Quick Hits

• The DOL recently proposed dropping the subminimum wage rule under federal law.
• Since 1938, federal law has allowed some employers to pay subminimum wages to workers with certain developmental, physical, and mental disabilities.
• The public can submit comments on the proposed rule until January 17, 2025.

The Fair Labor Standards Act (FLSA) has permitted employers to apply for DOL-issued certificates to pay subminimum wages to certain workers with disabilities, but only where such certificates are necessary to prevent limitations in job opportunities. Section 14(c) of the FLSA defines workers with disabilities as those whose “earning or productive capacity is impaired by a physical or mental disability,” including developmental disabilities, blindness, mental illness, cerebral palsy, alcoholism, and drug addiction.

The DOL has proposed stopping the issuance of new Section 14(c) certificates on the effective date of the final rule. Existing Section 14(c) certificate holders could continue to operate under Section 14(c) certificate authority for up to three years after the effective date of the final rule. The certificates issued to employers generally are valid for one or two years.

The DOL argued that employment opportunities for workers with disabilities have vastly expanded in recent decades because of legal, social, and technological developments, making subminimum wages no longer necessary.

The vast majority of certificate holders are “community rehabilitation programs,” meaning “not-for-profit agencies that provide rehabilitation and employment for people with disabilities,” according to the DOL.

In determining whether a certificate should be approved, the DOL examines four criteria:

• the nature and extent of the disabilities as they relate to the individual’s productivity,
• the productivity of workers with disabilities compared to the norm established for workers without disabilities,
• the wage rates to be paid to workers with disabilities, and
• the prevailing wages of experienced local employees who are not disabled and are engaged in comparable work.

In 1989, the U.S. Congress amended the FLSA to require that subminimum wages be related to the individual’s productivity.

The current federal minimum wage is $7.25 per hour, but many states have set a higher state minimum wage. At least sixteen states have banned subminimum wages for workers with disabilities under state law.

Next Steps

The DOL will accept public comments on the proposed rule until January 17, 2025. President-elect Donald Trump will be inaugurated three days later, and his administration could decide to finalize this rule or not. If finalized, the rule could raise labor costs for some employers.

Employers may wish to review their pay policies in order to stay compliant with state and federal minimum wage and overtime rules. Employers also may wish to gather accurate data on how many employees receive subminimum wages and where those individuals work.