On July 22, 2019, the Office of Federal Contract Compliance Programs (OFCCP) issued its second Opinion Letter since November 30, 2018, when Directive 2019-03 announced the agency’s intent to begin delivering such guidance to the contractor community.  OFCCP’s July 22 Opinion Letter provides guidance as to whether contractors can collaborate with the agency to develop Pay Analysis Groupings (PAG) that OFCCP would then accept as valid for use in future compliance evaluations.

In the Opinion Letter, OFCCP acknowledged that the agency’s latest guidance on compensation evaluations, Directive 2018-05, provides contractors with the opportunity to submit their PAG structure to OFCCP for review and feedback, which the agency would “take into account” in future compliance evaluations.  For this purpose, OFCCP reminded contractors that submission of PAGs for agency approval must include sufficient data for it to determine if the aggregation is similar to what would be available in an audit.

However, the Opinion Letter falls short of any commitment to accepting contractor PAG structures in future audits, even where the preapproval process is followed.  Instead, OFCCP cited the potential for “material changes to factors considered by OFCCP in its initial evaluation of the contractor’s PAGs” as its justification for leaving the door open on the issue.  More specifically, OFCCP explained that material changes to the contractor’s pay systems, functions, and workforce organization between the time of PAG preapproval and the period under review in a compliance evaluation would require OFCCP to make a new determination as to whether PAGs are appropriate. 

Nonetheless, the Opinion Letter encourages contractors to submit PAG structures for early review, citing as benefits of this practice collaboration between the contractor and the agency and OFCCP’s greater understanding of contractors’ compensation policies and practices.  According to OFCCP, submitting PAGs in advance also serves to encourage proactive self-auditing within the contractor community, which it states should reduce pay discrimination.

Going forward, contractors should consider submitting their PAG structures to OFCCP, but with the understanding that they do so without the security of OFCCP’s commitment to accept the PAG structures in future audits.  Regardless of whether PAGs are submitted for OFCCP review, all contractors should take from this Opinion Letter OFCCP’s strong recommendation that contractors conduct robust and meaningful self-audits of their compensation systems to identify and eliminate pay discrimination.