier
  • Gender
  • Race/ethnicity
  • Hire date
  • Job title
  • EEO-1 category
  • AAP job group
  • Compensation data, separated by pay component
  • Factors used to determine employee compensation like education, past experience, time in current position, duty location, geographical differentials, performance ratings, department or function, job families and/or subfamilies, and salary level/band/range/grade
  • Documentation and policies related to the contractor’s compensation practices, including those that explain the factors and reasoning used to determine compensation
Not only do you need to prepare to provide more data, and more detailed data, but you also need to have it ready sooner. You only have 30 days from the kick-off of the audit to submit information to OFCCP.

Watch the full webinar on all of these changes at the link below, and explore how Syndio simplifies OFCCP compliance.

 
 

The information provided herein does not, and is not intended to, constitute legal advice. All information, content, and materials are provided for general informational purposes only. The links to third-party or government websites are offered for the convenience of the reader; Syndio is not responsible for the contents on linked pages.

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