April Executive Order Impacts Federal Contractors’ Pay Practices and Policies

New Rules for Federal Contractors

In February, President Obama signed an Executive Order that will raise the hourly minimum wage rate for employees of federal contractors to $10.10 per hour beginning January 1, 2015. After that, the minimum wage will increase each year by a percentage measured by the Consumer Price Index.

This month, the President ventured a step further into federal contractors’ compensation practices and policies. On April 8, 2014, President Obama took two actions intended to promote pay equity for women and minorities. First, the President signed an Executive Order that prohibits federal contractors with contracts exceeding $10, 000 from prohibiting or retaliating against employees who choose to discuss their compensation with each other. In issuing the Order, the President observed that as a policy, “pay secrecy fosters discrimination.”

Next, the President issued a Memorandum directing the U.S. Department of Labor (DOL) to issue regulations that would require federal contractors and subcontractors to report summary employee compensation data, including by race and sex. The DOL has been given 120 days to develop the regulations. The purpose of reporting information is “so pay discrimination can be spotted more easily” and corrected.

Although the practical impact of the new requirements will remain unclear until the rulemaking process is complete, there are steps federal contractors can take now to ensure compliance. Experts suggest contractors:

  • Ensure they do not have written policies instructing or prohibiting employee discussions about compensation,
  • Review print materials provided to employees and new hires to ensure they do not suggest that pay information should be kept confidential or private,
  • Make sure that the training managers and employees receive does not include instructions prohibiting or discouraging pay discussions,
  • Consider adopting and incorporating into employee and applicant materials language that states retaliation against employees that discuss their wages will not be tolerated, and
  • Engage in good business practices to ensure that employees are fairly compensated based on business intelligence and free of discrimination based on protected characteristics.

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