The Office of Federal Contract Compliance Programs (OFCCP) has been aggressively conducting audits of federal contractors and subcontractors investigating pay inequity practices by those companies. The agency’s latest settlement is one of the largest yet under this effort.

OFCCP found Boston-based asset management company State Street Corporation in violation of pay equity laws. State Street will be settling for $5 million in back pay plus interest.

OFCCP audits of State Street started in 2012. The audits revealed “statistically significant” disparities in compensation among female and male executives holding the positions of senior vice president, managing director and vice president. OFCCP also found that black vice presidents made less in compensation than their white counterparts.

Under the settlement, completed in late September, State Street will be paying close to $4.5 million in back pay to 305 female executives and 15 black executives, and little over $500,000 in interest. Further, State Street must make a 180-day analysis on its pay structure for upper management at its Boston office – from senior vice presidents to vice presidents and managing directors – and provide progress reports to the OFCCP over the next three years. The company must also review its employment practices to evaluate, review and revise any policies that put black and female employees at a disadvantage compared to other employees. The OFCCP can file charges against State Street if it violates any part of the settlement.

This settlement is a red flag for any employer who may fall under investigation by the OFCCP. As these audits continue, more contractors will be exposed to charges of pay inequity. If targeted by the OFCCP, the financial burden can be heavy, as evidenced by State Street’s multimillion dollar settlement. Now more than ever, employers should start reviewing their pay structure to determine any unjustified disparities in pay difference groups of employees by gender, ethnicity and race. If you feel your company is exposed, make the necessary changes now to avoid potential suits in the future. Consider hiring a third-party with expertise in this field to work with legal counsel to help you determine your possible exposure to an OFCCP audit. Considering the financial downside of being targeted for pay equity violations, it will be a worthwhile investment.

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