Federal Government Proposes Ending Preferential Contracts for Subminimum Wages

The Biden administration issued a notice of proposed rulemaking for ending certain preferential contracts with nonprofits that employ blind or seriously disabled workers. The nonprofits involved in these contracts have traditionally benefitted from a law that allows them to pay blind or seriously disabled employees less than the standard minimum wage. In addition, President Biden called for a phaseout of the program in his infrastructure proposal, which would include resources to help these workers transition into other better-paying jobs.

Section 14(c) of the Fair Labor Standards Act allows businesses to pay employees with physical or mental disabilities at rates below the federal minimum wage of $7.25 per hour if they obtain a certificate from the U.S. Department of Labor’s Wage and Hour Division. The U.S. AbilityOne Commission, an independent federal agency, announced the proposed rule.

Approximately 40% of the 400-plus participating nonprofits in the AbilityOne Program use Section 14(c) certificates that apply to 674 employees out of the 42,000 total employed by the nonprofit agencies, which is less than 2% of all employees.

“Although the number of NPAs affected by this proposed rule may be 42% of the NPAs participating in the AbilityOne program, the actual number of employees with disabilities for whom these NPAs will have to increase wages is a small number of NPA employees,” the notice says.

In the notice, the Commission stated, “U.S. public policy and approaches to serving individuals with disabilities have changed dramatically since 1938, and the Commission recognizes that the AbilityOne Program must change with the times as well.” “The Commission believes that the continued payment of subminimum wages to employees with disabilities under Section 14(c) certificates is no longer aligned with modern disability policy.”

Completely phasing out Section 14(c) has been under consideration in Congress as lawmakers have proposed several changes and reforms. For example, the Transformation to Competitive Employment Act introduced in April would phase out the subminimum wage for blind and seriously disabled workers over several years while providing resources for states and employers to help these workers transition to new employment. The Raise the Wage Act also contains a provision to eliminate the 14(c) program, but it has no specific funding earmarked as resources to help workers transition to new jobs.

The proposal shows the federal government is willing to use its purchasing power to ensure that disabled workers get fair wages, said Julie Christensen, the executive director of the pro-worker Association of People Supporting Employment First. “This goes a huge way in thinking about the relevance of 14(c) certificates in the current economy,” said Christensen.

HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.

 

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

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