We may be on the verge of pay equity and transparency requirements for federal contractors and subcontractors. On January 30, 2024 the Federal Acquisition Regulatory Council (FAR Council) issued proposed rulemaking that would, if finalized in its current form, require a significant change in recruiting and hiring practices for some contractors.

The FAR Council’s rule would:

1. Require covered contractors to implement new compensation disclosure requirements in job announcements for certain positions, and
2. Prohibit covered contractors from requesting or considering applicants’ compensation history when making employment decisions.

The public has until April 1, 2024 to submit comments. We will be tracking this proposed rule as it continues to develop. 

This is just the most recent development in the nationwide wave of state (e.g. California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Nevada, New Jersey, New York, Ohio, Rhode Island and Washington) and local (e.g. Cincinnati, Jersey City, New York City and others) pay transparency regulation our team has chronicled on our blog–see our most recent update on the District of Columbia’s new legislation here. Recently, there has also been litigation in various jurisdictions (e.g. Washington and New York City) seeking to enforce pay transparency regulations that are already on the books. 

Potentially broad application

In its current form, the proposed rule would have broad application, covering both prime contractors and subcontractors performing a government contract or subcontract within the United States (including its outlying areas). The FAR Council states that it contemplated limiting application of the requirements to certain contracts but ultimately did not go that way since “[t]he benefits of the pay equity and transparency requirements in this proposed rule are equally impactful in commercial and noncommercial settings as well as to large or small dollar contracts.”

The proposal defines “work on or in connection with the [government] contract” as “work called for by the contract or work activities necessary to the performance of the contract but not specifically called for by the contract.” The Council “encourages” contractors to apply its provisions “to other positions, including to the recruitment and hiring for any position that the Contractor reasonably believes could eventually perform work on or in connection with the contract.”

Both requirements apply only to “applicants,” defined as a “prospective employee or current employee applying for a position to perform work on or in connection with the [government] contract.”

“Good faith” description of salary and benefits

With regard to the proposed compensation disclosure requirement, the Council defines compensation broadly. Under the proposed rule, job listings must indicate:

[T]he salary or wages, or range thereof, that the contractor in good faith believes that it will pay for the advertised position and may reflect, as applicable, the contractor’s pay scale for that position, the range of compensation for those currently working in similar jobs, or the amount budgeted for the position. The disclosure must also include a general description of the benefits and other forms of compensation applicable to the job opportunity. Where at least half of the expected compensation for the advertised position is derived from commissions, bonuses, and/or overtime pay, the contractor must specify the percentage of overall compensation or dollar amount, or ranges thereof, for each form of compensation, as applicable, that it in good faith believes will be paid for the advertised position.

Crafting a precise description of “compensation” can be difficult in practice. And, what’s more, we’re monitoring enforcement actions in Washington and New York City where certain companies’ efforts to comply with the jurisdiction’s requirements for a “good faith” description of compensation in job listings is being challenged by regulators.

Notice requirements

The Council’s proposal would also require covered contractors and subcontractors “to ensure that any applicants covered” by the new requirements (i.e., applicants for positions “to perform work on or in connection with the [government] contract”) are provided with notice of these requirements as “part of the job announcement or application process.” The proposal includes specific language that will have to be provided to such applicants in writing.

What’s next

We anticipate that contractors, subcontractors and companies supporting government contracts requirements will voice concerns during the comment period given that the reach of the proposed rule is nebulous. The requirements apply to positions that perform work on or “in connection with the contract.” Yet, as seen in the definition above, there is a dearth of clarity as to how far in the supply chain the rule might reach. To add a public comment, use this online form.

Based on available information, it seems likely that some version of the rule will be approved as it furthers well-documented policy intentions of the Biden Administration (and is “on trend” with the current wave of state-specific pay transparency laws sweeping the country). In March 2022, President Biden issued Executive Order 14069, “Advancing Economy, Efficiency, and Effectiveness in Federal Contracting by Promoting Pay Equity and Transparency,” directing the Council to “consider whether any such rules should limit or prohibit Federal contractors and subcontractors from seeking and considering information about job applicants’ and employees’ existing or past compensation when making employment decisions.” This proposed rule is a direct result of that instruction.

The rule’s scope of covered contractors may very well be broad, including all companies that are considered federal contractors for OFCCP purposes. The proposal includes a complaint mechanism whereby applicants’ complaints will be investigated by the contracting agency and forwarded to the OFCCP. And, in parallel, the OFCCP recently published a FAQ documenting its concern over the use of prior salary in setting pay.

Of course we must wait for the final rule for clarity on the application of the rule. We are monitoring developments and will report updates here.

How to keep up with the proliferation of pay transparency requirements

For a quick and easy way to stay on top of pay transparency obligations in the US (and across the globe), we offer a fixed fee Global Pay Equity Compliance Compendium that monitors the legal pay transparency and reporting requirements and forthcoming developments across 70+ jurisdictions (of which over 40 currently have pay transparency or reporting requirements). Please contact a member of our team for more information.