Special Minimum Wage Program:

Centers Offer Employment and Support Services to Workers With Disabilities, But Labor Should Improve Oversight

GAO-01-886: Published: Aug 3, 2001. Publicly Released: Sep 4, 2001.

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To prevent the curtailment of employment opportunities for disabled persons, the Fair Labor Standards Act allows employers to pay individuals less than the minimum wage if they have a physical or mental disability that impairs their earning or productive capacity. The Department of Labor's Wage and Hour Division (WHD) administers the special minimum wage program. More than 5,600 employers nationwide pay special wages to workers with disabilities; about 84 percent are work centers established to provide employment opportunities and support services to individuals with disabilities. Businesses comprise about 9 percent of these employers; the remaining 7 percent are hospitals or other residential care facilities and schools. Seventy-four percent of the workers paid special minimum wages by work centers have mental retardation or another developmental disability as their primary impairment, and 46 percent have multiple disabilities. From the data received by employers on the productivity of their disabled workers, it is estimated that 70 percent of the workers are less than half as productive as workers without disabilities performing the same jobs. Labor has not effectively managed the special minimum wage program to ensure that disabled workers receive the correct wages because, according to WHD officials, the agency placed a low priority on the program in past years.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Labor posted revisions to the Field Operations Handbook regarding the 14(c) program on its web site, as well as a series of fact sheets, to make information available to 14(c) employers.

    Recommendation: In order to ensure employer compliance with the requirements of the special minimum wage program, the Secretary of Labor should post the revisions of the sections of the Field Operations Handbook that relate to the special minimum wage program on Labor's web site so that they are available to employers.

    Agency Affected: Department of Labor

  2. Status: Closed - Implemented

    Comments: Labor conducted classroom training for all 14(c) investigators, management, and legal staff involved in 14(c) investigations, including staff conducting education and outreach. In addition, Labor incorporated a module on the 14(c) program into its basic investigator training course, which is a regular part of training for all Wage and Hour Division investigators.

    Recommendation: In order to ensure employer compliance with the requirements of the special minimum wage program, the Secretary of Labor should train staff in all its regions on the requirements of the special minimum wage program contained in the newly revised Field Operations Handbook and incorporate this training into its standard curriculum for investigators.

    Agency Affected: Department of Labor

  3. Status: Closed - Implemented

    Comments: Labor stated that its redesigned 14(c) certificate processing system, which became operational in 2002, would automatically alert the appropriate staff if an employer does not submit a completed application renewal package within 30 days of the certificate's expiration date, and a staff member will contact the employer. This information can be used to prevent unauthorized employers from paying special minimum wages, and to update its database on 14(c) employers.

    Recommendation: In order to ensure employer compliance with the requirements of the special minimum wage program, the Secretary of Labor should follow up with employers that do not respond to 14(c) certificate renewal notices to ensure that they do not pay special minimum wages to their workers with disabilities without authorization and use the information obtained from its follow-up efforts on employers who no longer have 14(c) certificates to update the database on 14(c) employers.

    Agency Affected: Department of Labor

  4. Status: Closed - Implemented

    Comments: Labor initiated investigations of a randomly selected sample of 14(c) employers to ensure compliance with special minimum wage program requirements. It found a high level of compliance for staff employees, but that 11 of every 100 "consumers" (workers paid under the provisions of section 14(c) of the Fair Labor Standards Act) were owed back wages. Most of the violations involved piece rate issues, such as the use of an incorrect prevailing wage rate when calculating the piece rate.

    Recommendation: In order to ensure employer compliance with the requirements of the special minimum wage program, the Secretary of Labor should conduct self-initiated investigations of a randomly selected sample of 14(c) employers in all regions and use the results to estimate the rate of employer compliance nationwide. After initially estimating the employer compliance rate, Labor should continue to systematically conduct self-initiated investigations of employers as indicated by the results of its compliance efforts, including its reviews of employers' 14(c) certificate applications and its investigations.

    Agency Affected: Department of Labor

  5. Status: Closed - Implemented

    Comments: Labor began a special project in November 2002, to collect and analyze information on employers' miscalculation of special minimum wage rates. The first review included data collected through February 28, 2002, and was completed later that year. Labor stated that both the data collection process and the data generated from this project are used to facilitate decisions regarding resource allocation for the 14(c) program.

    Recommendation: In order to obtain the data needed to properly manage the special minimum wage program, the Secretary of Labor should estimate, using the results of its reviews of 14(c) certificate applications and its investigations of 14(c) employers conducted in response to complaints, the rate at which employers miscalculate 14(c) workers' special minimum wage rates and use this information to determine the appropriate level of resources to allocate to oversight of the special minimum wage program.

    Agency Affected: Department of Labor

  6. Status: Closed - Implemented

    Comments: Labor stated that it is collecting and compiling these data by verifying the certificate application database, streamlining the application process, and that it redesigned the computer system used to issue certificates. The new system, which became operational in 2002, includes safeguards to protect the accuracy of the data. Labor also stated that it would use this information to set standards and determine the proper allocation of resources to this program.

    Recommendation: In order to obtain the data needed to properly manage the special minimum wage program, the Secretary of Labor should collect and compile data on the number, timeliness, and results of WHD's reviews of employers' 14(c) certificate applications and use this information to set performance standards for the timeliness of this process and to determine the appropriate level of resources to allocate to the special minimum wage program.

    Agency Affected: Department of Labor

  7. Status: Closed - Implemented

    Comments: Labor began recording the hours that staff spend on the 14(c) program in its database as of October 1, 2001. According to a Labor official, the agency is now using this information, along with the hours spent by its investigators on 14(c) enforcement, education, and outreach recorded in its database, to manage the program.

    Recommendation: In order to obtain the data needed to properly manage the special minimum wage program, the Secretary of Labor should track the number of staff hours WHD headquarters, 14(c) certification team members, 14(c) regional specialists, and investigators devote to managing the special minimum wage program, reviewing applications for new and 14(c) certificates and renewals, investigating complaints related to special minimum wages, conducting self-initiated investigations of 14(c) employers, and other tasks aimed at ensuring compliance with the requirements of the special minimum wage program and use this information to manage the program.

    Agency Affected: Department of Labor

  8. Status: Closed - Implemented

    Comments: Labor conducted a manual audit comparing all hard-copy records to its database to ensure that the information was properly recorded in the database. It deleted duplicate records and removed firms that no longer met the criteria for certification. In addition, the agency worked with academics from the University of Tennessee to finalize sampling methodologies to periodically and systematically sample the database to maintain its accuracy and integrity. Labor added a field to its certificate application form that indicates whether the employer is paying a special minimum wage to any employee. According to Labor, this data will allow it to identify and segregate employers who do not pay their workers special minimum wages from those who do. This new form was sent to employers as part of their certificate application renewal package. Finally, Labor made specific revisions to the form to improve data collection in the manner that GAO recommended. OMB approved the new forms and the Wage and Hour Division is now using them to issue 14(c) certificates to employers.

    Recommendation: In order to obtain the data needed to properly manage the special minimum wage program, the Secretary of Labor should improve the accuracy of its data on the number of 14(c) employers and workers by (1) deleting out-of-date and duplicate records in its database, (2) continuing to verify the accuracy of its database by periodically comparing it to information in Labor's paper files and correcting any discrepancies, (3) identifying employers that indicate on their 14(c) applications that they do not intend to employ any workers at special minimum wages and counting them separately from employers that do, and (4) implementing the suggestion in GAO's April 6, 2001, letter to the Director of the Office of Enforcement Policy, Wage and Hour Division for improving the 14(c) certificate application form.

    Agency Affected: Department of Labor

  9. Status: Closed - Implemented

    Comments: Labor conducted conferences for 14(c) employers that were well attended, and plans to conduct similar sessions in the future. The sessions included information designed to decrease the incidence of errors in the application process and the potential for violations by employers. In addition, the agency mailed fact sheets on the program to 14(c) employers.

    Recommendation: In order to ensure employer compliance with the requirements of the special minimum wage program, the Secretary of Labor should regularly conduct outreach sessions for employers in each region on the requirements of the special minimum wage program, with special emphasis on correcting errors identified in WHD's reviews of employers' 14(c) certificate renewal applications and investigations of employers.

    Agency Affected: Department of Labor

 

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