The U.S. Department of Labor (DOL) has announced a groundbreaking proposal aimed at abolishing subminimum wage payments for certain workers with disabilities.
This announcement marks the first major regulatory attempt to address subminimum wages in 35 years.
While the DOL has long included this initiative in its agenda, the last significant change occurred back in 1989.
What is Subminimum Wage?
The Fair Labor Standards Act (FLSA) contains a clause that permits employers to pay wages below the federal minimum wage, which currently stands at $7.25 per hour.
Specifically, Section 14(c) allows the Secretary of Labor to issue permits enabling employers to offer subminimum wages in order to provide job opportunities for individuals with disabilities.
Under the 14(c) program, an employee’s wages are based on their productivity rather than a fixed hourly rate.
As of May 2024, data shows that median earnings for these workers averaged about $3.46 per hour, with nearly half of the employees earning $3.50 or less during the certification period between October 2023 and March 2024.
According to the DOL’s new proposal, the issuance of 14(c) certificates would come to an end once the final rule is enacted, allowing existing certificate holders a three-year timeline to discontinue subminimum wage payments to their workers with disabilities.
A Shift in Trends
Recent years have seen a marked decline in the utilization of the subminimum wage program, with the number of certificate holders dropping significantly.
Currently, there are just 801 certificate holders operating across 38 states, the vast majority of which (about 93%) are community rehabilitation programs that assist individuals with disabilities by providing job training and opportunities in sheltered environments.
Only a small number—30 for-profit businesses—make up 4% of this total.
Data from the Government Accountability Office (GAO) highlights a stunning decline of around 90% in workers receiving subminimum wages since 2001.
As of May 1, 2024, approximately 40,579 individuals with disabilities were earning below minimum wage, with a staggering 90% of them having intellectual and developmental disabilities.
However, many individuals with similar conditions are able to secure jobs at standard wages.
Early analyses from the DOL suggest that the overall population of individuals with intellectual and developmental disabilities is at least twice the number currently subject to the 14(c) wage provisions.
Evolving Perspectives
In 2023, the DOL undertook a comprehensive review of the Section 14(c) program, seeking input from a variety of stakeholders, including certificate holders and workers with disabilities.
After gathering feedback, the DOL concluded that the program may no longer be essential for promoting employment opportunities for people with disabilities.
Acting Secretary of Labor Julie Su emphasized that since the FLSA was enacted in 1938, there have been substantial legal and policy advancements that have enhanced rights and job prospects for disabled individuals.
The proposed regulation’s fate under the incoming administration remains uncertain, but it has received some bipartisan backing in Congress.
The Transformation to Competitive Integrated Employment Act suggests phasing out subminimum wage certificates over five years while providing grants to assist employers with this transition.
Additionally, the Raise the Wage Act seeks to abolish subminimum wages altogether.
However, there is notable resistance, illustrated by Virginia Foxx, the Republican Chair of the House Education and Workforce Committee, who has criticized the proposal as misguided.
More than a dozen states have already taken steps to restrict or ban private employers from paying subminimum wages to workers with disabilities, with Illinois being the latest example.
The Dignity in Pay Act, passed on November 21, 2024, plans to phase out the subminimum wage by 2029.
Once this regulation is finalized, the DOL anticipates that those currently earning subminimum wages under Section 14(c) will transition into roles offering full compensation.
Notably, this rule would not require these workers to leave their current positions, which typically involve rehabilitation and training services.
Certificate holders can continue offering these valuable services while being mandated to pay their workers at least the federal minimum wage for the hours spent on productive tasks.
The DOL is actively seeking public feedback on its proposed regulation, particularly regarding the three-year phase-out timeline and the potential for extending deadlines for existing certificate holders under specific conditions.
The deadline for submitting comments is January 17, 2025, and contributions can be made through a designated link in the federal register.
Source: Natlawreview.com