Key Details: Earlier this year, the Department of Defense (DoD), General Services Administration (GSA), National Aeronautics and Space Administration (NASA), and Office of Federal Procurement Policy (OFPP) published a proposed rule to amend the Federal Acquisition Regulation (FAR) relating to pay equity and transparency. Implementation of this proposed rule and amendment to the FAR would require federal contractors and subcontractors to disclose the compensation offered to the hired applicant in job announcements for certain positions. Additionally, federal contractors and subcontractors will be prohibited from seeking and considering an applicants’ compensation history for certain positions when making employment decisions. As such, federal contractors and subcontractors are encouraged to monitor this proposed rule and consider potential actions to mitigate future conflicts.
The proposed rule has a comment period until April 1, 2024. Interested parties are encouraged to submit comments to be considered in forming the final rule and to contact Ryan & Wetmore for additional government contractor consulting services and growth strategies.
Summary of Proposed Changes
The proposed rule’s key changes will be implemented through FAR Subpart 22.XX (if made final) titled “Prohibition on Compensation History Inquiries and Requirement for Compensation Disclosures by Contracts During Recruitment and Hiring”. Under the proposed rule, the prohibition on compensation history and the requirement for disclosures is as follows:
Applicable contractors are prohibited from the following during recruitment and hiring:
- Seeking the applicant’s compensation history (orally or in writing) from any person, including the applicant, past employers, or agents.
- Requiring the disclosure of compensation history as a condition of candidacy.
- Retaliating against, refusing to interview, or otherwise considering hiring or employing an applicant for failing to respond to a compensation history inquiry.
- Relying on an applicant's compensation history as a criterion in screening or in determining the compensation for the individual at any stage of the hiring process.
The above prohibitions are applicable even if the applicant volunteers their compensation history without prompting at any stage of the hiring process.
Applicable contractors must adhere to the following compensation disclosure requirements:
- Disclose compensation to be offered to the hired application in all advertisements for job openings placed by or on behalf of the contractor for positions to perform work on or in connection with the contract.
- Disclosures must indicate salary or wages, or a range, that the contractor in good faith believes will pay for the advertised position. The disclosure may reflect, as applicable, the contractor’s pay scale for the position, the range of compensation for employees working in similar jobs, or the budgeted salary for the position.
- Disclosures must indicate a general description of the benefits or other compensation forms applicable to the position. The contractor must indicate the percentage of overall compensation or dollar amount (or ranges) where at least half of the expected compensation is derived from commissions, bonuses, and/or overtime pay, as applicable.
Applicable contractors must adhere to the following notification of rights requirements.
- Contractors must ensure covered applications are given notice of the requirements outlined above through the job announcement or application process.
- This includes written notice of their rights to not provide compensation history and to receive compensation information during the application process or in the job announcement. Contractors are encouraged to review the proposed FAR rule as it provides specific language to include in job postings.
Applicability
The requirements outlined above are applicable to all solicitations and contracts. Both prime contracts and subcontracts at any tier where the principal place of performance is within the United States are covered by the proposed rule. As such, the requirements above are applicable to all contracts regardless of the dollar amount. Acquisitions below the Simplified Acquisition Threshold and acquisitions for commercial products and services will be covered by the proposed rule.
Conclusion and Next Steps
Contractors are encouraged to thoroughly review the proposed rule to understand the scope and potential implications on their hiring practices. Contractors are also encouraged to follow the steps below to stay ahead:
- Review the proposed rule and submit comments.
- Assess your current hiring practices and whether they are aligned with the requirements outlined in the proposed rule.
- Determine additional controls required to comply with the proposed rule.
- Meet with your legal counsel to ensure current hiring practices are aligned with pay equity and transparency requirements. The labor law environment is fluid, meeting with legal counsel will ensure that your business is on the right track.
- Review the compensation history and disclosure requirements of the state(s) you currently perform work or are hiring in. Some contractors may experience little impact on their current hiring practices as several states already have similar requirements.
- Ensure your hiring managers are aware of this proposed rule and provide training where applicable.
- Review your pay equity and transparency policies and procedures to determine additional changes or updates that may be required.
Ryan & Wetmore is committed to helping your government contracting business grow. For more information on how we can take your business to the next level, contact us today.
Disclaimer: This article is intended for informational purposes only and does not constitute legal or financial advice. Readers should not solely rely on the information provided herein and are encouraged to consult with a qualified advisor or legal counsel regarding their specific circumstances.
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About Peter Ryan
Partner, Co-founder, & CPA
Peter T. Ryan co-founded Ryan & Wetmore in 1988 with business partner Michael J. Wetmore. Peter provides clients with the best strategies for success. His expertise extends across various industries. Peter obtained a Master of Business Administration in Finance from the University of Baltimore and a Bachelor of Arts in Accounting from the Catholic University of America.
About Rosie Cheng
Finance Consultant
Rosie Cheng is a Finance Consultant at Ryan & Wetmore. She focuses on government contracting services and produces many of the firm’s government contracting newsletters. Rosie graduated from Georgetown University with a Master of Science in Management and from William and Mary with a Bachelor of Business Administration.