New Federal Proposed Rule Addressing “Pay Equity and Transparency in Federal Contracting”

The Biden administration’s Fall 2023 United Agenda of Regulatory and Deregulatory Actions included a variety of near and long term regulatory plans for federal agencies, including regulatory action for pay equity and transparency. In response, the Department of Defense, General Services Administration, National Aeronautics and Space Administration, and Office of Federal Procurement Policy published proposed rule on January 30, 2024 [FAR Case 2023-021; Docket No. FAR2023-0021; Sequence No. 1]. The proposed rule and associated information is available in the Federal Register: Federal Register: Office of Federal Procurement Policy; Federal Acquisition Regulation: Pay Equity and Transparency in Federal Contracting.

Briefly summarized, this proposed rule would prohibit contractors and subcontractors from seeking and considering information about job applicants’ compensation history when making employment decisions for certain positions. In addition, contractors and subcontractors would be required to disclose the compensation being offered to the hired applicant in job announcements for certain positions.

Interested parties need to submit written comments to the Regulatory Secretariat Division via its eRulemaking portal at https://www.regulations.gov/. Those written comments are required on or before April 1, 2024, to be considered in the formation of the final rule.

The Administrator for Federal Procurement Policy advises her proposal of the proposed rule based on her determinations that:

“[C]ompensation history bans and compensation disclosure requirements (the latter are also collectively referred to as pay transparency), both together and separately, would promote economy, efficiency, and effectiveness in the procurement of property and services by the Federal Government.

Compensation history bans and pay transparency requirements have been shown to promote pay equity by closing pay gaps, which leads to increased worker satisfaction, better job performance, and overall increased worker productivity-all factors associated with promoting economy, efficiency, and effectiveness of the Federal contractor workforce. When workers feel that they are valued and their pay is fair, it can foster a higher level of commitment to an employer associated with better job performance and increased productivity.

Compensation history bans have been found to reduce pay gaps that have been shown to disadvantage certain populations, including women, workers of color, and workers entering the labor market during recessions.

Similar to compensation history bans, compensation disclosure requirements reduce gender, racial and ethnic pay gaps by reducing pay secrecy and helping workers negotiate. Pay transparency requirements also promote economy, efficiency, and effectiveness in recruitment and retention. By disclosing the compensation upfront, employers can effectively lower recruiting costs, both in terms of direct expenses, such as job advertising costs, and indirect expenses, such as those related to the selection and negotiation process.

In addition to pay equity, compensation history bans and compensation disclosure requirements can help companies attract and retain better talent and lower worker turnover. These practices demonstrate a commitment to fairness for all workers and increase hiring efficiencies and reduce the costs for employers to hire new workers for Federal contracts.”

More detailed information on the proposed rule and the administrator’s reasoning are included in the proposed rule published in the Federal Register (linked above) and in the associated PDF version (Federal Register, Vol. 89, No. 20, Tuesday, January 30, 2024)

This is a proposed rule worthy of consideration and comment by companies participating in federal contracting for the sponsoring agencies.

For more information regarding this or other procurement related matters, please contact the author or another member of the WRVB Construction and Government Contracts practice group.