OVERVIEW
- What is the purpose of the Department's proposed rule?
- Why is the Department proposing to phase out the issuance of section 14(c) certificates?
- What is the Department proposing to change about its section 14(c) regulations?
- Where can I review, and how can I comment on, the Department's proposal to phase out section 14(c) certificates?
BACKGROUND
- Who is currently permitted to pay workers with disabilities at subminimum wages?
- When did the Department last revise the section 14(c) regulations?
- How much do employees who are paid subminimum wages under section 14(c) certificates earn per hour?
- How many hours do employees who are paid subminimum wages under section 14(c) certificates generally work?
- What are the primary disabilities of workers who are paid subminimum wages under section 14(c) certificates?
- Has the number of workers who are paid subminimum wages under section 14(c) certificates declined over the years?
- In what states do employers holding issued section 14(c) certificates operate?
- What entities hold issued section 14(c) certificates?
IMPACT
- Would this rulemaking impact where workers currently being paid a subminimum wage work?
- How many employees would be impacted by the proposed phase out of section 14(c) certificates?
- How many employers would be impacted by the proposed phase out of section 14(c) certificates?
- What are the estimated costs, benefits, and transfers of the proposed rule?
OVERVIEW
What is the purpose of the Department's proposed rule?
The Fair Labor Standards Act (FLSA) generally requires that employees be paid at least the Federal minimum wage, currently $7.25 per hour, for every hour worked and at least one and one-half times their regular rate of pay for each hour worked over 40 in a single workweek.
Section 14(c) of the FLSA authorizes the Secretary of Labor to issue certificates allowing employers to pay subminimum wages to workers with disabilities, but only if such certificates are necessary to prevent the curtailment of opportunities for employment.
The Department has preliminarily concluded that subminimum wages are no longer necessary to prevent the curtailment of employment opportunities for individuals with disabilities and the NPRM proposes to amend 29 CFR part 525 to phase out the issuance of section 14(c) certificates. The Department specifically proposes to cease issuance of new section 14(c) certificates to employers submitting an initial application on or after the effective date of a final rule and permit existing section 14(c) certificate holders, assuming all legal requirements are met, to continue to operate under section 14(c) certificate authority for up to 3 years after the effective date of a final rule.
Why is the Department proposing to phase out the issuance of section 14(c) certificates?
Section 14(c) of the FLSA authorizes the Department to issue certificates allowing employers to pay productivity-based subminimum wages to workers with disabilities, but only if such certificates are necessary to prevent the curtailment of opportunities for employment. Employment opportunities for individuals with disabilities have vastly expanded in recent decades, in part due to significant legal and policy developments. Expectations and beliefs regarding the employment of individuals with disabilities have evolved, and opportunities for individuals with disabilities have dramatically expanded since the section 14(c) regulations were last updated in 1989 and even more so since they were first promulgated in 1938.
Federal legislation and judicial precedent have firmly established fundamental legal protections requiring equal access, opportunities, and respect for individuals with disabilities. Furthermore, numerous States and localities have prohibited or limited the payment of subminimum wages to workers with disabilities within their jurisdictions. In short, employment opportunities for individuals with disabilities have advanced significantly since the FLSA's enactment in 1938. Based on that evidence, as well as careful review of relevant data and consideration of a wide variety of viewpoints, the Department has preliminarily concluded that subminimum wages are no longer necessary to prevent the curtailment of employment opportunities for individuals with disabilities. The Department thus proposes to amend 29 CFR part 525 to phase out the issuance of section 14(c) certificates so that all workers with disabilities are paid at least the Federal minimum wage (currently $7.25 per hour).
What is the Department proposing to change about its section 14(c) regulations?
In this proposed rule, the Department proposes to:
- cease issuance of new section 14(c) certificates to employers submitting an initial application on or after the effective date of a final rule, and
- permit existing section 14(c) certificate holders, assuming all legal requirements are met, to continue to operate under section 14(c) certificate authority for up to 3 years after the effective date of a final rule.
The Department is also requesting comment as to whether, if this proposed rule is finalized, the 3-year period should be shorter or longer and whether it would be appropriate to grant a one-time extension for existing section 14(c) certificate holders that demonstrate good cause. The Department seeks comments on the need for such an extension period, and, if needed, its scope, structure, and length.
Where can I review, and how can I comment on, the Department's proposal to phase out section 14(c) certificates?
The Department's Notice for Proposed Rulemaking ("NPRM") is available at www.regulations.gov. The Department encourages all interested parties to participate in the rulemaking process by submitting written comments regarding any aspect of the NPRM. All comments must be received by 11:59 p.m. ET on January 17, 2025, for consideration in this rulemaking; comments received after the comment period closes will not be considered.
Anyone who submits a comment (including duplicate comments) should understand and expect that the comment, including any personal information provided, will become a matter of public record and will be posted without change to the regulations.gov site.
BACKGROUND
Who is currently permitted to pay workers with disabilities at subminimum wages?
A listing of employers that currently hold or have applied for certificates is available on WHD's website at 14(c) Certificate Holders. As noted in the response to Question #1, the Department is proposing to phase out the issuance of section 14(c) certificates in this NPRM.
When did the Department last revise the section 14(c) regulations?
The Department first promulgated regulations governing the issuance of section 14(c) certificates in 1938, and last substantively updated them in 1989, more than 35 years ago.
How much do employees who are paid subminimum wages under section 14(c) certificates earn per hour?
There is no single wage rate for employees working under section 14(c) certificates. Under the current regulations, wage rates for individuals employed under section 14(c) certificates are determined based on each individual's productivity for the particular work they are performing and must be reviewed and updated periodically. In the development of this proposal, the Department reviewed data retrieved May 1, 2024, from applications for section 14(c) certificates, reflecting the applicant's most recently completed fiscal quarter at the time they applied, and found the mean "average hourly earnings" for workers under section 14(c) certificates was $4.08, and the median "average hourly earnings" was $3.46 for the period reviewed. The Department also reviewed a slightly wider range of data (certificates that were valid between October 2023 and March 2024) and found that approximately 49% of individuals paid under section 14(c) made $3.50 or less and approximately 10% were paid $1.00 per hour or less.
How many hours do employees who are paid subminimum wages under section 14(c) certificates generally work?
In the development of this proposal, the Department reviewed data retrieved May 1, 2024, from applications for section 14(c) certificates, reflecting the applicant's most recently completed fiscal quarter at the time they applied, and found workers under section 14(c) certificates worked a mean of 11.45 hours per week for the period reviewed.
What are the primary disabilities of workers who are paid subminimum wages under section 14(c) certificates?
Employers report that the vast majority (about 91 percent) of workers being paid subminimum wages under section 14(c) certificates have Intellectual/Developmental Disability (I/DD) as their primary disability:
Primary Disability Share of Workers under Section 14(c) Certificates Age Related Disability 0.09% Hearing Impairment 0.14% Intellectual/Developmental Disability 90.96% Neuromuscular Disability 0.68% Psychiatric Disability 4.34% Substance Abuse 0.02% Visual Impairment 0.21% Other 3.41% Has the number of workers who are paid subminimum wages under section 14(c) certificates declined over the years?
Yes, the number of certificate holders has declined over recent years, and the Department expects that trend to continue. In 2001, the Government Accountability Office (GAO) estimated that approximately 424,000 workers with disabilities were paid subminimum wages. As of May 1, 2024, that number had dropped to approximately 40,579 workers with disabilities being paid subminimum wages to employers with issued certificates—approximately a 90 percent decline. (The 2024 number does not include workers who are paid subminimum wages under pending section 14(c) certificates.)
In what states do employers holding issued section 14(c) certificates operate?
According to WHD's data on section 14(c) certificate holders as of May 1, 2024, the 801 employers that had certificates operate in the following 38 states: Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Texas, Utah, Virginia, Wisconsin, and West Virginia. The remaining 12 states, plus the District of Columbia, had no section 14(c) employers on the list.
As of May 1, 2024, there were 53 certificate holders located in four States (California, Colorado, Nevada, and South Carolina) that are in the process of phasing out the payment of subminimum wages.
What entities hold issued section 14(c) certificates?
WHD issues section 14(c) certificates to business establishments, community rehabilitation programs (CRPs), hospitals/patient worker facilities, and school-work experience programs (SWEPs). The overwhelming majority of current certificate holders are CRPs, representing approximately 93 percent of certificate holders as of May 1, 2024.
In the context of section 14(c), WHD defines CRPs as "not-for-profit agencies that provide rehabilitation and employment for people with disabilities." Such establishments are sometimes referred to as "sheltered workshops" as they typically are facility-based and often serve workers with disabilities in sheltered or segregated settings.
At the time of drafting the NPRM, only 30 private-sector, for-profit businesses held certificates for the payment of subminimum wages, representing 4 percent of total certificate holders. Apart from CRPs and business establishments, the remaining certificates were held by hospitals or residential care facilities that employ patients, representing 3 percent of total certificate holders, and "school work experience programs" that represent less than half of 1 percent of total certificate holders.
IMPACT
Would this rulemaking impact where workers currently being paid a subminimum wage work?
This proposed rule would not require workers to leave their current places of employment, where they often also receive a number of services, such as rehabilitation and training, nor would it require current section 14(c) certificate holders to amend the type of services that they currently provide or to modify the settings in which work is performed.
For example, if an employer currently employs a worker with disabilities to perform an assembly line job for 2 hours per day and then provides rehabilitation services to that same individual for 6 hours per day, this proposed rule would require only that the employer pay at least the full Federal minimum wage for the 2 hours of work performed by the worker. This proposed rule would not require any changes be made to the setting or rehabilitation services offered.
How many employees would be impacted by the proposed phase out of section 14(c) certificates?
According to WHD's data on section 14(c) certificate holders as of May 1, 2024, 801 employers either held issued certificates or were in the process of applying for their certificates. These employers reported paying approximately 40,579 workers at subminimum wages in their previously completed fiscal quarter.
How many employers would be impacted by the proposed phase out of section 14(c) certificates?
According to WHD's data on section 14(c) certificate holders as of May 1, 2024, there were 801 employers that had certificates that were either issued or pending.
What are the estimated costs, benefits, and transfers of the proposed rule?
The Department estimates that, in Year 1, the proposed rule would impose $92,980 in regulatory familiarization costs on employers. The rule will also likely result in adjustment costs for employers. As an illustrative example, if all certificate holders incurred an average of 1 hour of adjustment costs, the total cost would be $46,490. These adjustment costs would be spread over multiple years as employers transition their pay practices or change their operation models. In addition, the adjustment costs may be offset by cost savings associated with no longer applying for or maintaining section 14(c) certificates.
The proposed rule could result in transfers to workers if workers paid subminimum wages under section 14(c) certificates receive wage increases to the full minimum wage. If all workers paid subminimum wages under section 14(c) certificates receive wage increases to minimum wage (either as a result of wage increases from their current employer or if they find new employment at the minimum wage) while maintaining their current hours, the total gain in annual earnings would be $174.8 million. The rule could also result in transfers of earnings away from workers if workers paid subminimum wages under section 14(c) certificates lose their current employment and are unable to immediately find new employment.
The Department expects that many workers who are currently paid subminimum wages under section 14(c) will be able to transition to full-wage employment opportunities over the phase out period, leading to benefits for workers and society. Along with the broader societal shifts in opportunities for workers with disabilities, this proposed rule could lead to spillover effects for the overall population of individuals with disabilities, such as increasing the labor force participation rate for persons with a disability.