Society of Corporate Compliance and Ethics

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1 Society of Corporate Compliance and Ethics Federal Contractor Compliance: What You Need to Know Murray Simpson, Ph.D. 9/13/11 Manager, Consulting Services Federal Contractor Compliance 1 Overview What regulations are enforced by the Office of Federal Contract Compliance Programs (OFCCP)? What changes are taking place with regard to these regulations? What items are increasingly subject to greater scrutiny by the OFCCP during compliance evaluations? What can federal contractors do today to prepare for the changes of tomorrow? Federal Contractor Compliance 2 1

2 What Regulations Are Enforced by the OFCCP? Executive Order Prohibits discrimination based on race, color, religion, sex or national origin Requires contractors to engage in affirmative action for women and minorities Requires contractors to maintain data on applicants, hires, promotions, transfers, and terminations by race and gender Section 503 of the Rehabilitation Act Prohibits discrimination based on an individual s physical or mental disability If federal contract exceeds $10,000, requires contractor to employ and advance in employment qualified individuals with disabilities Requires contractors to take affirmative action to ensure individuals with disabilities are included in all employment activities and to make reasonable accommodation of the physical and mental limitations Section 4212 of Vietnam Era Veterans Readjustment Assistance Act Prohibits discrimination based on covered veterans status If federal contract prior to 12/01/2003 exceeds $25,000, (post 12/01/2003, $100,000) requires contractors to employ and advance in employment qualified covered veterans Requires contractors to take affirmative action to ensure covered veterans are included in all employment activities Federal Contractor Compliance 3 Changing Regulatory Environment December 2010: OFCCP changes its enforcement protocol from Active Case Management to Active Case Enforcement January 2011: OFCCP initiates process to rescind the standards that have governed since 2006 how the agency conducts a compensation audit April 2011: OFCCP proposes changes to the regulations implementing Section 4212 of VEVRAA May 2011: OFCCP proposes changes to the itemized listing of documents and data that federal contractors must provide upon notification of an audit August 2011: OFCCP requests input on developing a new tool to collect compensation data from federal contractors Federal Contractor Compliance 4 2

3 Increased Scrutiny by OFCCP During Compliance Audits Active outreach for veterans Active outreach for disabled individuals Reasonable accommodations for disabled individuals Web accessibility Federal Contractor Compliance 5 Changes in the OFCCP s Enforcement Protocol Federal Contractor Compliance 6 3

4 OFCCP Has Changed Its Enforcement Protocol Active Case Management (ACM) Compliance review only Active Case Enforcement (ACE) Compliance review, offsite review of records, compliance check, or focused review Full desk audits only when there were indicators Focus: Systemic discrimination comprising at least 10 class member by gender or race Full desk audits conducted in all compliance evaluations Focus: Individual as well as class cases of discrimination with no threshold on number of class members by gender or race Federal Contractor Compliance 7 Rescission of Standards Governing How OFCCP Conducts a Compensation Audit Federal Contractor Compliance 8 4

5 Rescission of Standards Governing a Compensation Audit The OFCCP adopted a three-tiered audit strategy as the means to implement these standards Tier 1 ( tipping test ) and Tier 2 ( mini-regression ) conducted as part of the desk audit Tier 3 ( comprehensive regression analysis ) conducted in association with an onsite review Federal Contractor Compliance 9 Rescission of Standards Governing a Compensation Audit Tier 1 Tipping Test Item 11 data aggregated by pay division (usually job group or job title) Under Active Case Management ( ):» Thresholds 5/10/3 thresholds 5/10/3/30 thresholds» Typically between 40-60% of AAP establishments failed» Remainder passed and compensation review closed at desk audit stage Under Active Case Enforcement (which requires completion of full desk audit meaning Tier 1 and Tier 2 until rescission process is completed)» Threshold: 2% or $2,000» Nearly 100% of AAP establishments fail» Automatically move forward to Tier 2 of the desk audit Federal Contractor Compliance 10 5

6 Rescission of Standards Governing a Compensation Audit Tier 2 Mini Regression Analysis OFCCP requests employee-specific data with which to conduct a regression analysis Under Active Case Management ( ):» OFCCP typically requested employee-specific data on 12 factors: 1. Employee ID number 2. Time with company or date of hire 3. Time in current position or date of last change in grade or title 4. Date of birth or, if possible, date of last degree earned 5. Current annualized base salary or base hourly wage 6. Part-time v. full-time status 7. Exempt v. non-exempt status 8. Job title 9. Grade level or salary band 10. Location (if different from facility under review) 11. Gender 12. Race Federal Contractor Compliance 11 Rescission of Standards Governing a Compensation Audit Tier 2 Mini Regression Analysis (continued) Transition from Active Case Management to Active Case Enforcement» Additional factors began appearing in various combinations over the course of 2010: 13. Division 14. Department 15. Work shift, if applicable 16. AAP job group 17. Similarly situated employee groups (SSEGS), if developed 18. Other paid allowances, if any, such as commission pay, overtime pay, bonus pay or shift differential 19. Any other factors not previously listed that impact compensation for your company Under Active Case Management» Additional factors requested by OFCCP as recently as May-July, 2011: 20. Last two performance ratings for each employee 21. Education 22. Prior experience outside the company Federal Contractor Compliance 12 6

7 Rescission of Standards Governing a Compensation Audit Tier 2 - Blurring the Lines of Distinction with Tier 3 The expansion in the requested number of factors (i.e., data fields containing employee-specific information) :» Indicates a movement by the OFCCP to push the Tier 2 analysis toward the comprehensive regression stage previously reserved for the third tier of its audit strategy» As a consequence, the Tier 3 analysis associated with an onsite review likely will focus on refining the Tier 2 analysis (with regard to any omitted influences on pay and to forming SSEGs) based on: OFCCP review of documented compensation policies OFCCP review of job descriptions OFCCP interviews of employees, supervisors, managers, and personnel in HR and compensation functions Federal Contractor Compliance 13 Changes to Compensation Data Requested in Itemized Listing That Accompanies 30-Day Scheduling Letter Employee-specific data as opposed to aggregated data As of February 1 st of the most recent year for all employees in the workforce covered by the AAP (including full-time, part-time, temporary, contract, and per diem or day labor) provide the following: 1. Employee ID number 2. Gender 3. Race/Ethnicity 4. Hire date 5. Job title 6. Job group 7. EEO-1 category 8. Base salary 9. Wage rate 10. Hours worked 11. Other compensation or adjustments to salary (such as bonuses, incentives, commissions, merit increases, locality pay, and overtime) Federal Contractor Compliance 14 7

8 Changes to Compensation Data Requested in Itemized Listing That Accompanies 30-Day Scheduling Letter Employee-specific data as opposed to aggregated data Federal contractor may provide data on additional factors used to determine employee compensation, including but not limited to: 12. Education 13. Past experience 14. Duty location 15. Performance ratings 16. Department or function 17. Salary grade, band, level or range Contractor should also submit documentation and policies related to its compensation practices, particularly those that explain the factors and reasoning used to determine compensation Federal Contractor Compliance 15 Where is the OFCCP Heading With Regard to Analyzing a Federal Contractor s Compensation Practices? OFCCP will seek to collect a comprehensive set of payrelated data fields covering all employees in the AAP In the short term, the OFCCP will use the nearly universal failure of the Tier 1 Tipping Test (with differences in average pay of at least 2% or $2,000 for one job title or job group resulting in failure) as the justification for requesting these data fields In the longer term, the OFCCP will abandon the Tier 1 Tipping Test because the revised Itemized Listing accompanying the 30-Day Scheduling Letter requests these data fields as part of the supporting documentation and data the federal contractor must provide in response to the letter Federal Contractor Compliance 16 8

9 Where is the OFCCP Heading With Regard to Analyzing a Federal Contractor s Compensation Practices? Once the Tier 1 tipping test is abandoned, the OFCCP will conduct a single desk-audit analysis, which may be refined during an onsite review if such a review is warranted. During the desk audit, the OFCCP: Will continue to analyze employee pay using a regression model Will likely exercise greater latitude in how employees are grouped for comparison Will likely combine the statistical analysis of large comparison groups with a casual analysis of small comparison groups» Currently conducting such casual analyses, presumably as part of the Active Case Enforcement protocol to identify potential discrimination against individuals Federal Contractor Compliance 17 Proposed Changes to the Itemized Listing of the 30-Day Scheduling Letter Federal Contractor Compliance 18 9

10 Proposed Changes to Itemized Listing of Scheduling Letter Item #8 Copies of employment leave policies, including FMLA, pregnancy leave, accommodations for religious observances Send in your employee handbook or manual if policies are discussed within Item #9 Copy of collective bargaining agreement(s), including policy statements, employee notices or handbooks that implement, explain, or elaborate on provisions of the collective bargaining agreement (s) Item #10 Job group representation at the start of the AAP year, including total incumbents, total minority incumbents, and total female incumbents Placement goals for minorities and women and actual number of placements during the year Placements defined as hires plus promotions Federal Contractor Compliance 19 Proposed Changes to Itemized Listing of Scheduling Letter Item #11 Submit information on applicants and hires by job group and job title and by gender and racial sub-group Include information on unknowns Include actual pools for promotions & terminations Distinguish between voluntary and involuntary terminations Item #12 For each employee as of February 1st, provide gender, race, hire date, job title, job group, EEO-1 category, base salary, wage rate, hours worked, bonuses, incentives, commissions, merit increases, locality pay, and overtime pay May also include additional data used to determine pay: education, past experience, duty location, performance ratings, department or function, and salary level/band/range/grade Submit documentation and policies on compensation practices Item #13 Copies of VETS-100A for last 3 years Copies of accommodation polices and records of accommodations granted under Section 503 (disabled) and Section 4212 (veterans) Federal Contractor Compliance 20 10

11 Proposed Changes to the Regulations Implementing Section 4212 of VEVRAA Federal Contractor Compliance 21 Current Regulations Implementing Section 4212 of VEVRAA Non-Discrimination Contractors must not discriminate against protected veterans with regard to employment activities (hiring, promotion, dismissal, compensation, etc.) Affirmative Action Contractors must engage in active outreach for protected veterans Post jobs through local/state job service offices for all openings except those that last 3 or fewer days, are filled from within the company, or are executive/top management positions Reporting Contractors must file an annual VETS-100 or VETS-100A that reports the number of protected veterans in their work force by job category and hiring location as well as the number of new employees, including protected veterans, hired during the reporting period Federal Contractor Compliance 22 11

12 Proposed Changes to Section 4212 Regulations Job Posting with Local/State Service Contractors must provide job postings to local/state agency in the manner required by the agency Contractors must provide information regarding status as a federal contractor to hiring official and request priority referral of protected veterans Linkage Agreements & Recruitment Efforts Contractors must enter into signed linkage agreements with appropriate recruitment and training sources including, at a minimum, the following: 1. The local veterans employment representative at the state employment service; 2. At least one veterans service organization listed on the Employee Resources section of the National Resource Directory ( 3. At least one more organization from a list of other organizations Federal Contractor Compliance 23 Proposed Changes to Section 4212 Regulations Data Collection, Analysis and Recordkeeping Contractors will be required to maintain quantitative measurements and comparisons related to veterans each year, including the following: 1. The number of referrals from state employment services, the number of priority referrals of protected veterans, and the referral ratio of protected veteran referrals to total referrals (Example: 50 referrals from the Texas Workforce Commission; 10 of those were protected veterans; referral ratio of protected veterans is = 0.20 or 20%) 2. The number of applicants for employment, the number of protected veteran applicants, and the applicant ratio of protected veterans applicants to total applicants (Example: 100 applicants applied for jobs; of those, 10 were protected veterans; applicant ratio of protected veterans is = 0.10 or 10%) 3. The number of job openings, the number of jobs filled, the number of protected veterans hired, and the hiring ratio of protected veteran hires to total hires (Example: 100 jobs filled; 5 filled by protected veterans: hiring ratio of protected veterans is = 0.05 or 5%) 4. The total number of job openings, the number of filled openings, and the job fill ratio of filled openings to total openings Federal Contractor Compliance 24 12

13 Proposed Changes to Section 4212 Regulations Hiring Benchmarks Contractors will be required to establish a hiring benchmark by referring to various resources such as percentage of veterans in the civilian labor force; Will be similar to setting a placement goal for placing females or minorities in the upcoming year Other proposed changes Specific action items with regard to annual review of personnel processes» For example, written reasons for each decision to reject a veteran for employment, promotion, training, or request for accommodation Policy dissemination and training» Documentation of employee meeting to discuss policy and contractor responsibilities» Meet with management to explain policy and responsibilities for implementation» Discuss policy and responsibilities in new hire orientation and management training» Train all employees involved in personnel transactions on legal responsibilities Federal Contractor Compliance 25 Proposed Changes to Section 4212 Regulations Other proposed changes (continued) If deny accommodation due to undue hardship, the employer must give disabled veterans the option of providing the accommodation themselves or paying the portion of the expense that constitutes an undue hardship Invite applicants to self-identify veteran status at pre-offer stage Include the entire veterans EO Clause verbatim in subcontracts and purchase orders Send written notification of their AA policies and efforts to subcontractors and request appropriate action on their parts Change term from covered veterans to protected veterans Retain many records for 5 years Federal Contractor Compliance 26 13

14 Proposed Changes to Section 4212 Regulations Other proposed changes (continued) No more classifications of Vietnam Era Veteran or Special Disabled Veteran Protected veterans would fall into one or more of the following classifications: 1. Disabled veterans 2. Other protected veterans Veterans who served on active duty in the U.S. military during a war or in a campaign or expedition for which a campaign badge was awarded 3. Armed Forces service medal veterans Veterans who, while serving on active duty in the Armed Forces, participated in a United States military operation for which an Armed Forces service medal was awarded pursuant to Executive Order Recently separated veterans Veterans within 36 months from discharge or release from active duty Federal Contractor Compliance 27 Web Accessibility Federal Contractor Compliance 28 14

15 Web Accessibility What is web accessibility? Typically refers to making websites usable by people with disabilities so they can use assistive technologies such as Text-To-Speech (TTS) readers and Voice-recognition software Federal Contractor's Online Application Selection Systems Directive 281 ( seeks to ensure that employers using internet systems for applications are compliant for accessibility by persons with disabilities (visually impaired, persons without limbs, persons in a wheelchair that cannot access kiosk due to height, etc.) Recommended website verbiage In compliance with the Americans with Disabilities Act Amendment Act (ADAAA), if you have a disability and would like to request an accommodation in order to apply for a position with x company, please call xxx-xx-xxxx or e- mail xxxx.xxxx@xcompany.com. Federal Contractor Compliance 29 Web Accessibility Check list 1. Does website provide information on how individuals with disabilities can request reasonable accommodations? 2. Can website be navigated with a screen reader? 3. Does website time out after a period of inactivity? Can users request extension before the time out occurs? 4. Does website avoid blinking, marquee or other auto-scrolling text which might trigger epileptic seizures? 5. Does your site provide captioning for all video and audio content? 6. Do all images on your site have accompanying text description? 7. Can your site be accessed without using a mouse? 8. Does your site provide fully usable online forms, PDF documents and PowerPoint materials, particularly for individuals who use screen readers? Federal Contractor Compliance 30 15

16 What Actions to Start Taking Today? Federal Contractor Compliance 31 What Can You Do Today to Prepare for the Changes of Tomorrow? 1. Meet the challenge of more aggressive compensation audits by the OFCCP Review and update written documents that describe compensation practices and explain factors that influence compensation decisions Collect data requested in the revised Itemized Listing in electronic format Collect data in electronic format on additional factors that legitimately explain differences in pay for your organization Conduct an annual compensation self-evaluation Prior to receiving notice of an audit By AAP In a manner that allows you to anticipate what the OFCCP may find In a manner you find to be based on sound legal and statistical principles (to rebut what the OFCCP may find) Federal Contractor Compliance 32 16

17 What Can You Do Today to Prepare for the Changes of Tomorrow? 2. Implement processes to collect and make readily available the documents and data that will be requested by the OFCCP in Items 8 through 13 of the revised Itemize Listing of the 30-day Scheduling Letter Pay particular attention to Item 12 (hiring, promotion and termination data) and Item 13 (compensation data) 3. If necessary, expand your outreach sources for veterans (see list at end of slide show) 4. If necessary, expand your outreach sources for disabled (see list at end of slide show) Federal Contractor Compliance 33 What Can You Do Today to Prepare for the Changes of Tomorrow? 5. Verify that your company s website is accessible Review check list on previous slide Retain a third-party vendor that specializes in reviewing websites for accessibility by disabled individuals 6. Create an internal defense team comprising representatives from Legal, HR, Compensation, Staffing, and IT (HRIS system) Develop an effective audit ready strategy Ensure actions stated above are undertaken in a timely manner, without delay, and without regard to whether a scheduling letter has been received Federal Contractor Compliance 34 17

18 QUESTIONS AND ANSWERS Federal Contractor Compliance 35 Thank You! Murray Simpson, Ph.D. Manager, Consulting Services option1 Federal Contractor Compliance 36 18

19 Appendix 1 Outreach Sources for Veterans Recruit Military Hire Heroes USA or HERO Army Reserve Employer Support of the Guard and Reserve Employers Military Hire Vet Jobs Intelligence Careers and Defense Careers Veterans Enterprise Hire Vets First Local One-Stop Career Centers US2-JOBS Directory of regional/state offices: State Employment Office Other source for local/regional/state contacts Federal Contractor Compliance 37 Appendix 2 Outreach Sources for Disabled Workforce Recruitment Program for College Students with Disabilities (employers can request unlimited searches by calling (866) ) Job Accommodation Network (JAN) Employer Assistance and Recruiting Network (EARN) ADA Affirmative Disability Action National Business and Disability Council Department of Veterans Affairs (VA), Vocational Rehabilitation and Employment Service State Vocational Rehabilitation (VR) State Governors Committees on Employment of People with Disabilities Disability Employment 101 (877) U.S. Business Leadership Network (USBLN) ADA Affirmative Disability Action ABILITY Jobs Federal Contractor Compliance 38 19

20 Appendix 2 Outreach Sources for Disabled (continued) Careers and community for people with disabilities Career-Focused Mentoring for Youth Cultivating Leadership: Mentoring youth with disabilities Workforce Recruitment Program (WRP) HirePotential: persons with disabilities, veterans, mature workers Private Sector Internships for Students with Disabilities Strategic Connections: Recruiting Candidates with Disabilities HireVetsFirst/REALifeline Federal Contractor Compliance 39 20